Venezuela promised and delivered the cheapest gasoline on the planet. You could get gas for literally something like 5 cents per gallon. Therefore to keep the refineries running, the government had to pay the difference. There is no refinery on the planet that can produce gasoline in significant quantities for mere pennies per gallon. Hell, some of the feedstock components cost way more than that. Lanthanum oxide[1] catalysts for one, and the price for that spiked in 2011. So obviously there where heavy government subsidies.
At some point all such freebies come to an end. The Venezuelan government had to raise the price of gasoline[2]. It’s no joke that when gas only costs a nickel, when you raise the price to a quarter it might not seem like much. But it’s still five times the cost. The Venezuelan’s predictably freaked out.
But you have to understand that Venezuela was not a true multiparty democracy. When Chavez took over in 1999, he literally rewrote the constitution of Venezuela. His socialists ran everything. So when he said to PDVSA that they will produce gasoline at whatever price he decreed, those who resisted were sacked. Not just executives. The entire board of directors. They were replaced by his cronies. The employees went on strike, and he fired them all.
The government continued to play games and so could survive by exporting oil when prices were high. It all collapsed with the price of oil, America’s fracking and shale oil ended up exported to VZ after their largest refinery suffered the biggest explosion[3] and fire in the world in a decade, killing 42 injuring hundreds and knocking production offline. 2015 marked the beginning of the end. Oil prices sank from 115/bbl to 53/bbl in six months. This was VZ’s single industry. Everything the corrupt government could do was predicated on the spread they could profit from during the ‘peak oil’ scare years. So instead of the oil industry collapsing, the entire economy failed.
Middle class people with skills knew, especially considering how Chavez summarily fired 20,000 striking oil workers, it was time to go. The brain drain accelerated.
So in summary. The single governing socialist party subsidized gasoline for the masses. They paid for it in an environment of rising market prices for oil that they refused to pass on to the consumer. They did this by cutting deals with other countries and undercutting market prices elsewhere. They, meaning the government, meaning the single party, meaning Chavez and his cronies pocketed the money by purposefully defying the market.
When the price of oil dropped, the party was over, the government raised the price of gasoline causing inflation throughout the economy. There was nothing the government could do but print more money. It was an economic disaster that the people of VZ are still paying for.
Footnotes
Recent Comments