Let me state clearly up front that this article is in no way an argument in favor of meddling in Venezuela’s internal affairs. Despite my criticisms of how Venezuela has managed its oil industry, I would not suggest that the U.S. attempt to force a solution upon the country.
This post stems from a recent debate I had over the downfall of Venezuela’s oil industry. The question was whether the country’s oil production is falling as a result of sanctions or mismanagement. While I agree that sanctions have had an impact — especially over the past year — the root of Venezuela’s problems go back 20 years.
Even as the U.S. announces new sanctions on Venezuela’s oil industry, I will point out regarding prior sanctions that Venezuela has remained one of the most important suppliers of oil to the U.S. In 2018, Venezuela ranked behind only Canada and Saudi Arabia in the volume of oil imported by the U.S. Imports from Venezuela have declined over the years, but that’s the case with almost every country as U.S. shale production exploded. But sanctions have not prevented Venezuela from profiting from oil sales to the U.S.
A Short History of Venezuela’s Oil Industry
Venezuela’s oil production reached an all-time high in 1970 when the country produced 3.8 million barrels per day (BPD). In 1971, Venezuela national its natural gas industry, and began taking steps to nationalize its oil industry. The oil industry was officially nationalized in 1976. At that time, the Venezuelan state-owned oil company Petróleos de Venezuela S.A. (PDVSA) was formed.
Between 1970 and 1985, oil production in Venezuela experienced a decline of over 50%. But then production there once again began to grow. In 1997, as it sought to attract foreign investment and develop the heavy oil in the Orinoco Belt, Venezuela opened up its oil industry to foreign investment.
By 1998, Venezuela’s oil production had recovered to 3.5 million BPD, nearly reaching its former high. In 1999, Hugo Chávez began serving as President of Venezuela. During the Venezuelan general strike of 2002–2003, Chávez fired 19,000 employees of PDVSA and replaced them with employees loyal to his government.