Wednesday, December 17, 2014

Yes, Venezuela could collapse if oil keeps dropping

(My new American Thinker post)

The drop in gasoline prices is a wonderful Christmas present for U.S. consumers.  It's great up here, but keep an eye on Venezuela.  The country could collapse if prices keep dropping.
TIME magazine has a good summary about the mess in Caracas:
The economic dysfunction and falling price of oil leaves Maduro in a tough spot. He lacks both the political will and popularity to push through meaningful reforms to push Venezuela’s economic house in order. At the same time, he is being increasingly squeezed by the weakness in the oil price. Hugo Ch├ívez was luckier. At the height of his powers, he commanded widespread domestic acclaim, and was buoyed by rising oil prices on the world markets (he was also adept at showmanship, hosting, for example, OPEC heads of state in Caracas soon after he first came to power). Maduro faces an altogether more challenging environment.
“Ordinary Venezuelans are starting to get tired of slogans and socialist rhetoric and no concrete actions on any front,” says Moya-Ocampos. “As the economy deteriorates, so will the political situation in Venezuela.”
There are several reasons that make Venezuela acutely vulnerable to a drop in oil prices:

2) the domestic subsidies, from cheap gasoline to giving Cuba cheap oil.  These subsidies have bought votes for the Chavez-Maduro regimes.  My guess is that these subsidies would have to be curtailed substantially if oil prices keeps dropping.1) The extremely inefficient public sector paid for by high oil prices.

3) Maduro is in a very weak political position.  He is not Chavez, a more popular figure who got to govern at a time when oil prices could finance every scheme and ambitious project.

There is a perfect storm brewing in Venezuela, and the leadership looks totally unprepared for it.

Naturally, we will watch Russia because it is a larger player on the world scene, especially after Ukraine.  At the same time, a collapse of Venezuela will impact Cuba and some of the characters in Latin America who get subsidized oil from Caracas.

P.S. You can hear CANTO TALK here & follow me on Twitter @ scantojr.

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