Oil: The Centerpiece of Venezuelan Wealth

Artifact #3

Oil:  The Centerpiece of Venezuelan Wealth

One thing I know about Venezuela, besides baseball, is that it has oil—lots of it.  So I wanted to investigate just how much it affects both the culture and the economy of the country.

Oil Rig on Lake Maracaibo

According to Cesar J. Alvarez and Stephanie Hanson in a paper from the Council on Foreign Relations, Venezuela has “proven oil reserves...among the top ten in the world.” They add that about 80% of the country’s total export revenue provides about 50% of government income.  That means that all other industries and services together provide the rest.  (2009, February 9)  The development of oil fields, production, refining, and export of oil are all the responsibility of the government oil company Petróleos de Venezuela, SA (PDVSA).  This company is state owned and includes subsidiaries formerly owned by foreign businesses (e.g., Shell, Exxon) before Venezuela nationalized them in 1976.

Lake Maracaibo Basin

Venezuela has the largest reserves of oil in the Western Hemisphere. Two regions of the country contain these oil fields.  The larger one lies in the northwest under Lake Maracaibo, the Caribbean and small islands.   Most of that oil is light, heavy crude. The smaller one in the southeast lies under the Orinoco River Delta and continues into Brazil; that oil is extra-heavy, tar-like crude, and is more difficult to refine.(Wilpert, 2003, August 30) The importance of oil to the culture and economy of Venezuela is shown by its being written into the nation’s constitution in 1999, under the presidency of Hugo Chavez.

Orinoco River Delta

For every barrel of oil produced from these oil fields, PDVSA must pay a royalty of 30% to the state.  According to hydrocarbon laws, “…all state activity related to oil exploration and production are to be dedicated to the public interest.” (Wilpert, G. 2003, August 30)  Who and what benefits, then, from the use of this revenue? 

Caracas Shantytown

Since Hugo Chavez came into office in 1998, he has formulated a plan to use these funds to benefit the poor through his “third way,” a kind of socialism especially dedicated to spreading land ownership, health care, and education for the poor.  He has created special schools to increase literacy rates among the poor; he has expropriated land holdings to give title to the millions of poor who squatted on land in the slums of the larger cities; he has arranged with Cuba to provide them with oil at a 40% discount in exchange for medical treatment in Cuba as well as the staffing of newly formed, free medical clinics in Venezuela by Cuban doctors and nurses. (Alvarez & Hanson, 2009, February 9)   

According to Francisco Toro in the Guardian, the

…near-mystical bond with the poor is the most important of the assets that oil funds.  Chavez has been careful to keep the spigots open, channeling a constant stream of populist giveaways to his supporters.  An oil-for-appliances deal with China, for example, has allowed Venezuela to import more than 3m Chinese-made stoves, refrigerators, washing machines, air conditioners and flat-screen TVs, goodies handed out directly to governing party supporters as part of “My Well-Stocked Home” – a government social program, whose logo includes the comandante president’s face.  (2012, September 27)

Supporters of President Chavez
at Election Rally

While Toro’s remarks indicate a negative view of Chavez’s motives, the recent election results from this month indicate that his policies draw huge support from a large number of Venezuelan voters.  In 2007, PDVSA spent $14.4 billion on social programs (Alvarez & Hanson, 2009, February 9). 

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Oil revenues have indeed been important in changing the lives of many Venezuelans for the better and in giving those with little hope for a decent life, the chance to have something more.  Oil has affected the economy, the politics, and the living conditions of the entire culture.  According to Wilpert, about 45% of Venezuelans in the formal economy work for the state in a bureaucracy which, he suggests, discourages entrepreneurial development.  Many economists express concern about the dominance of oil in the long-term interests of the country.  Because so much of its revenues come from oil, Venezuela is subject to the hazards of price fluctuations on the world market as well as inflation.  In many ways, it has put most its eggs in one basket and at present, the government has not invested nearly enough in other economic assets.

I have enjoyed learning about the part that oil plays in the economy as well as how Chavez uses that oil wealth to assist the poor.  He has also used it to influence the policies of OPEC (Organization of Petroleum Exporting Countries) to maintain a stable oil pricing strategy among all its members.  Finally, the government has been active in working to counter the influence of the United States in Latin America with trade and investment deals with Argentina, Brazil, Colombia, Bolivia, Ecuador, and Cuba.




CITGO Headquarters, Houston

CITGO Refinery
in Lemont, IL

I have learned that the Venezuelan Petroleum Company is the world’s 3^rd largest oil company, behind Saudi Aramco and ExxonMobil.  Did you know that through PDVSA, Venezuela bought CITGO oil in the US and now owns “one of the world’s largest refiners” in our own country? (Alvarez & Hanson, 2009, February 9)  Truly, oil is perhaps Venezuela’s most important cultural artifact, as it benefits the people in many ways and gives its government striking international influence among other nations. 

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Reference List

Alvarez, C.J. & S. Hanson. (2009, February 9).  Venezuela’s oil-based economy.  Council on Foreign Relations. Retrieved on October 23, 2012 from  http://www.cfr.org/economics/Venezuelas-oil-based-economy/pl12089.

Toro, F. (2012, September 27). The Hugo Chávez cult is over.  The Guardian.  Retrieved on September 27, 2012 from

       http://www.guardian.co.uk/commentisfree/2012/sep/27/hugo-chavez-cult-oil-venezuela?newsfeed=true.

Wilpert, G. (2003, August 30).  The Economics, culture, and politics of oil in Venezuela.  Venezuelanalysis.com. Retrieved on September 27, 2012 from http://venezuelanalysis.com/analysis/74.