Venezuela possesses the world’s largest proven oil reserves, estimated at over 300 billion barrels, surpassing even Saudi Arabia. This immense hydrocarbon wealth once positioned the country as one of Latin America’s most prosperous nations, with a GDP per capita rivaling that of many European countries in the mid-20th century.
Yet, in a stark paradox often termed the “resource curse,” Venezuela has endured one of the most severe economic collapses in modern peacetime history. Between 2013 and 2023, living standards plummeted by 74%, marking the fifth-largest economic decline since 1900 outside of war or state failure scenarios. Hyperinflation peaked at 130,000% in 2018, oil production cratered from 3 million barrels per day in the early 2000s to as low as 337,000 barrels per day in 2020, and over 7.8 million citizens – nearly a quarter of the population – fled the country by late 2024.
Venezuela’s oil era began in earnest with the 1914 discovery of the Mene Grande field, transforming a largely agrarian society into a petrostate. By the 1970s, nationalization under President Carlos Andrés Pérez created Petróleos de Venezuela S.A. (PDVSA), which became a professional, semi-autonomous entity driving economic growth.
Oil revenues funded infrastructure, education, and social programs, but also fostered “Dutch disease” – where resource exports inflate currency values, making non-oil sectors uncompetitive. Agriculture and manufacturing withered, with oil comprising up to 98% of exports by 2013. The 1980s oil glut exposed vulnerabilities, triggering debt crises and austerity measures that sparked the 1989 Caracazo riots, killing hundreds and eroding faith in the two-party system.
Hugo Chávez, a former military officer, capitalized on this discontent, winning the 1998 presidency on a platform of “Bolivarian socialism.” He redirected oil revenues toward social missions like Barrio Adentro (healthcare) and Misión Robinson (literacy), halving extreme poverty from 25% to 12% between 1999 and 2013. High oil prices – from $10 per barrel in 1998 to over $100 in 2008 – fueled this spending spree, but Chávez’s interventions sowed seeds of decline.
In 2002-2003, he fired 19,000 PDVSA employees during a strike, replacing experts with political loyalists, causing production to stagnate and drop from 3 million barrels per day to 2.3 million by 2014. Nationalizations of over 1,000 firms across sectors like cement, steel and agriculture deterred investment and reduced non-oil output. Chávez’s death in 2013 handed power to Nicolás Maduro, just as global oil prices began crashing.
At the core of Venezuela’s collapse is its hyper-dependence on oil, which financed 58% of the 2024 budget. This “rentier” economy, where the state lives off resource rents rather than taxes, bred inefficiency and corruption. Under Chávez and Maduro, fiscal profligacy ran double-digit deficits even during the oil boom, with subsidies (like gasoline at pennies per gallon) costing over 10% of GDP annually and fueling smuggling. External debt ballooned sixfold to over $150 billion, much of it owed to China and Russia, repaid via discounted oil shipments.
PDVSA’s mismanagement was catastrophic. Ideological purges and underinvestment – capital spending halved from $5.4 billion in 1997 to $2.5 billion in 2000 – led to a 82.9% production drop from 2013 to 2021, reaching 527,000 barrels per day. Synthetic control analyses show actual output was 1 million barrels per day below a counterfactual scenario without such policies from 1999-2021. The 2014 oil price plunge from $100 to $40 per barrel triggered an import collapse from $80 billion in 2012 to $10 billion in 2017, as revenues vanished.
Microeconomic distortions compounded the macro issues. Price controls on essentials, imposed in 2003 and expanded under Maduro, caused shortages by 2005, with inflation hitting 50% monthly by 2017. A multi-tiered exchange rate system bred corruption, with subsidized dollars siphoned off, costing an estimated $300 billion. Nationalizations reduced food production by 75% while population grew 33%, forcing reliance on imports that dried up. Hyperinflation ensued as the central bank printed money at 20-30% monthly rates, devaluing the bolívar by 100% in 2019. GDP shrank 74% from 2015-2019, with per capita contraction reaching 73% by 2020.
Politically, the crisis stems from the concentration of power and erosion of democratic institutions. Chávez amended the constitution to centralize authority, and Maduro accelerated this into outright authoritarianism. The 2015 opposition victory in parliamentary elections was undermined when Maduro created a parallel Constituent Assembly in 2017, dissolving the legislature. His 2018 reelection was marred by fraud allegations, boycotts, and international non-recognition, leading to Juan Guaidó’s interim presidency claim in 2019, backed by over 50 countries.
Corruption permeated the system, with kleptocracy siphoning oil revenues. PDVSA became a slush fund for elites, with losses from graft estimated at $300 billion via currency schemes. Repression stifled dissent: Protests from 2014-2019 resulted in over 130 deaths, arbitrary arrests and torture, as reported by the UN. Armed colectivos (pro-government militias) enforced control, while alliances with Russia, China and Cuba provided military and financial support. The 2024 presidential election saw Maduro declared winner amid fraud claims, with opposition candidate Edmundo González Urrutia allegedly securing a landslide.
Socially, the collapse reversed decades of progress. Poverty engulfed 96% of the population by 2021, up from 25% in 1999, with minimum wages dropping from $480 monthly in 2012 to $2.40 in 2021. Malnutrition caused average weight loss of 8 kg in 2016, and infectious diseases surged due to medicine shortages. Infrastructure failures, like 2019 blackouts, halted water and electricity, while crime rates soared amid economic desperation.
Mass emigration became a defining feature: Over 7.8 million fled by December 2024, mostly to Colombia (2.8 million), Peru (1.7 million) and Brazil. Migrants face perils like the Darién Gap crossing, where 160,000 children traversed in 2024, risking trafficking and abuse. Inside Venezuela, 7.6 million needed aid in 2024, with children dropping out of school and suicide risks tripling.
The 2014 oil price crash was a catalyst, but not the sole cause – Venezuela’s production was already declining due to internal factors. U.S. sanctions, imposed progressively from 2017, targeted individuals, PDVSA, and oil exports, freezing assets and barring U.S. market access. By 2019, primary and secondary sanctions cut production further to 337,000 bpd in 2020. Eased in 2023 for electoral promises, they were reimposed in 2024 after fraud allegations, with 2025 seeing Trump-era escalations like tariffs on Venezuelan oil importers and military actions against linked vessels. Sanctions caused losses equivalent to 213% of GDP in oil revenue, per some estimates, worsening shortages. However, critics argue they accelerated an already imploding economy, with pre-2017 declines accounting for most of the contraction.
The Maduro administration attributes the crisis to an “economic war” orchestrated by the U.S., opposition elites, and sanctions, rather than domestic policies. Officials claim hoarding by private firms and speculative attacks caused shortages, while sanctions blocked food and medicine imports, labeling them “unilateral coercive measures.” Maduro has highlighted how U.S. actions post-2017 deprived Venezuela of $30 billion annually in oil sales, framing the crisis as imperialist aggression akin to historical interventions in Latin America. This narrative resonates domestically and with allies like Russia and China providing loans and military aid.
As of September 2025, Venezuela’s economy shows tentative growth – 5% in 2023 and 8% projected for 2024 – driven by partial sanctions relief and dollarization, with inflation at 190% in 2023. Oil exports rose 12% in 2023, but production hovers at 850,000 barrels per day. Trump’s “maximum pressure” revival, including FTO designations for gangs like Tren de Aragua and revocation of TPS for 270,000 Venezuelans in the U.S., has heightened tensions. Migration continues, with 800,000 expected to cross the Darién Gap in 2025. Environmental degradation from oil spills and flaring persists, with PDVSA’s decrepit infrastructure risking further disasters.
Venezuela exemplifies the resource curse, where abundant oil fosters corruption, weak institutions and economic volatility. Unlike diversified petrostates like Norway, Venezuela’s leaders prioritized short-term populism over sustainable investment, turning PDVSA from a technocratic powerhouse into a politicized entity. Socialist policies – nationalizations, controls – echo failures in other contexts, but comparisons to Bolivia (which avoided collapse via prudent management) highlight governance as the key differentiator.
Sanctions amplified suffering but were responses to authoritarianism, not primary causes; pre-sanction declines prove this. Politically incorrect as it may be, the evidence substantiates that domestic mismanagement under Chávez and Maduro bears primary responsibility, with external factors as accelerators.
Venezuela’s tragedy underscores how oil wealth, without accountable governance, can devastate a nation. Recovery requires institutional reforms, diversified investment, and international support – perhaps via a “Friends of Venezuelan Democracy” coalition for debt relief and aid.
As of 2025, with Maduro entrenched and sanctions intensifying, the path out remains elusive, but opposition unity and regional cooperation offer glimmers of hope. Ultimately, harnessing oil reserves for broad-based development, not elite enrichment, is essential to avert further collapse.