Shipwreck standing on the beach with the sea in the background. Margarita Island. Venezuela. Photo courtesy of DollarPhotoClub.com
Devastation in the oil industry and food supply chain in Venezuela is due to intentional government policies.
One article sees how the government caused the damage to the oil industry while another article sees the devastation in the food supply but cannot see any direct cause.
(Cross-post from my other blog, Outrun Change.)
5/7/17 – Forbes – How Venezuela Ruined Its Oil Industry – Here is a primer on how to destroy your oil industry when you have the world’s largest proven reserves of oil and are in the top 10 of world oil producers.
If you want to destroy your country, the article provides a how-to-guide, using Venezuela as the road map.
The high point of oil production in Venezuela was 3.5M bopd back in 1998, which not by coincidence was the year Hugo Chavez became president. Production then began to slip. How could that be?
After civil unrest in 2002 and 2003, Chavez fired much of the staff of the national oil company, letting go 19,000 experienced staff.
Let me translate that: 19,000 staff who knew how to produce extra-heavy oil were fired and replaced by people whose primary job skill was loyalty to the president.
Extra heavy oil takes specialized knowledge and is very expensive to produce on top of oil production already being capital-intensive.
To generate more revenue, Venezuela invited five of the oil majors to develop more oil production. The form of investment was a partnership. The five majors invested many billions of dollars in oil production.
In 2007, the government got greedy because of the cost of social programs to buy off voters.
To feed the budget, the government tried to take much of the investment in the oil fields by telling the 5 majors to rewrite the partnership deals giving the government most of the ownership.
Three companies voluntarily turned over most of their ownership. The two that did not had all their assets expropriated.
Let me translate again: the government said give us your assets voluntarily or we will take them at gunpoint. Three chose ‘voluntarily’ and two chose gunpoint.
Maintaining production requires massive reinvestment. The government diverted their newfound cash flow into social programs instead of reinvesting in production. After all, socialism is expensive when you have promised to give everything to everyone.
As a result, production dropped further as the reinvestment in facilities was slashed.
As a result of the intentional policies of the government, production fell to 2.6M bopd in 2015.
That is a 20% fall in Venezuelan production in the same time frame as U.S. production has climbed 86%, according to the article.
So if you want to destroy your leading industry, you now have an example to follow.
Next, an article that sees a humanitarian crisis but can’t quite put together the pieces of the puzzle to explain how it happened…
5/22/17 – Washington Post – Venezuela’s paradox: People are hungry, but farmers can’t feed them – The widespread hunger in Venezuela is Wall Street’s fault.
Don’t take my word for it. Check out the fifth paragraph in the section captioned ‘The Maduro Diet.’
The government has less hard currency because of the drop in oil prices. Over the years the nation has relied more and more on imported food to feed people (by the way, that just sort of happened, with no explanation provided in the article as to why).
The government is holding on to the hard currency and instead of using it to import food so people can eat is actually using the hard dollars…
…to pay back high-interest loans from Wall Street and other foreign creditors.
Instead of feeding the populace, the government has to pay back exorbitantly high rate loans.
According to the article, I guess that means President Maduro is correct: It’s Wall Street’s fault.
Of course, even the Post can’t avoid pointing out a huge number of indicators of human suffering and even points out some government policies that may have perhaps, possibly, made the situation worse.
Indications of suffering mentioned in the article:
- Rising malnutrition
- Skyrocketing infant mortality
- Average weight loss in the country is 19 pounds over the last 12 months
- People are picking through garbage heaps trying to find scraps to eat
- A pound of rice costs US$1 on the black market but at official exchange rates that is a full days pay
- Number of animals worked by farmers is shrinking as is the average size of animals
- Total number of cows in the country has dropped from 13M five years ago to around 8M now
- Pigs on farms are so desperate for something to eat that they are nibbling off the ears of newborn pigs
Some government policies that had some tiny, minor, trivial role to play:
- 10,000,000 acres of farm land has been nationalized, meaning the government took 15,600 square miles of producing farmland from farmers without paying them for the land
- Nationalization of food distribution
- Nationalization of food processing
- Currency restrictions and distortions, which mean that chicken ranchers can’t get the feed they need to raise healthy, full-weight chickens
- Farmers are selling their crops and animals for less than what it takes to buy another animal or put in another crop
The article says the level of hunger now visible in Venezuela usually only happens when an area is hit by a war, hurricane, or drought.
Yet none of those causes are in play. I wonder what could have caused this economic collapse?
Only indication of what economic system in play in Venezuela is a one-word reference to the ‘socialist government’ in the first paragraph.
Second paragraph wonders why farmers in the country are not taking advantage of the reduced imports of food to increase their own production and make lots of money from the opportunity.
After all, farmers are blessed with sunshine, water, land that is fertile, and gasoline that costs 4 pennies per gallon.
What possible reason could there be that farmers and ranchers are not taking advantage of such an incredible opportunity?
Gosh, neither the author of the article nor I can figure out the answer. For some unexplained reasons, the farmers can’t figure that out either.
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