For the last decade, Venezuela has been an enormously rich country moving further and further towards complete ruin and poverty. The process began when the government there started throwing out the international oil companies that had run the wells which produce the overwhelming bulk of the country's wealth. As president Chavez continued in office, he adopted more and more policies that made it difficult for companies to function in Venezuela. After Chavez died and Maduro gained office, that process has continued. Oil production has stagnated because of the lesser competence of the people running to oil fields. All manner of industrial production sagged dramatically because of the interference by the government. The result has been declining national income, shortages of many basic products, and major unhappiness among the people. Maduro's response has been to blame the shortages on the USA and a "conspiracy" to undermine the nation. There are just enough people in Venezuela who accept this explanation to keep Maduro in power.
Now things have changed. The price of oil on the world market is roughly 30% than it was just a few months ago. For Venezuela, this is a calamity or extreme importance. The reduction in the oil price comes right out of the profits of the government oil company. It cuts tax revenue in major ways. It forces Venezuela to use meager financial reserves to keep going. On top of this, Maduro has just announced that he is cutting the cost of many basic staples of daily life. This move is designed to prevent unrest due to the impact of the falling oil prices, but it puts yet another burden on the staggering Venezuelan economy. If nothing changes soon, Venezuela may reach the point of collapse.
So what effect would the collapse of Venezuela have here in the USA? The obvious impacts would be on American companies that still do business in Venezuela. Most likely, the entire value of investments in that country will end up being lost if Maduro stays in office long enough to bring things to a final collapse. In addition to the loss of the business community, oil production from Venezuela will also likely falter. This would remove some of the pressure for lower prices in the oil market, but it would take a while for the real impact to be felt. A bigger problem, however, would come if Venezuela falls prey to social unrest. This sort of upset could spread from Venezuela to its neighbors in South America.
The falling oil prices around the world are basically due to three things: 1) the major increase in production in the USA due to drilling in shale; 2) the willingness of the Saudis to increase their own production despite the current oversupply of oil on the market; and 3) the reduction in demand which has been the result of many conservation measures and alternative energy sources during the last decades. None of these causes have anything to do with the CIA or any international scheme directed at Venezuela, but that does not stop the Maduro government from claiming just the contrary is true. Even worse, there are other countries in South America where the Maduro explanation blaming the CIA is widely accepted. For example, in Bolivia, the government would accept just about anything negative blamed on the CIA.
What all this means is that should Venezuela collapse due to the mismanagement of its own economy and falling oil prices, many of its neighbors will blame the USA even though America had nothing to do with the collapse.
Right now, president Obama and his administration are paying absolutely no attention to South America. This is a mistake. We don't need a trip by Obama to the region or another of his speeches. America needs to develop a coherent policy about how to deal with the region and, in particular, the looming collapse of Venezuela. Then (gasp!) we need actually to implement that policy.
Now things have changed. The price of oil on the world market is roughly 30% than it was just a few months ago. For Venezuela, this is a calamity or extreme importance. The reduction in the oil price comes right out of the profits of the government oil company. It cuts tax revenue in major ways. It forces Venezuela to use meager financial reserves to keep going. On top of this, Maduro has just announced that he is cutting the cost of many basic staples of daily life. This move is designed to prevent unrest due to the impact of the falling oil prices, but it puts yet another burden on the staggering Venezuelan economy. If nothing changes soon, Venezuela may reach the point of collapse.
So what effect would the collapse of Venezuela have here in the USA? The obvious impacts would be on American companies that still do business in Venezuela. Most likely, the entire value of investments in that country will end up being lost if Maduro stays in office long enough to bring things to a final collapse. In addition to the loss of the business community, oil production from Venezuela will also likely falter. This would remove some of the pressure for lower prices in the oil market, but it would take a while for the real impact to be felt. A bigger problem, however, would come if Venezuela falls prey to social unrest. This sort of upset could spread from Venezuela to its neighbors in South America.
The falling oil prices around the world are basically due to three things: 1) the major increase in production in the USA due to drilling in shale; 2) the willingness of the Saudis to increase their own production despite the current oversupply of oil on the market; and 3) the reduction in demand which has been the result of many conservation measures and alternative energy sources during the last decades. None of these causes have anything to do with the CIA or any international scheme directed at Venezuela, but that does not stop the Maduro government from claiming just the contrary is true. Even worse, there are other countries in South America where the Maduro explanation blaming the CIA is widely accepted. For example, in Bolivia, the government would accept just about anything negative blamed on the CIA.
What all this means is that should Venezuela collapse due to the mismanagement of its own economy and falling oil prices, many of its neighbors will blame the USA even though America had nothing to do with the collapse.
Right now, president Obama and his administration are paying absolutely no attention to South America. This is a mistake. We don't need a trip by Obama to the region or another of his speeches. America needs to develop a coherent policy about how to deal with the region and, in particular, the looming collapse of Venezuela. Then (gasp!) we need actually to implement that policy.
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