Venezuela's proven oil reserves are among the top ten in the world. Oil generates about 80 percent of the country’s total export revenue, contributes about half of the central government’s income, and is responsible for about one-third of the country’s gross domestic product (GDP). Increases in world oil prices in recent years have allowed Venezuelan President Hugo Chavez to expand social program spending, bolster commercial ties with other countries, and boost his own international profile. Though Chavez has threatened to stop exporting Venezuelan oil and refined petroleum products to the United States, its biggest oil-trading partner, experts say a significant short-term shift in oil relations between Venezuela and the United States is unlikely. The medium-term outlook for state oil company PDVSA is questionable, however, and analysts draw links between PDVSA's profitability and the political stability of the country. Analysts say the recent global financial crisis and sudden drop in oil prices are adding to the oil company's financial turmoil. Venezuela's oil is exceptionally important to both Venezuela itself and to the rest of the world. As such, the army is regularly enlisted to protect output by defending installations, tankers and refineries. That's because oil is so important to Venezuela that it has also become a target for attacks. When protesters really want to make their message hit home, they target the oil industry.
Venezuela's Economy Under Chavez
Hugo Chavez took office in 1999. Since then, Venezuela’s economy has remained squarely centered on oil production. In 2006, Chavez announced a nationalization of oil fields managed by foreign companies, which resulted in an increase of the government’s shares in these projects from 40 percent to 60 percent. Government officials argue, however, that economic growth efforts are not solely focused on oil. Venezuela’s ambassador to the United States, Bernardo Alvarez Herrera, wrote in a 2006 Foreign Affairs essay that the non-oil sector, which includes mining, manufacturing, and agriculture, grew 10.6 percent in 2005, “indicating an important diversification of the country's economy.” Yet even if the country is working to diversify, “oil still predominates, “says Miguel Tinker-Salas, a professor of Latin American history at Pomona College.
In 2002, the Venezuelan economy experienced a significant downturn following a failed military coup to overthrow Chavez and a two-month strike by the state-run oil company PDVSA. The response to the strike—the dismissal of more than seventeen thousand PDVSA employees—resulted in a rapid drop in GDP between 2002 and 2003. In subsequent years, rising international oil prices helped the economy to recover.
It was controversy over the state-owned oil firm, for example, that acted as the catalyst for last April's coup which temporarily ousted President Hugo Chavez from power. And Mr. Chavez is left with no doubt about the source of his political and economic power.
World's Top Oil Exporters
Saudi Arabia - 320m tones
Norway - 146m tones
Russia - 144m tones
Iran - 116m tones
Venezuela - 115m tones
Source: IEA 2000
"It's as if the doctor, who's supposed to be looking after your heart, suddenly tries to stop it," Mr Chavez said about the latest attempts to disrupt supply. In 2007, the International Monetary Fund (IMF) estimates, economic growth was 8.4 percent.
Opinion is divided over the effect of Chavez's policies on Venezuela's economy. Some economists say the tremendous rise in social spending under Chavez has greatly reduced poverty and pushed unemployment below 10 percent, its lowest level in more than a decade. According to a February 2008 report from the Washington-based Center for Economic and Policy Research, not only has unemployment dropped, formal employee has increased significantly since Chavez took office. But other economists express concerns about...