Venezuela relies on oil revenue for 96 percent of its hard currency reserves, so the plunging price of oil — which has dropped by half in the past six months to $48 a barrel — threatens to destabilize its economy. President Nicolas Maduro has a theory about what’s behind the sudden drop.
"Did you know there's an oil war?” Maduro asked the leaders of Venezuela’s state-run businesses in a speech Monday in which he accused the United States of trying to flood the market with shale oil. “And the war has an objective: to destroy Russia. It's a strategically planned war ... also aimed at Venezuela, to try and destroy our revolution and cause an economic collapse," Maduro added.
The boom in U.S. shale oil production has pushed down oil prices worldwide, from $96 a barrel just six months ago, but Maduro’s comments say more about the pressure on his government domestically and Venezuela’s crucial relationship with Russia than about the global oil market.
Even before oil started slipping, Venezuela was suffering an economic slowdown. Venezuelans have been suffering from shortages of basic goods including cooking oil, detergent and diapers amid an economic slowdown, the highest inflation in the Americas and restrictions on foreign currency for businesses. Venezuela’s most famous ice-cream store, Coromoto, which holds a Guinness world record for its 863 different ice-cream flavors, reported over the holidays that it had closed due to lack of milk. The Tourism Ministry denied that shortages caused the closure.
Maduro’s opponents have turned Coromoto into a symbol of Venezuela’s larger economic failure. They blame 15 years of socialist policies and the trampling of rights, which they charge began under Maduro's predecessor, Hugo Chavez, for the country’s economic woes.
Opposition leader Leopoldo Lopez said his country was facing a "disaster in slow motion" in a letter published in the Wall Street Journal on Friday. He wrote from his jail cell, where he was imprisoned on counts of inciting riots for his role in anti-Maduro protests following Chavez's death in 2013.
"My country, Venezuela, is on the brink of social and economic collapse," Lopez said in the letter. The Harvard-educated leader of the Popular Will Party said the current situation could not be blamed solely on falling oil prices, arguing that the downward spiral began as a result of an authoritarian government hostile to human rights and the rule of law.
Analysts have said that Maduro's actions since taking power, including the jailing of Lopez and other opposition leaders, are rooted in desperation to control dissent. While seeking election, Maduro promised to reform an economy plagued by persistent power outages, aging infrastructure, goods shortages and high crime rates. But since taking office, Maduro has struggled to make any significant changes.
Investment analysts who follow Venezuela have recommended reforms including unification of the three-tier currency controls and an increase in Venezuelan gasoline prices, the cheapest in the world. Maduro, however, has repeatedly said that the government will respect its foreign debt obligations and its domestic welfare programs. But Maduro may not be able to both keep his promises and push through reform. Financial markets have been jittery, with investors speculating whether Venezuela might default on its foreign debt.
His barbs at the U.S. echoed those lobbed earlier this month by Russian President Vladimir Putin, who used a similar nationally televised address to blame Western sanctions for Russia’s economic troubles. The Russian ruble took a nosedive earlier this month amid falling oil prices. “Every time that somebody believes Russia has become too strong and independent, these instruments are put into use immediately,” Putin said.
But Putin is in a much stronger position than Maduro. Russia, too, is extremely sensitive to oil prices, with oil and gas accounting for nearly 70 percent of Russia's export revenue, and the country is heading toward recession. But Russia has significant foreign exchange reserves to take care of its debt, CNN reported, and is in no danger of default. And having successfully stoked nationalist sentiment over the conflict in Ukraine, Putin's popularity ratings are strong. While there have been scattered protests over the economy, Putin has yet to reveal any details of his economic recovery program.
Maduro, whose approval ratings have plummeted to as low as 24 percent, according to the regional MercoPress news agency, does not have that luxury. In his speech on Monday, Maduro pledged to fix the economy and said he would announce some details at a news conference on Tuesday, including a new foreign exchange system and an economic recovery program. "2015 has to be the year of a great economic and productive change, a great transformation in the economy," Maduro said. Adding a touch of sarcasm, Maduro said that U.S. hostility would prompt positive changes in Venezuela. "Thank you, Empire," he said.
Al Jazeera and news wires