Will Oil Crash Make Way For Maduro’s Exit?

About 159 liters of gasoline cost much less than a can of soda does

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Oil prices are so low that producers are paying warehouses to store the barrels. What will Maduro’s regime do when it has no cash to pay for this service? (Miraflores Palace)

Spanish – The oil market is in its historically worst crisis. The price of crude oil reached less than zero dollars per barrel, which means that 159 liters cost much less than a can of soda. Venezuela, the country with the largest oil reserves, is in economic limbo amid the global pandemic and fuel shortages.

“Even if the price of gasoline is zero dollars, Venezuela will not be in crisis,” Hugo Chávez said haughtily in 2009 when the Venezuelan oil basket was at 83 dollars per barrel and kept its daily production at about three million barrels. Eleven years later, a barrel of oil is valued at less than a dollar, and the economy of the oil-rich country is on the brink of collapse.

Oil is so cheap that producers are paying warehouses to store barrels. Prices are at their lowest point since 1983. What will Maduro’s regime do while it has no cash to pay for this service?

At these prices, the country ruled by Maduro loses its main source of revenue. The regime is forced to reevaluate the economic situation, which, for months, has already relied on the gold market and the illegal trafficking of gold.

More than 90% of Venezuela’s revenue comes from the sale of crude oil. As a result of this extreme dependence, along with the price crash, the regime risks receiving less than eight billion dollars this year, about a third of the amount it twenty-five billion dollars it reportedly received in 2019, which was 25 billion dollars, according to estimates by the local firm Ecoanalítica.

Maduro recently called the drop in oil prices a “brutal blow” and admitted that the prices have fallen below the cost of producing a barrel in the South American country. Now, the situation is getting worse.

Venezuela produces oil, but due to the declining condition of the refineries, it cannot refine crude oil. So a large portion of its revenues was from exporting barrels of crude oil, which now cost less than a dollar. Moreover, it sent shipments of the same oil to countries such as Cuba, Russia, and China to pay off foreign debt.

Venezuela has the most expensive gasoline in the world

Gasoline used to be an extremely cheap and heavily state-subsidized commodity in Venezuela. Today, while oil prices have fallen to their lowest levels across the world, oil in Venezuela is the most expensive in terms of dollar sales. “Venezuela went from having the world’s cheapest consumer gasoline prices to having among the most expensive — 15 dollars a gallon (3.96 dollars per liter,” according to the New York Times.

Venezuelans claim that the National Guard is selling gasoline at four dollars per liter. So it costs up to 100 dollars to fill the tank of a medium-size vehicle. Meanwhile, the monthly minimum wage in the country isn’t more than 10 dollars.

A crash landing?

“The drop in oil prices could cause the sharp fall of Nicolás Maduro’s regime in Venezuela,” economist José Toro Hardy told the PanAm Post. Until 1999, Toro was a member of the PDVSA board of directors, and together with a team of specialists, he managed to position the company as the second-best in the world.

“The impact on the Venezuelan economy is going to be quite severe, and I think it puts the Venezuelan regime in a rather compromised situation. I compare the Venezuelan situation to a plane going up 30,000 feet and running out of fuel. The pilot would have to look for a nearby runway, which in this case would be a ‘negotiated exit.’ The other alternative would be to continue flying, but since planes don’t fly without gasoline, it could end up in a crash,” he said.

Toro Hardy’s opinion coincides with an article published by the Financial Times suggesting that 2020 would be “the year when a regime change could occur” in Venezuela.

“The even stricter sanctions combined with the sharp drop in oil prices as a result of the coronavirus seem to lead to a drop in production this year, putting intense pressure on Maduro’s regime,” writes the British publication.

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