Venezuela boasts the largest known oil reserves in the world, accounting for 20% of global reserves and surpassing Saudi Arabia as the top producer. However, recent political unrest following the death of Hugo Chavez has resulted in an economic and political crisis, with hyperinflation affecting the country since Nicolas Maduro took power.
Impact on Oil Prices
Major oil-producing countries’ political instability can cause oil prices to become volatile. The possibility of a decrease in oil output results in an increase in oil prices as demand continues to grow while accessible supplies dwindle. According to Forbes, oil output from Venezuela has dropped by nearly half.
In reality, crude oil prices have not skyrocketed, as one might expect. Instead, they have remained relatively stable.
Peak at $160
Global inventories were found to be in excess, leading to a decline in oil prices from $160 a barrel in 2008 to $36 per barrel in February 2016, following the global financial crisis. In recent years, however, oil prices have risen to $59 a barrel, primarily due to a reduction in global oil inventories, as a result of production cuts imposed by the Organization of the Petroleum Exporting Countries.
Nonetheless, much of the decrease in oil production can be attributed to Venezuela’s misfortune, resulting in marginally higher international oil prices in recent months, assisting Arab oil states such as Saudi Arabia in buoying their economies and reducing government budget deficits.
Despite the Venezuelan crisis, one could argue that oil prices have not increased as much as one might expect.