World View: Socialist Venezuela’s State-Owned PDVSA Oil Company Near Total Collapse

In this Feb. 18, 2015 photo, storage tanks stand in a PDVSA state-run oil company crude oil complex near El Tigre, a town located within Venezuela's Hugo Chavez oil belt, formally known as the Orinoco Belt. U.S. petroleum exports to Venezuela, much of it fuel additives to dilute the country’s …
AP Photo/Fernando Llano

This morning’s key headlines from

  • Socialist Venezuela’s state-owned PDVSA oil company near total collapse
  • Will China or Russia save Venezuela?

Socialist Venezuela’s state-owned PDVSA oil company near total collapse

Oil tank labeled 'PDVSA - Homeland, Socialism or Death' (PanamPost)
Oil tank labeled ‘PDVSA – Homeland, Socialism or Death’ (PanamPost)

Socialist Venezuela’s state-owned oil company Petróleos de Venezuela S.A. (PDVSA) is close to collapse, beset with an ever-growing array of new and growing problems.

Venezuela’s oil refineries worked at 31 percent of their in the first quarter in 2018, well below 2017 levels. Venezuela has not seen such low levels of oil production since the 1980s. Average oil production declined dramatically over the past two years, by 12 percent in 2016 and again by 13 percent in 2017. Production in December 2017 was 27 percent lower than a year earlier.

Late last year, Venezuela’s Socialist president Nicolás Maduro appointed a military man, Major General Manuel Quevedo, head of PDVSA, with a mandate to increase production and rid the company of corruption. Quevedo and his team of military officers had no experience in the oil industry and replaced long-time experienced employees with soldiers. According to an executive, “The military guys arrive calling the engineers thieves and saboteurs.”

There has been a stampede of PDVSA workers resigning from the company. Already, 25,000 of the company’s 146,000 employees resigned in 2017, and the exodus has accelerated in 2018, as General Quevedo “quickly alienated the firm’s embattled upper echelon and its rank-and-file,” according to union leaders. Many of those leaving now are engineers, managers, or lawyers, professionals that are almost impossible to replace. Some offices now have lines outside with dozens of workers waiting to resign, and there have been so many resignations that some offices are refusing to accept any more of them.

The loss of all these workers is one of the causes of the fall in production, and also the inability of the company to properly maintain its equipment. Many drilling rigs work only intermittently for lack of crews, and several small fires have broken out because there are no longer enough supervisors.

The apparent oil industry collapse is a major factor in Venezuela’s economic setback. More than 90 percent of the country’s hard currency is obtained through oil exports. The country is also suffering the worst economic depression ever recorded in Latin America. The International Monetary Fund (IMF) estimates gross domestic product (GDP) contracted by 16.5 percent in 2016 and 12 percent in 2017 and forecasts a 15 percent contraction for 2018. Inflation reached more than 2,600 percent in 2017, the highest in the world by a wide margin, and the IMF forecasts 13,000 percent for 2018. Curaçao Chronicle and OilPrice and Reuters

Will China or Russia save Venezuela?

Only China and Russia can provide Venezuela with enough money to keep it from going into full-blown default, but it is doubtful that they will. However, Russia has been purchasing Venezuelan oil fields in exchange for loans, extending Russian influence in Venezuela. The Soviet Union propped up Cuba’s economy for decades, but it seems unlikely that Russia will do the same for Venezuela, which is several times larger and more expensive than Cuba.

It is worth repeating that this disaster is the fault of Socialism. As I discussed in my article yesterday on Cuba’s Socialism, Socialism has a 100 percent failure rate. Socialism killed hundreds of millions of people during the twentieth century, far more than Naziism killed, and now it’s destroying Venezuela.

Cuba seems to be stepping back from the brink, having implemented a few reforms, though there is still a very long way to go. But Venezuela under Nicolás Maduro refuses to implement any reforms at all, and seems willing to destroy Venezuela for his own benefit. Atlantic Council (PDF) and Bloomberg and Council on Foreign Relations

Related articles:

KEYS: Generational Dynamics, Venezuela, Petróleos de Venezuela S.A., PDVSA, Nicolás Maduro, Manuel Quevedo, China, Russia
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