President Hugo Chávez has long desired to minimize his country’s economic dependence on the United States, and since
China’s huge and growing energy demands have resulted in expanded business with Venezuela, he may very well get his
wish. Beijing and Caracas have a history of affable diplomatic ties, which in recent years have been strengthened by
several multibillion-dollar oil-exploration deals that are providing China with a broadening spectrum of new sources of
energy while helping to revive Venezuela’s wilting economy. With its petroleum consumption climbing 7.5 percent per
year, China represents a significant and growing long-term source of income for Venezuela.
While Washington continues to fulfill the bulk of its energy requirements through long-established sources in the Middle
East, China could be said to have jumped the fence into the U.S.’ ‘backyard’ in an attempt to capitalize on the
impressive inventory of natural resources that the region has to offer. The state of Sino-Venezuelan petro-relations
represents an evolving global order reflected by the waning influence of the U.S. in Latin America and the growing power
of extra-hemispheric nations in the region.
A Wounded Oil Giant
As of July 2011, Venezuela boasts the largest oil reserves in the world. The oil sector represents the economic
lifeblood of Venezuela; the industry’s revenue, earned primarily by means of the state-owned Petróleos de Venezuela S.A.
(PDVSA), accounts for over ninety-two percent of the nation’s income, which is equivalent to one-third of its GDP. The
legendary profitability of PDVSA has enabled the Chávez administration to make use of the company as a political device,
while using its large-scale earnings to finance social programs that have been of distinct value to the government’s
ideological desiderata. However, Venezuela’s oil sector, and PDVSA’s production in particular, are not as robust as they
were in years past.
Beginning in 1999 when Chávez first assumed the presidency, yields from PDVSA-operated oil fields rapidly declined. This
downturn was due in part to the normal effects of long-term extensive extraction, but was also partially attributed to
excessive government meddling in the state corporation’s affairs, poor maintenance of extraction sites, company
corruption, and the repercussions of using corporate profits to fund government-implemented programs. The Venezuelan
economy’s deep dependence on the oil sector has made the country highly vulnerable to dips in the commodity’s value. The
steep decline in oil prices during the latter half of the 1980s damaged the economy while revealing a greater degree of
social inequality than was previously visible, as evidenced by the dramatic growth of Venezuela’s informal sector in
compensation. In another blow to the economy, the price of oil again fell in 2008, causing PDVSA’s debt to climb
forty-two percent the following year.
This analysis was prepared by COHA Research Associate Lauren Paverman.
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