The economic crisis in Venezuela continues to deepen ahead of the upcoming presidential elections. The fall in oil production is both a result of the crisis as well as a contributor to the economic downturn.
Oil production in Venezuela fell rapidly in the fourth quarter of 2017. According to the Organization of Petroleum Exporting Countries’ monthly oil market report, crude oil production in Venezuela fell 3 percent from the previous month to just 1.600 million barrels per day. Production was 2.154 million barrels per day in 2016.
Dan Eberhart, CEO of the oilfield services company Canary, sees the upcoming elections and the United States’ response as the linchpin to Venezuela’s future.
Assuming the country doesn’t collapse entirely, Eberhart said in Forbes, “Venezuelan production is likely to fall another 400,000 to 600,000 barrels a day this year.”
Presidential elections will be held on May 20. President Nicolas Maduro is hoping that the elections will provide him an opportunity to give his regime legitimacy. Maduro used the same tactic last summer when he held elections for the National Constituent Assembly to replace the opposition-controlled legislature.
The Trump administration placed sanctions on Maduro and regime officials after those elections. Eberhart believes that the upcoming election could lead to a similar response from the United States.
“If Maduro uses the election to further consolidate his grip on power, it could prompt Washington to slap the harshest of measures on Caracas,” Eberhart speculated. “These could include an outright ban on imports of Venezuelan crude, or, more likely, an embargo on U.S. exports of light oil and refined products to the South American country.”
Such a tactic would put extreme pressure on Venezuela’s economy and could push the embittered country over the edge into collapse. In addition to exacerbating the already intense migration crisis coming out of Venezuela, an economic and political collapse would most likely bring oil production to a grinding halt.
Eberhardt argues that a combination of Saudi supply, shale oil production in the United States, and the use of the national strategic oil reserves by the Trump administration would make the short-term oil price shock bearable for the United States.
Eberhardt is ultimately optimistic that “Venezuela’s reserves can be extracted profitably” if the government in Venezuela is “credible and creditworthy.”
However, given that Maduro is expected to win the upcoming election, it seems unlikely that such a government will take power in Caracas anytime soon.