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Venezuela’s Energy Security Background History

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Venezuela is the largest oil reserve country in the world and once it was the richest country in Latin America but it faces the largest social, political and economic crisis in the world today. And the problem of Venezuela is not about natural disasters or civil war but because of economic mismanagement of the country’s leader. The current situation in Venezuela is very critical.

Background History in Chronological Order

Around the 10th century in ancient Venezuela, indigenous tribes discovered oil seeping through the land. It is not refined oil. During that time science and technology yet to developed. So that time that black thick liquid they used domestic purpose as to the light lamps and for making medicines. Actual extraction of oil was beginning much later.

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In 1922, a huge oil well was discovered in Venezuela. When people of Venezuela were drilling inside that oil well come out in a very high speed and shot in the sky more than forty meters high, it took more than nine days to manage it. Since then foreign companies like Conoco Philips and ExxonMobil etc. rushed into the country and started to invest and the oil industry in Venezuela developed massively. And non-oil based industries in the country become less important.

In 1928, Venezuela became the largest oil exporter in the world. The value of the Venezuela currency also increased rapidly. But other non-oil based industries were suffered a lot because everyone runs after oil companies. Global demand for oil keeps on increasing and during the second world war, Venezuela was producing close to one million barrel per day.

Since 1950s middle east oil producing nations began exporting a large amount of oil. Soon supply of oil overtake demand of oil and the oil price began to fall. That is because of oil producer increased and demand remain the same number. And then in 1959 the first five OPEC members nations Venezuela, Kuwait, Iran, Iraq, and Saudi Arabia met to decide a future strategy. They formed OPEC in 1960, whose main aim was to bring oil prices back up to a reasonable level by regulating the supply. Also decided no more overproductions. But still oil prices continue to fall and in 1970 had reached a price of $3.4 per barrel.

The 1973 Arab Israeli war created the global oil crisis. Because Arab OPEC nations stopping trade with the united states and other nations in response to their support for Israel. Global oil price shot up to $37 per barrel by 1980 and the Venezuelan quadrupled their revenues. The oil industry was nationalized and the OPEC members began breaking their production quota promises and produced more oil to take advantages of the high prices but demand was decreasing as the world economy was slowing down. By 1986 oil prices had reached a low of $14 per barrel and did not see a significant recovery until 1999.

Economic Mismanagement

High Government Spending Money

In 1999 Hugo became the president of Venezuela and since 1999 developing nations like India and China started to import a huge amount of oil in the country. India and China importing a large amount of oil from Venezuela. so, President Hugo had made a lot of money from oil. Unfortunately, he spent all the oil money in his social program called “Bolivarian mission” that was supposed to improve living conditions for the poor and also attempt to promote economically. At that, he has succeeded these programs. And he became very popular in society. He was able to reduce unemployment from 14.5% in 1999 to 7.8% in 2011. Reduced poverty rate from 50% in 1999 to 31.9% in 2011 and an extreme poverty rate from 19.9% in 1999 to 8.6% in 2011. These social programs are good for people but bad for economics. President Hugo Chavez spent more money on the social program that the country could really afford. Spending more money than earn from there is a shortage of money. He also borrowed money from other countries to keep going on the programs. He was warned as going fiscal deficit is out of control in early 2002 but he didn’t pay attention to the warning. These social programs made him popular in the country and it’s very important to him because it was a way for him to maintain power. By 2013 Venezuela foreign debt reached $106 billion. In 2013 President Hugo died and Maduro became the President of Venezuela. Nicolas Maduro followed Hugo’s footsteps. He continues to carry the program without money and keep on take loans from other nations like China. Since 2014 oil price also falls down.

Food Crisis

Venezuela’s economic crisis has made headlines all over the world for the past few years. Hunger is widespread there. They are telling that they are a billionaire but they don’t have food to eat. Unable to afford the small amount of food available in supermarkets, many Venezuelans have to eat garbage to survive. Even zoo animals in Venezuela are starving and people have been breaking into zoos to eat them. And the food crisis has also created an education crisis, as more than 1 million children no longer attend school, mostly due to hunger and a lack of public services. Venezuela’s current situation is an unprecedented man-made humanitarian crisis. notes some of its major social problems, including extreme food and medicine shortages, increasing crimes in every city, constant electric blackouts, looting and repression.

Hyperinflation in Venezuela

Venezuela is it’s out of control inflation. which is also known as Venezuelan Hyperinflation. what is hyperinflation means? hyperinflation is very high, rapid, and continuous inflation. In a hyperinflation situation, the prices of goods and services in an economy quickly rise to a level so high that they become difficult to afford for most people. So this is happening in Venezuela. For instances, a cup of coffee cost 450 bolivars in 2016 and in 2018 cost 2.5 million bolivars. Three million for a roll of tissue paper. One KG Tomato cost 5 million. Venezuela’s currency is so devalued and some of the shop keepers weight their money rather than waste time counting.

India and Venezuela Relations

India is Venezuela’s third-largest buyer of crude oil after the US and China. Venezuela is the fourth-largest oil supplier for the Indian market, after Iraq, Saudi Arabia, and Iran. Venezuela was currently supplying 400,000 barrels of oil per day to India. So Venezuela plays very important roles in the Indian oil sector. The USA is not allowing to use the international system to conduct transactions in dollars and euros in Venezuela. Therefore, India and Venezuela had set up a rupee payment mechanism.

On January 23, 2019, Juan Guaido, president of the national assembly declared himself as the President of Venezuela. On the same day, the United States, Canada, and Latin American countries recognized Guaido as the president of Venezuela, instead of Maduro. Later on, some of the European nations also joined the US in recognizing Guaido as a president. On the other side, Russia and China are supporting Maduro as a legitimate president.

India had not joined any one of these two sides. At the same time, New Delhi had not referred to the government of Venezuela but mentioned that people in the Latin American country should find a political solution through dialogue. And also from Indian side stating that people of Venezuela to find political solutions to resolve their differences through constructive dialogue and discussion without resorting to violence. It shows that India is not interested or interfering Venezuela’s internal matters. Venezuela is playing a very important role in the Indian oil sector. It’s very risky to interface internal matters. So Indian side not taking huge risks and encouraging Venezuela’s people to solve their problems through dialogue.

China Strategic Interest in Venezuela

Venezuela’s economy went very critical since oil price fall in 2014. And then protest in Venezuela have been so tough. And People of the country protesting to Maduro’s presidency. But President Maduro had managed to staying in power. So how did he manage it? This is because his office is consistently receiving money from China. last year 0n 14th Sep 2018 he made a state visit to China. Why would China continue to support a man who is probably on his way down?

China has invested heavily in Venezuela and Venezuela was a key part of the belt and road initiative. That’s the Chinese regime trade and infrastructure investment strategy. China gives developing country for infrastructure loan. And these countries maybe can pay back and when they don’t pay them back. China takes all the infrastructure. It works great around the world like Sri Lanka and Pakistan.

Sri Lanka formally handed over the strategic port of Hambantota to China on a 99-year lease. Sri Lanka owes more than $8 billion to state-controlled Chinese firms. Hambantota deal, valued at $1.1 billion. Sri Lanka has found themselves owing debts they cannot pay.

CPEC has been in operation for almost three years and the governments of Pakistan and China both claim that it’s had a significant positive impact in Pakistan’s economy. But CPEC is creating a debt trap for Pakistan which will result in Pakistan’s continued economic dependence on China. Pakistan has no choice but to borrow up to $2 billion in fresh loans from China just to avoid a balance of payments crisis. The government has claimed that the peak value of Pakistan’s debt servicing in 2024 will be just $527 million.

Over the past ten years’ China invested $70 billion in Venezuela. That’s about half of all China’s lending in Latin America and this the policy of Beijing to continue oil supply. And oil price goes down in 2014 and that created a huge problem. Now they have to supply more oil to China without getting a single penny. And China has a plan for that when other countries failed to pay back the loan to China. China just takes over and build a military base or something else. Looks like there is a similar plan in Venezuela.

Now nearly every Latin America country, USA, several European countries, etc. supporting the new interim president. And what happened if Juan Guaidó replaces Maduro? Would he rethink some of those Chinese loans? That’s what happened in Malaysia? Former Malaysian Prime Minister Najib Razak, his government’s contracts on expansive infrastructure projects with Beijing. At the other extreme, when Mahathir Mohamad returned to the government in this May, saying that he might cancel those projects because of the government’s huge deficit and the possibility of default. He has confirmed that the government will back out of two major infrastructure projects led by Chinese companies due to the expense of the projects, which cost approximately US$22 billion.


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