Can Rebounding Oil Prices Save Venezuela?

This is without a doubt, a good news for countries that produce crude oil and that have been suffering grievous economic troubles. (Trapex)
The OPEC agreement is without a doubt good news for countries that produce crude oil. (Trapex)

EspañolOil production worldwide will be cut by 32.5 million barrels per day, and has already caused a five-percent drop in oil prices despite the decision not going into effect until Novemeber.

The agreement was made by the Organization of the Petroleum Exporting Countries (OPEC) in Algeria, and should be good news for oil-producing countries suffering serious economic problems, some experts said.

A steady decline in oil prices internationally has affected the revenue of countries like Venezuela, Mexico, Colombia and Ecuador, which in turn hurt their budgets — particularly in relation to funding for social programs.

However, none of these producers belonging to OPEC have been affected more than Venezuela, a country that experienced the so-called golden decade of raw materials during the first part of the century. At that time, oil prices hovered around $100 per barrel.

While the current severe economic crisis can in no way be attributed to the drop in oil prices (but rather the wrong and ruinous economic policy deployed since 2013 by the regime of Nicolas Maduro), there is no denying that oil prices haven’t help. They are now at US $30 per barrel in the country.

Would a possible increase in oil prices help Nicolas Maduro to stay in power and somehow neutralize the bad image and strong criticism from the international community? Probably not.

Despite recent statements by Maduro (seconded by Vladimir Putin) during the XXIII World Energy Congress held in Istanbul in early October, it should be taken into account that OPEC still has to reach a unanimous consensus November 30 in Vienna regarding the prize freeze and then award each country a quote. That’s really difficult to do.

Compliance with any production quotas is particularly difficult for Iraq and Iran, which have heavy restrictions placed on them after overcoming wars and corruption.

Assuming that the unanimous decision by OPEC is achieved and production quotas are allocated to every country, the measure will have no effect until 2017, a date that could be too late to benefit Maduro.

Also, the agreed prices may fall at any time. The market has cycles of ups and downs that do not necessarily obey strictly commercial regulations. Such factors have always affected the stability of the market, regardless of the decisions of producers and compliance with agreements.

Even with a price to US $70-per-barrel — which Maduro said he considered a “fair” price — that would would not allow his adminstration to balance its checkbook.

Venezuela seems to be excluded in the benefit that would come from a possible increase in oil prices — the improvement in quality of life, a diversified economy and a thriving energy sector.

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