A Different View of Venezuela’s Energy Problems

It would be easy to write a story about Venezuela’s energy problems and, in it, focus on the corruption and mismanagement that have taken place. This would make it look like Venezuela’s problems were different from everyone else’s. Taking this approach, it would be easy to argue that the problems wouldn’t have happened, if better leaders had been elected and if those leaders had chosen better policies.

I think that there is far more behind Venezuela’s financial and energy problems than corruption and mismanagement.

As I see the story, Venezuela realized that it had huge oil resources relative to its population, back as early as the 1920s. While these oil resources are substantial, the country misestimated how high a standard of living that these resources could support. To try to work around the issue of setting development goals too high, the country chose the path of distributing the benefits of oil exports in an almost socialistic manner. This socialistic approach, plus increased debt, hid the problem of a standard of living that could not really be supported for many years. Recent problems in Venezuela show that these approaches cannot be permanent solutions. In fact, it seems likely that Venezuela will be one of the first oil-exporting nations to collapse.

How the Subsidy from High-Priced Exported Oil Works 

Oil is a strange resource. The cost of oil production tends to be quite low, especially for oil exporters. The selling price is based on a world oil price that changes from day to day, depending on what some would call “demand.” The difference between the selling price and the cost of extraction can make oil exporters rich. In a sense, this difference might be considered an “energy surplus” that is being distributed to the economies of oil exporters. The greater the energy surplus being distributed, the greater the quantity of goods and services (made with energy products) that can be purchased from outside the country with the hard currency that is made available through the sale of oil.

In fact, the existence of such a profitable resource tends to crowd out development of other, less profitable, enterprises. Thus, Venezuela has tended to be a country whose economy revolves around oil. There is a small amount of agriculture and quite a bit of services, but for the most part, the goods used by the economy must be purchased from outside the country. Furthermore, nearly all of the revenue that is available to purchase these goods comes from the sale of oil exports. Thus, the economy tends to follow the fortune of oil sales.

Figure 1 shows a rough estimate of the benefit that Venezuela’s oil exports have provided in inflation-adjusted US dollars. Based on this approach, the per capita benefit from oil exports seems to have peaked very early, in about 1981.

Figure 1. Venezuela per capita value of oil exports, calculated by multiplying Venezuela’s year-by-year quantity of oil exports by the price in 2017$ of oil, and dividing by estimated population. Both price and quantity determined using BP 2018 Statistical Review of World Energy. Population based on 2017 United Nations middle estimates.

The people of Venezuela did not realize that the amount of benefit that oil exports would provide would start falling very early. Instead, leaders set their sights on living standards that would be affordable if the level of subsidy that the economy could obtain from oil exports were to remain as high as during the 1973 to 1981 period.

Figure 2 shows how much energy the population, on average, consumed over the 1965 to 2017 period. This figure shows that energy consumption per capita rose dramatically between 1973 and 1981. In this way, citizens were able to benefit from the huge rise in per capita oil export revenue, shown in Figure 1.

Figure 2. Energy consumption per capita for Venezuela, based on BP 2018 Statistical Review of World Energy data.

This higher level of energy consumption meant that the economy readjusted in a way that added more goods and services using energy. For example, the economy added paved roads, airports, schools, electricity generating capacity and healthcare. People came to expect this higher standard of living going forward, even if the level of subsidy that oil exports had been adding was rapidly disappearing.

The way the amounts in Figure 1 “work” is that they depend both on the quantity of oil exported and the market price for that oil. If Venezuela’s oil exports are not rising quickly enough, or if the price of oil is not high enough, the level of oil subsidy fails to rise enough to support the economy. Also, rising population becomes an issue because as population rises, more homes, cars, electricity, streets, and other goods (requiring energy consumption) are needed. Because Venezuela must import practically everything other than oil, it must either (a) export an increasing quantity of oil per year, or (b) get an increasingly high price for the oil it exports, if it wishes to support its rising population at its chosen standard of living.

It became evident very early that Venezuela had set its sights on a living standard that was far higher than it could really support. In the period since 1965, Venezuela’s first debt crisis took place in 1982, as the subsidy suddenly started falling. Later debt crises occurred in 1990, 1995, 1996, 1997, 1998, 2004, and 2017. Clearly, as soon as the per capita subsidy started falling in 1982 (see Figure 1), Venezuela’s economy became very troubled. It could not really support its chosen standard of living.

How could Venezuela hide the problem of an unsupportable living standard for over 35 years?

I see three major ways the insupportable living standard could be hidden:

(a) Pushing the problem off into the future using added debt

Nearly everyone is willing to believe that oil prices will rise as high as is needed to extract oil resources that seem to be available with current technology. Would-be lenders are also willing to believe that oil resources can be extracted as rapidly as needed to support the economy. Given this combination of beliefs, Venezuela has had little difficulty adding more debt, even in periods not long after it has been forced to restructure previous debt.

Recently, the biggest lender to Venezuela has been China. With this arrangement, Venezuela has been able to obtain the economic benefit of part of its oil resources, before the oil has actually been extracted. Unfortunately, this arrangement makes Venezuela more quickly susceptible to the adverse impact of a downturn in oil prices. To make matters worse, the debt to China appears to include a provision that creates a lower repayment level (in oil) if prices rise, but creates a higher repayment level (in oil) if oil prices fall. This provision no doubt looked favorable to Venezuela, back in the time period when it was believed that oil prices could only rise.

As far as I know, Venezuela is the only oil exporting country that has used debt as extensively as it has. Some oil exporters, such as Saudi Arabia, have taken the opposite approach, setting aside reserve funds to use in the event that oil prices fall. Needless to say, Venezuela’s use of debt has tended to make its economy very vulnerable to restructuring or defaults if oil prices fall.

(b) Pursuing economic simplification 

A complex economy is one that is set up, as much as possible, to keep up with growing technology. A significant share of expenditures go both toward making new capital goods and maintaining existing capital goods. There are considerable differences in pay levels, to make certain that those who are providing technical expertise are adequately compensated for their efforts. Business leaders also are adequately compensated for their contributions.

A much simpler economy, which is what most of the Venezuelan leaders have been aiming for, is an economy in which everyone gets a basic level of housing, transportation, and healthcare, but virtually no one gets very much. There is also not much investment in new technology and new capital goods because nearly all of the hard currency being obtained by selling oil exports is being used to purchase imported goods and services to support the basic level of goods and services (such as roads, electricity, education, and food) being provided to the many citizens of the economy. Since the external value of oil exports sets an upper limit on the quantity of goods and services that Venezuela can import, this leaves virtually no capacity to purchase imported goods and services needed to support new capital investment and research.

In Venezuela’s economy, the cost of both oil and electricity have been kept very low–below the cost of production. This helps keep citizens happy, but it also cuts off funds for new investment in these areas. This, too, is part of the simple economy approach.

One disadvantage of a simple economy is that the low wages for engineers and other professionals encourage these professionals to move to other countries, where compensation is more adequate. Another disadvantage of a simple economy is that it encourages bribery, because graft is a way of adjusting the system so that those who “can make things happen” are adequately compensated for their efforts. The simple economy approach also tends to discourage research and investment in new areas, such as natural gas production and improved methods of heavy oil extraction.

A simple economy can be kept operating for a while, but it quickly reaches limits in many ways:

  • The limited skill level of residents who have not emigrated for higher wages elsewhere makes the completion of complex projects, such as new electricity generation facilities, difficult.
  • The inadequate level of oil export revenue puts a limit on the amount of spare parts and other goods needed to maintain the infrastructure, such as electricity transmission.
  • As existing oil wells deplete, little funding (in hard currency needed for imports) is available to make investments in new wells for extraction.
  • Research on new techniques for oil extraction is also inhibited.

(c) Neglect of current systems becomes an increasing issue, as the lack of hard currency revenue from oil exports becomes a bigger issue. 

Venezuela can, in theory, buy what it needs from abroad, but there is a limit to the total amount of goods and services that can be imported, based on the amount of hard currency funds it obtains from selling crude oil. If the price of oil falls, then Venezuela must, in some way, cut back on goods and services that it had previously supplied. One of the least obvious way of doing this is by cutting back on maintenance and repairs.

The recent long electricity outage in Venezuela seems to be at least partially related to neglect of usual maintenance activities. It seems that Venezuela’s state-owned electrical company failed to keep the brush cleared under electric transmission lines leading away from the very major Guri Dam. It now appears that one of the causes of Venezuela’s recent long electricity outage was damage to transmission lines caused by a brush fire within the Guri complex. This could perhaps have been prevented by better maintenance.

Figure 2 shows that energy consumption per capita has been falling, especially since 2011. This would suggest that standards of living have been falling. Needless to say, if Venezuela’s oil exports drop further, a further reduction in standard of living can be expected.

Why Is America Issuing Sanctions Against Venezuela’s Oil Company PDVSA?

On January 28, 2019, the United States imposed sanctions against Venezuela’s state oil company, PDVSA. The reasons given for these sanctions are the following:

  • To hold accountable those responsible for Venezuela’s tragic decline in oil supply
  • To restore democracy
  • To help prevent further diverting of Venezuela’s assets by Maduro, and thereby preserve those assets for the people of Venezuela

These reasons sound good, but I expect that the primary real reason for the sanctions was to try to take Venezuela’s oil production offline and, through this action, force oil prices higher.

World oil prices have been far too low for oil producers since at least 2014.

Figure 3. Historical inflation-adjusted oil prices, based on inflation adjusted Brent-equivalent oil prices shown in BP 2018 Statistical Review of World Energy.

Many people, thinking about the oil price situation from the consumers’ point of view, are completely unaware of the problem that low oil prices can cause for producers. Oil producers may not go out of business immediately because of low oil prices, but eventually the low prices will cause a cutback in investment, and thus production. Countries that have sold some of their oil production in advance, such as Venezuela, are especially vulnerable.

Figure 4. Venezuela’s energy production by type, based on data of BP 2018 Statistical Review of World Energy.

Figure 4 shows that oil production for Venezuela has been dropping for a very long time. Its highest year of production was 1970, the same early high year as for the United States’ oil extraction. Natural gas is mostly “associated” gas, which is made available through oil production. Hydroelectric is small in comparison to oil and gas. Hydroelectric production has been generally falling since 2008.

There is a widespread belief among oil executives and politicians that reducing oil production will force oil prices up. I expect to see, at most, a brief spike in oil prices. The major issue is that the world economy is a networked system. Prices for oil and for electricity cannot rise higher than consumers, in the aggregate, can afford. If there is too much wage disparity around the world, the low wages of many workers will tend to hold oil prices down, because these workers cannot afford goods such as smartphones and automobiles made with oil and other energy products. These lower oil prices reflect the fact that the economy has been changing in ways that leave less surplus energy to distribute to oil exporters to operate their economies.

The way the networked economy works is determined by the laws of physics, whether we like it or not. As far as I can see, the end of oil extraction comes because oil prices cannot be raised high enough to make extraction profitable. Once oil extraction becomes unprofitable, oil exporting nations will start collapsing. Venezuela is the “canary in the coal mine” in this collapse process, because of the extensive use it has made of debt.

What If Oil Prices Can Be Forced Upward? 

If somehow oil prices could be forced up by reducing Venezuela’s exports to practically zero, this would have a double benefit:

  1. More oil from around the world, including the United States, could be profitably extracted, because oil resources that are more expensive to produce would suddenly become profitable.
  2. Venezuela’s oil could be more profitably extracted.

If prices actually rise, and if the United States remains in control of the situation, the US could theoretically expand Venezuela’s oil production. Venezuela has the largest oil reserves of any country in the world. Its expected cost of production is relatively low, if the exports of oil are not expected to support essentially the whole economy. The cost of pulling the oil out of the ground in Venezuela seems to be about $28 per barrel, if we believe a 2016 estimate by Rystad Energy.

Figure 5. Cost of producing a barrel of oil and gas in 2016. WSJ figure based on Rystead Energy analysis.

The cost of supporting the entire economy with the revenue from oil exports is far higher. Figure 6 shows that back in 2013-2014, the cost of oil, including the subsidies needed to maintain the operation of the rest of the economy, amounted to about $110 per barrel. I would expect that with all of Venezuela’s debt, the real cost might be even higher than this.

Figure 6. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from Arab Petroleum Investments Corporation.

If the US doesn’t plan to support all of Venezuela’s population with the export revenues from oil extraction, it can theoretically extract the oil more economically than the $110 per barrel price that is needed to support the whole economy. Thus, it could get along with a price closer to $28 per barrel.

Furthermore, the investment capabilities and technical expertise of the United States could, at least in theory, ramp up Venezuela’s oil production, if this is desired at some future date. Similarly, “non-associated” natural gas production could be ramped up, if desired, because this seems to be available, but has been neglected.

I expect that all of this development would be more difficult and expensive than a simple comparison such as this seems to suggest. The ultimate problem is that a whole economy needs to be in place to make the extraction possible. Even if a cursory examination suggests that substantial savings are possible, the cost associated with maintaining necessary support services would make the total cost of energy extraction much higher.

Conclusion

Venezuela seems to be the canary in the coal mine with respect to where oil exporters are headed. Other countries will want to push them out of oil production, so as to try to raise prices for themselves. Debt defaults and lack of availability of debt may also become issues.

One item of interest is the fact that in Venezuela, lack of oil revenues can adversely affect electricity supply. Thus, we should not be surprised if electricity supply fails at about the same time that oil production falls. Even electricity supply provided by hydroelectric plants seems to be at risk.

Another item of interest is how Venezuela’s attempt at even distribution of goods and services, using a somewhat socialistic approach, is working out. This approach (which is now being advocated by some political candidates) seems to have some short-term benefits, because it tends to keep the population happy–almost everyone seems to have a minimum standard of living. But, over the long term, this approach leads to the loss of the ability to maintain today’s high-tech economy. This approach doesn’t prevent collapse either, because a lack of investment and expertise eventually causes important parts of the system to stop operating.

 

 

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,454 Responses to A Different View of Venezuela’s Energy Problems

  1. and of course the collapse of Saudi will follow a similar pattern (disbelief–blame in on someone else) but the violence of that really will engulf the world because it will cut our oil jugular

  2. Xabier says:

    Thank you Gail, a fantastically strong post.

    There are so many lessons to learn from Venezuela, but it is being used as a mere political football: ‘Look what Socialism does!’ or ‘Look how the wicked US conspires to bring a strong Socialist country down!’

    And so the real lessons are not learned.

    In Spain, the ‘radical’ Left still adore Venezuela for the social justice policies, ignoring the fact that it was first spending a substantial oil bounty, and then an oil bounty that really didn’t exist anymore.

    And the Right hate it for the same policies: both failing to see what has really happened and that it was always a house built on sand, whatever external enemies did.

    • Thanks! It seems like it takes looking at particular circumstances to see what is wrong with the system in general. There is so much published nonsense that it takes someone coming from a different direction to take a fresh perspective.

      I had trouble finishing this post in a timely manner partly because I decided to change topics late in the timeframe. There were also a couple of other issues–a room redecorating project, in anticipation of company coming this next weekend, and a minor back injury (now pretty much healed) that arose out of a furniture moving project gone wrong. I still need to do some things before the company comes, so I am not completely past my time availability problem.

  3. Doug W. says:

    Very interesting post. The canary in the coal mine comment raises the question whether you have already been thinking ahead to which other oil exporting countries might be most likely to collapse next. Any thoughts about this?

    • Richard benton says:

      And how exactly is the us sanctions in any way the wisest approach to solving these problems As soon as the word socialist is spoken the us system goes completely berserk maybe someday cooler heads will prevail but I doubt it

      • I am not sure what is the wisest approach. I think that physics decides the outcome for us, in some sense.

        I imagine that what US leaders are looking for is higher oil prices, and sanctions against Iran and Venezuela sort of meet their ideas of how higher oil prices might be accomplished. Personalities and political parties (Obama vs. Trump for example) don’t really matter too much, I am afraid. As I said in the post, I don’t expect that this plan will really work. It may be the underlying story of how oil production falls.

        It is all very strange. There seems to be a literal higher power, somewhere acting in the background. The literal higher power pulls the strings, so to speak. This higher power created the laws of physics, and uses them in a way that we mortals have a hard time understanding. There have been a huge number of strange situations which seem to be coincidences that have kept our civilization on earth operating. How our civilization ends seems to be beyond our direction or control. Needless to say, this is not what the Powers that Be tell us is the case. They say that they are in charge. Just trust them.

        • Duncan Idaho says:

          Maduro was to be gone long ago, and obviously again in Dec/Jan.
          He is still there, with popular support.
          I would not trust MSM– they have been continually wrong.
          We will see who gets that largest oil supply—–
          The US is getting frustrated.

          • Xabier says:

            We should also recall the MSM assurance that Putin was ‘just about to topple in a month or two’ a couple of years ago, as the Russian people were so angry with him and everything was going wrong there.

            At the same time, a Russian friend told me, after visiting Moscow, that he’d never seem Russians look happier or more relaxed (a great contrast to the Moscow of his childhood!)

            Of course, the situation in Venezuela is very different and really turbulent, but one can always take these propaganda assurances with a pinch of salt.

        • Artleads says:

          I find this scenario impossible to refute. Feeling or sensing how the higher power physics wants to flow (and going with it) does seem wise. But if one hasn’t lived in Central America, they might miss how much Venezuela’s oil subsidies helps maintain what ever thin vestige of stability there is there, and how very dependent US stability is, in turn, on that.

        • Excellent article Gail, thank you so very much, in amongst all your domestic affairs – you do so well to keep us informed. I have a contact in Venezuela who keeps me informed of what’s going on and I will send him your link.

          As regards what happens next, I think Dr Tim Morgan has the best prognosis which of course conforms with yours and mine. If the price of oil escalates then we will be back in GFC2 very quickly, just like last time because oil prices affect every other commodity and people will be unable to maintain their standard of living which is gradually decling now anyway as dictated by physics. QED we end up with a severe depression and collapsing asset values.

          But I don’t think oil and energy prices will suddenly go up this time around. I believe that a crisis will occur before this happens – I am speculating that we will have two more years at most and so I am preparing accordingly.

          • It is possible to come to a similar solution several different ways.

            • Yes, agreed and it is pleasing that we are all coming to similar solutions which might indicate that we are on the right path in our prognostications. We are a small group though and the bulk of the populations are living in ignorance and are deaf to it, sadly.

    • Good question. The first country to collapse from low oil prices was the Soviet Union, back in 1991. The initial impetus underlying this collapse seems to be the raising of US interest rates to a very high level, back in 1980-1981 period. So it is clear that there can be a long time lag involved. These high interest rates dropped oil prices, and thus removed the implicit subsidy that the Soviet Union had been getting from selling its oil exports.

      I would have to do some studying to see if I could figure out which countries seem to be next in line.

      • MG says:

        Soviet Union rather disintegrated than collapsed into internal chaos. Thanks to the diversified economies of its states, these states could survive somehow. But the desert states like Yemen or Lybia fell into chaos. Venezuela with its population fed almost solely on oil exports, too.

      • USSR disintegrated chiefly on political-social grounds (incl. many other factors, like the economy Q, nomenclature corruption, as well as active foreign meddling – subversion), which is demonstrated by the fact of the deepest slump registered there somewhat later ~1993-1999. Simply, the naked printing plan of the West in the late 1970s and 1980s, among other things enabling notched up arms race left them with very little maneuvering space, which they did not manage to utilize wisely in that so called mid 1980s ‘perestroika’ plan implementation as opposed similarly and batter planned transition in China. If you study the case in detail, what the post Yeltsin era regime actually did was to revive the already prepared-existing but not acted upon strategic plans to modernization. Yes, the rising energy prices during 2000s helped, but their govs worked with a gamut of scenarios for this revenue (hi-mid-low), and delivered on the upper boundary wave of that. It was bit of timing luck and preparedness, plus resolve working together in great synchronicity or actually acceleration effect.

        Dr. Tim’s very recently revealed estimates on ECoE (incl. developed vs emerging re-balancing) puts them on the top best spot (predicted here before), hence the always repeated theme of their high chance of attempted quasi autarky for a while vs. the likely implosion of some of the other Western IC hubs, especially those not linked to their energy exports potential, in the mean/near time horizon..

      • Harry McGibbs says:

        Mozambique is a possible candidate, as they are mired in debt problems and have just been absolutely whammed by Cyclone Idai. Algeria is also not a bad bet:

        https://www.wsj.com/articles/algerias-political-turmoil-casts-doubt-on-oil-and-gas-deals-11552911490

    • Richard Benton says:

      Also why is the US attempting to force Europe to buy more expensive LNG All Russia wants to do is provide Europe with natural gas perhaps the most versatile resource ever at affordable rates What about Us never ending brutal intervention in Central/South America And how are all those capitalist paradises dosing in the other Latin countries I am a hybridist when it come to economics

      • The US is trying to force Europe to buy more expensive LNG because it wants to cause a shortage of natural gas in the United States and, in that way, drive up natural gas prices. The plot line is a lot like the oil plot line. Shipping costs of LNG are terribly high. The US cannot ship LNG to Europe at other than quite high prices.

        Natural gas is also reaching the limits of the price level that consumers around the world can afford. Without higher natural gas prices, the US will reach limits on its natural gas extraction very soon.

    • MG says:

      Any oil producer that stops to provide cheap energy to the goods producers is doomed to collapse. Hiring foreign qualified workers like in Lybia could help for a while. The next collapsing oil producer is somebody who is on the same track. Is there in fact anybody similar to these two countries? Iran or Argentina started to deploy nuclear, which is repeated by the Gulf states. Syria failed to do that and collapsed, too. So the answer is: those oil exporters that do not deploy nuclear.

      • Using nuclear does save some oil and gas for export, I agree.

        It seems like there are a number of Middle Eastern oil exporters that cannot get along for very long on today’s low prices. But most of these countries were not borrowing early in their oil extraction, so they can hang on longer.

        One country that started doing borrowing earlier and more aggressively than most others is Ecuador. In fact, Ecuador and Venezuela have been friends. I see a December 2018 article in the LA Times called Ecuador faces a huge budget deficit because of loans it received from China.

        According to the article:

        Rafael Correa wanted to fast-track development projects when he was president of Ecuador, so he borrowed billions of dollars from China. But the loans have come back to haunt his successor, Lenin Moreno, who will go hat in hand to China this month to seek more flexible terms and breathing space.

        A onetime ally and now bitter enemy of Correa, Moreno and his government are straining under a huge budget deficit caused partly by obligations to the Chinese, whose loans financed roads, dams, schools and office buildings during Correa’s time in office from 2007 to 2017.

        But terms of Ecuador’s $6.5 billion in Chinese debt have become onerous with the global decline in the price of oil, Ecuador’s main source of revenue from exports. Moreover, some developments financed by the loans, including hydroelectric plants, are not producing the revenue that was anticipated.

        Correa also made deals to sell the Chinese millions of barrels of oil in advance on favorable terms, committing the country to ship 90% of all its exportable crude to the Asian giant through 2024. Terms of the deals, by which he mortgaged to China much of the country’s future production of crude, its principal source of export dollars, remain shrouded in mystery.

        Finance Minister Richard Martinez used more stark language last month when he spoke before the National Assembly, describing Ecuador’s $6-billlon spending deficit (not including $4 billion in debt payments due) for 2019 as “unsustainable … deriving from the implementation of a development model in which the state inevitably spent more money than it had,” a reference to Correa’s presidency.

        I visited Ecuador in 2009, with a group of oil bloggers (not peak oil folks, however) and Chevron employees. The situation was amazing. Correa was strong arming the press and putting out an anti-Chevron campaign that everyone believed. Correa was trying to shake down Chevron for a huge amount, and Chevron refused to pay. The US press was republishing the nonsense that Correa was putting out. I wrote up a story about my experience on The Oil Drum. No one believed me. They thought that I had been misled by the Chevron employees. The Dubious Lawsuit against Chevron.

        There was a Part 2 as well, which I published on a website other than The Oil Drum, because Oil Drum bloggers were so totally taken in by the Correa nonsense. (Big bad oil company harms country, etc.)

        The suit was ultimately resolved in Chevron’s favor.

        September 2018: International tribunal rules in favor of Chevron in Ecuador case

        The tribunal unanimously held that a $9.5 billion pollution judgment by Ecuador’s Supreme Court against Chevron “was procured through fraud, bribery and corruption and was based on claims that had been already settled and released by the Republic of Ecuador years earlier.”

        The decision adds to several court victories that Chevron has won against the plaintiffs and its legal team in the 2011 case. Texaco, which Chevron acquired in 2001, was released from liability through a settlement with Ecuador years earlier, the tribunal found.

        This shake down was part of Correa’s funding scheme at that time. (Would save the country from adding yet more unrepayable debt.) The US press fell for it because it fit in with the “big bad oil company” narrative that everyone was telling.

        I expect Ecuador should be on the list of countries that could collapse.

  4. Jay says:

    Thanks, Gail. I really like this “case study” approach to the issue. Will you consider doing other countries?

    • That is an interesting suggestion.

      What seems to happen is that I dig through a whole lot of data on a particular subject, and make quite a few graphs on a subject. I then try to write a post on the subject, and discover that I have way too much. I end up rewriting it, and focusing it differently, sometimes more than once. Eventually, it sort of comes together.

      If I knew the answer completely first, it would be a lot easier to write.

      India looks like it would be interesting. Saudi Arabia would as well. I have written about China somewhat earlier. Its huge debt level is frightening.

      • Tim Groves says:

        If you do choose to write a post about China, be warned in advance; you can expect an attempted point-by-point rebuttal from Godfree Roberts, which is bound to be thought provoking.

        • SomeoneInAsia says:

          Not even Einstein or Hawking — let alone some unheard-of gentleman by the name of Godfree — can deny the validity of the basic laws of arithmetic, according to which China is simply headed for a very rude awakening if she seeks infinite growth in a finite world.

          I absolutely love (premodern) China, but this doesn’t stop me from seeing the tragically mistaken nature of the path down which she now travels. And it is seeing this that makes my love for China… a very painful thing…

      • beidawei says:

        Consider writing on Oman, whose debt has recently been downgraded to “junk” status.

  5. Rodster says:

    “If prices actually rise, and if the United States remains in control of the situation, the US could theoretically expand Venezuela’s oil production. Venezuela has the largest oil reserves of any country in the world.”

    And it should be pretty obvious why a self elected leader is claiming he’s the President of Venezuela with the USA’s backing and why they are seeing their electric grid crippled with blackout after blackout. Survival of the fittest I suppose.

  6. Øyvind says:

    Thank you Gail for this post.
    Very interesting and to the point.
    This is the first time I comment and I am curious if you could contrast this socialistic republic with the quite socialistic monarchy of social democratic Norway, as you know this as another oil exporting and partly dependent nation.

    I would like to differ, for instance, on redistribution policies which have worked quite well (US readers: Read astonishingly, feel_the_Bern-well) in Norway.

    • Duncan Idaho says:

      The average citizen of Norway has a value of 1.2 million dollars.
      Not bad for a socialist country.

      • Duncan Idaho says:

        (According to the Federal Reserve, the average net worth for families in the U.S. under the age of 35 was $76,200 in 2016. That same year, the median net worth was $11,100)

      • Davidin100millionbilliontrillionzillionyears says:

        relative to its small population, Norway has massive FF reserves… oil and natural gas…

        by exporting much of these, Norwegians have amassed much wealth…

        they are probably the luckiest socialist country ever…

        they just happened to have all that FF…

        socialism and luck have been a good combination for them…

        • Xabier says:

          With vanishing fish stocks, rather infertile land, and over-populated, the prospects for Norway are not very good of course: there was a reason for the Scandinavian expansion of the Dark Ages – poverty and over-population. As well as the 19th century migration to North America.

          Like everyone else, they have failed to control population, and kicked out the lower rungs of the ladder they climbed with the rest of us in Western Europe.

          The newly-imported welfare class in Norway (as everywhere) will also cause huge problems when the fossil fuel bounty fades.

          • the biggest joke of all of course

            is that Norwegian oil funds are invested in areas unconnected with oil—to ”safeguard the investment”

            what advice genius are they consulting? Everything is linked back to oil availability. When oil goes, everything goes, The Norwegians will be in the same boat as the Saudis, only colder

            • Harry McGibbs says:

              “The greatest risk to the global economy today is that the fossil fuel industry — if you want to lump it all together, which in itself is dangerous — becomes so battered that it doesn’t invest enough to keep the system going.

              “I think the world today, especially the young among the populace thinks that the renewable industry is taking over and that’s fine, it’s all going to be hunky dory. Paris met, two degrees, fossil fuel dies, renewable takes over. What we’ve tried to do at Lambert Energy is just point out the unbelievable risk of that position unless we’re very careful.

              “Today, June 1 [2016], we will consume the equivalent of 270 million of oil, and most people imagine that you can replace that pretty quickly and seamlessly with wind, solar, electric cars whatever. But of that 270 million, 75 million is coal, 65 million is gas, and 95 million is oil. Nine million of that is wind and solar, and bio-fuels. So before we delude the world that it is going to be easy to replace it we’ve got to have a realistic debate about the cost.”

              (Phillip Lambert of boutique advisory firm Lambert Energy, speaking at the Financial Times’ Energy Transformation Strategies conference in London)

            • any discussion on re-investing to provide more in the future should always include the word ”surplus”—it almost never does
              The only thought is of money itself

              surplus is the critical factor that most people ignore.

              in previous times there was lots of surplus energy in reinvest to get hold of more energy, no we don’t have those surpluses, but the magic word keeps getting reused as though we do have those surpluses, same as we did 50 70 years ago

              that’s the part that few recognise and accept—we won’t crash through lack of oil we will crash through lack of surplus oil

            • Craig Walters says:

              quite a joke

      • JesseJames says:

        The citizens of Libya, were probably the wealthiest per capita in Africa, before the Western powers destroyed the country to prevent its move into a gold currency, which could not be allowed to threaten the petrodollar. Libya had a state bank, in which the oil wealth was shared with the citizens, a high standard of living, etc.

        The wealth of Norway could disappear in a heartbeat in the future.

    • Norway’s socialism was established long before its recent wealth from oil and gas. Before oil, Norway was basically a very poor country. Most of the land was (and is) not arable. Building roads required huge investment in tunnels, making travel by vehicles difficult. Population grew rapidly for a time, making resources per capita low. Many people from Norway emigrated to the US in the latter half of the 19th century and the early 20th century, because it was so hard to make a living in Norway.

      In this situation, sharing everything as much as possible was optimal. If we go back to hunter-gathering, this was based on a “Gift Economy.” A person’s status depended on how much the person could share with others. Even today, parts of Africa and India use this approach. If someone gained $1,000,000 in a lottery, that person would share the proceeds with all his friends and neighbors. No one would consider the idea that being wealthier than his neighbors would be helpful. In these situations, there is not a lot of capital investment required or desired. A big part of what drives inequality is capital investment. Also specialization, so that not everyone is a farmer with few modern tools.

      In Norway’s undeveloped state, sharing was optimal. Fighting neighboring countries was not; it would lose every battle, no matter how big an army it would put in place. There was no need for a big army. Staying neutral was optimal in wars.

      With the advent of oil wealth, Norway became unbelievably wealthy. Hydroelectric wealth played a role as well. Norway’s leaders realized that this wealth was not permanent wealth, however, so trying to ramp up everyone’s living standards to this level didn’t make sense. Instead, it made future promises, which probably can’t be kept. It was able to provide outstanding benefits that we associate with socialism. But still, there seem to be wealthy people in Norway as well, with fancy houses and boats. It wasn’t in a situation where there was “not enough to go around.” The situation was that there was a temporary superabundance, that could be shared with all.

      You may know that my ancestors came from Norway, some around 1910, others earlier.

      When

  7. Duncan Idaho says:

    Venezuela – Journalists Doubt Guaidó’s Legitimacy – Regime Change Plans Continue

    https://www.moonofalabama.org/2019/03/venezuela-journalists-doubt-guaidós-legitimacy-regime-change-plans-continue.html

    • Davidin100millionbilliontrillionzillionyears says:

      “This will be a long fight.”

      regime change… coup… apparently will take an additional long time…

      the US led coup in Ukraine in 2014 was swift…

      and seems to have been a disaster to the citizens of Ukraine…

      Maduro on a plane to Cuba would probably be beneficial to the citizens of VZ…

      but doesn’t seem like it will happen soon…

      my sympathies to the people of VZ…

  8. Lastcall says:

    Of course the US has had a siege mentality towards VZ since 1994 and the advent of Hugo. No matter what system of Governance a country has, the imposition of sanctions for so long a period, the theft of opportunities and assets, and the denial of access to capital and technology would cripple any country.
    This is a continuation of US meddling with oil rich countries, and in this case, the intentions are barely concealed.

    • Duncan Idaho says:

      But Maduro is still there–
      And they are still selling oil.
      On the Ground in Venezuela vs. the Media Spectacle
      https://dissidentvoice.org/2019/03/on-the-ground-in-venezuela-vs-the-media-spectacle/

      • Artleads says:

        Helpful article. I know the region, and this seems like a plausible explanation.

        This is good:

        ” What surprised me was how many people are growing their own vegetables. It is a bit like in Russia, where everyone has a dacha. Venezuela is tropical, so it is easy to grow produce. Mango trees are everywhere, so you can pick a mango whenever you want.”

    • Davidin100millionbilliontrillionzillionyears says:

      “No matter what system of Governance a country has, the imposition of sanctions for so long a period, the theft of opportunities and assets, and the denial of access to capital and technology would cripple any country.”

      and add on Maduro’s incompetence and corruption…

      nearly perfect recipe for disaster…

  9. Davidin100millionbilliontrillionzillionyears says:

    on a related side note, this story…

    https://www.thegatewaypundit.com/2019/03/icymi-120-christians-slaughtered-by-muslim-herders-in-nigeria-media-silent/

    and to think some people are horrrified by the fiction of The Handmaid’s Tale…

    when this is an actual worldwide reality…

    • Xabier says:

      Quite: getting their knickers in a twist over what white males might do , as portrayed in a mere (improbable) novel, when ‘religious’ savages are murdering and raping at will.

      Doesn’t get any headlines either, for some reason.

      Poor Nigeria, and everywhere else where poor people are the playthings of fanatics and ambitious politicians.

      Although there is another interesting aspects to this: the age-old struggle between the herders and the settled.

    • you are right to be worried about the handmaid’s tale

      https://www.dailykos.com/stories/2019/3/19/1843361/-MAGA-s-advocating-for-Dictator-over-United-States-at-Bannon-Rally?

      there you see evil personified—someone who wouldn’t hesitate to make Atwood’s predictions come true in the flesh—and look at Bannon grinning and applauding her every insane word, and the audience. Nobody walked out

      look at her face as she speaks, and know what she’s capable of—and millions like her who see Trump as their saviour.
      Hit ler didn’t dirty his own hands, he had plenty of eager and willing helpers. In her, you see what they look like, and hear the words they utter

      The fascist spectre is rising again, with the same aims as last time

      • GBV says:

        On the ridiculous concept of “evil”…

        Friedrich Nietzsche, in a rejection of the Judeo-Christian morality, addresses this in two works, “Beyond Good and Evil” and “On the Genealogy of Morals”, where he essentially says that the natural functional non-good has been socially transformed into the religious concept of evil by the slave mentality of the weak and oppressed masses who resent their masters (the strong). He also makes a critique of morality by saying that many who consider themselves to be moral are simply acting from cowardice (wanting to do evil but scared of the repercussions).

        We get it Norman – you don’t like Trump. I think a lot of people share your view.
        But Trump-lovers, people advocating dictatorships, fascists themselves… none of these things are inherently “evil” (assuming there even is anything inherently evil in this world). They’re just misguided and/or opposed to what you see as being “good” or “right” in your perceived existence.

        Fascist Germany, Maoist China, Stalinist Russia, Kleptocratic USA, perhaps the soon-to-be US Trumptatorship, “Peoplekind” Canada, the father who beats his kids, the kid who kicks his dog, the husband who cheats on his wife, the student who cheats on their test, the bully in the schoolyard, etc. … none of these things are inherently “evil”, they’re just symptoms/outcomes of the reality we’ve all created for ourselves.

        Labelling them, moralizing over them, making derogatory statements about them or passing judgement on them really doesn’t help; understanding (with an open mind) how they came to be part of our reality may be a more fruitful/productive option.

        Just my 2 cents…

        Cheers,
        GBV

        • i do understand how these people ”came to be”

          it doesn\t make their aims any more pleasant though, or what they desire to inflict on the rest of us

          those who welcome the dictator for salvation, are always the ones who get screwed by him

        • Richard Benton says:

          Beautiful Well said!!!

    • When there are not enough resource to go around, people fight their neighbors.

      Any breakdown will work to accomplish this goal. Different religions is one such breakdown.

      If it weren’t religion, it would be something else–say, skin color.

      I don’t see the situation as “bad” or “wrong.” This is the way the world’s self-organizing economy works. The worst outcome would be a situation like Haiti, with way too much population for the arable land. Most of the oil countries have a huge problem with too much population relative to arable land. Animals set up territorial markers and fight others that cross them, as a means of keeping population down. That would also work.

      Nigeria is an oil exporter with declining oil production, besides falling prices. This chart is by Ron Patterson of The Oil Barrel.

      Nigeria’s population has been growing as well. It would be another candidate for collapse, between falling oil prices and declining oil production.

      • doomphd says:

        whilst high-speed train touring South Korea top to bottom with a local friend, I noted that a lot of land that would normally be unproductive for crops, like the odd-sized lots around roadway intersections, train bridges, steep slopes, etc. were being cultivated. at first glance, it looks like high efficiency, upon further review, it looks like desperation. there’s not a lot of flat land in Korea.

    • Lastcall says:

      This country’s (NZ) media and governing classes have gone batsh*t crazy over the Christchurch event. Never let a ‘crisis’ opportunity go by. Haven’t bothered with MSM media here since last Friday.
      Female popn being encouraged to wear head scarves today…maybe they will give up their other freedoms (voting, driving, etc etc) eventually…
      Definition of insanity (doing same thing expecting different results) comes to mind re the thousands of years of failed long-term co-existence of different religi**s groups.

  10. Wolverine says:

    Gail,

    Love and admire your work but believe the real problem in Venezuela is socialism that allowed the over expectations and failed to plan appropriately for the future. Have been following Jose on Daisy Luther’s blog for over a year. It paints a dire picture evolving for since the election of Chavez.

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