Why Venezuela Is Poor Despite Having The World's Largest Oil Reserves

Venezuela holds the largest proven oil reserves in the world, estimated at roughly 303 billion barrels, yet it consistently earns a fraction of what other major exporters do from crude exports and suffers one of the most severe economic crises in Latin America.

Venezuelan President Nicolas Maduro's capture is the latest in a series of setbacks for the Latin American nation.

Oil Rich, Wealth Poor

At face value, Venezuela should be immensely wealthy. Its oil reserves outstrip those of Saudi Arabia and the United States combined. But the country's oil exports generated only about $4 billion in revenue in 2023, a tiny share compared with Saudi Arabia's roughly $181 billion, according to an Al Jazeera report. This mismatch between reserves and export income is a central part of Venezuela's "cash poor" condition.

Several structural factors help explain this gap:

• Venezuelan oil is overwhelmingly extra-heavy crude, primarily from the Orinoco Belt, which is more expensive to extract and refine and sells at a discount.
• The state oil company, PDVSA, has suffered from years of underinvestment, mismanagement, and aging infrastructure.
• Government subsidies have kept gasoline extremely cheap domestically, reducing export incentives and fiscal revenue.

Political, Economic Mismanagement

Experts point to decades of policy missteps that undermined the oil sector and the broader economy.

Under Presidents Hugo Chávez and Maduro, oil revenue was diverted to fund social programs, subsidies, and political spending rather than being reinvested in technology, maintenance, and diversification, according to a DW report.

Chávez's frequent reshaping of PDVSA and purges of technical staff weakened institutional capacity.

The Resource Curse

By the late 20th century, Venezuela had become dangerously dependent on crude exports for government revenue, foreign exchange, and social spending. Oil accounted for more than 90% of export earnings at its peak, according to World Bank data. This extreme concentration exposed the economy to oil price volatility while discouraging investment in agriculture and manufacturing — a textbook example of the resource curse, a concept widely documented in economic literature.

Instead of using oil income to build a diversified economy, Venezuela allowed petroleum revenue to crowd out other sectors, leaving growth tied almost entirely to crude prices.

The broader economic collapse is tied to this governance failure. According to an analysis of Venezuela's crisis by The Borgen Project, extreme dependence on oil hurt resilience when oil prices fell sharply in the 2010s, leaving the government with massive deficits and few alternatives.

Inflation accelerated, eroding incomes and savings, and by the late 2010s, Venezuela experienced one of the worst hyperinflations in modern history.

Sanctions, Isolation, And External Pressures

Overlapping with longstanding domestic challenges are international sanctions and geopolitical pressures. U.S. sanctions targeting Venezuelan oil exports and financial transactions have restricted the country's access to global markets and financing, reducing exports and investment.

These measures, intensified under successive U.S. administrations, including renewed pressure in the 2020s, have contributed to lower export volumes and logistical obstacles.

For example, tightening U.S. enforcement has dramatically limited PDVSA's ability to sell oil globally, leading to situations where storage tanks fill with unsold petroleum because tankers won't risk sanctions-related repercussions, according to a report by Reuters.

While a few sanctioned and unsanctioned tankers still arrive, overall exports remain well below potential.

Saudi Arabia: Oil Managed As Capital

Saudi Arabia demonstrates that oil dependence need not lead to collapse. Like Venezuela, it nationalized its oil sector, but unlike the Latin American nation, Riyadh has insulated oil operations from day-to-day politics and encouraged professional management under a long-term economic reform plan known as Vision 2030.

Under this strategy, oil surpluses are not just spent but saved and invested through the Public Investment Fund — one of the world's largest sovereign wealth funds — which is aligned with the country's diversification goals and has expanded its asset base through transfers of state oil company shares.

As a result, the contribution of non-oil economic activity has risen to nearly half, according to data from the Ministry of Economy and Planning's analysis of data issued by the General Authority for Statistics (GASTAT).

A Sharp Contrast: Norway

In contrast to the Venezuelan model, Norway avoided the resource curse by treating oil as an inheritance rather than income.

Petroleum revenues flow into the Government Pension Fund Global, now the world's largest sovereign wealth fund, while a strict fiscal rule limits government spending to roughly 3% of the fund's expected return.

At the same time, the state-majority oil producer, Equinor, is run commercially under a transparent, rules-based system.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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