Venezuela - a closed-loop chain of cause and effect

Oil creates an illusion of capacity (1999–2012)
- Venezuela with 17% of the global reserves, surpassing even Saudi Arabia.
- During Hugo Chávez's rule, the global oil price boom also drove Venezuela's GDP to soar, peaking around $350B
The issue is:
- No signs of industrial growth
- No productivity improvements
- No export diversification
-> The economy grew rapidly thanks to an external factor, the oil price, which increased too quickly and obscured the effective use of state capital, while vigorous domestic consumption masked a sharp decline in labor productivity. GDP growth was not supported by a solid production foundation. The "resource curse" trap prevented the government from implementing reforms.

Dollars from oil sales also caused economic disruption
- Foreign currency earned from oil made the local currency unnecessarily strong
- Imports became cheaper than domestic production
- Venezuela's agricultural output peaked at the oil price bottom in 2009
-> The economy developed a semi-oil model, importing everything else. The lack of government intervention led to the collapse of domestic manufacturing.

The temporary feeling of wealth when oil prices hit record highs even led the government to replace reforms with redistribution
- Budget was overly abundant thanks to oil sales -> reform pressure disappeared
- PDVSA was politicized as revenue was embezzled, and maintenance and reinvestment in refining systems and pipelines were cut
- The 2002 oil strike, which had already destroyed the core technical team (to be replaced by personnel loyal to the government)
-> Oil was politicized to protect the power of a vested interest group, leading the country into the ground.

US oil import data from Venezuela shows exports peaked in the early 2000s
-> Gradually declined after Chávez took power. US sanctions in 2017 only added fuel to the fire, not the root cause. Production declined because Venezuela lost its extraction capacity, not because of the market.

Everything became clearer after oil prices peaked post-2014:
- Global oil prices collapsed
- Venezuela lost foreign exchange income but had no alternative industries; oil output did not recover for the reasons above
- The government printed money to cover the budget, leading to hyperinflation
- The economy has completely collapsed in a literal sense.
- The rest is history.

The economy grew rapidly thanks to an external factor, the oil price, but in reality, its capacity lies in organizing production, allocating capital, maintaining necessary institutional regulation, and remaining relatively stable even when external conditions change — yet these have not improved.
This is why we should not boast about abundant resources like gold forests, seas, minerals, and ores, as they have never reflected sustainable economic capacity. Does Venezuela still have oil? Yes.
But the ability to exploit oil cannot be quickly regenerated overnight, especially when Venezuela has missed golden opportunities to improve it and enhance the endogenous capacity of its economy.