Venezuela’s Resource Curse

Context:
Despite possessing the world’s largest proven crude oil reserves, Venezuela exemplifies the resource curse, where excessive dependence on a single natural resource, combined with mismanagement and external sanctions, has led to prolonged economic collapse and marginalisation in global energy markets.

Key Highlights:

Oil Wealth and Production Decline:

• Venezuela holds 303 billion barrels of proven crude oil reserves (2023) — the largest globally.

• Crude oil production in 2024 stood at ~921,000 barrels per day, a sharp fall from over 3 million bpd in the 1980s.

• Venezuela’s share of global oil exports declined from over 4% in the 1990s to ~0.35% in 2023.

Role of U.S. Sanctions:

• U.S. sanctions (since 2017) restricted Venezuela’s access to:

  • International financial markets

  • U.S.-based assets of PDVSA

  • Essential diluents needed to process extra-heavy crude

• Recent enforcement measures include naval actions to curb Venezuelan oil exports.

Nature of Venezuela’s Oil Reserves:

• Predominantly extra-heavy crude oil, requiring:

  • Advanced extraction technology

  • Specialised refineries

• Chronic underinvestment and poor maintenance have rendered infrastructure inefficient.

Institutional and Governance Failures:

• After the early 2000s coup attempt and oil lockout, the state-owned firm PDVSA became highly bureaucratised.

• Loss of skilled professionals led to:

  • Declining technical expertise

  • Reduced operational efficiency

• Political interference undermined professional management.

Failure to Diversify the Economy:

• Unlike other OPEC nations, Venezuela failed to diversify exports beyond oil.

• High vulnerability to:

  • Oil price volatility

  • External sanctions

• The oil boom of the 1970s (post-Yom Kippur War) temporarily raised per capita income, but structural weaknesses persisted.

Relevant Prelims Points:

• Issue: Economic collapse due to oil dependence and sanctions.

• Causes:

  • Over-reliance on hydrocarbons

  • Weak institutions and mismanagement

  • External economic sanctions

• Key Facts:

  • Largest proven oil reserves globally

  • Member of OPEC

• Benefits of Diversification (Missed):

  • Economic resilience

  • Reduced external vulnerability

• Challenges:

  • Infrastructure decay

  • Capital and technology constraints

• Impact:

  • Shrinking export share

  • Humanitarian and economic crisis

Relevant Mains Points:

• Facts & Definitions:

  • Petrostate: Economy heavily dependent on oil revenues.

  • OPEC: Organisation coordinating petroleum policies of member states.

  • Sanctions: Economic and financial restrictions to influence state behaviour.

• Conceptual Clarity:

  • Resource Curse: Natural resource wealth can weaken institutions and growth if mismanaged.

  • Sanctions amplify internal structural weaknesses rather than create them alone.

• Keywords:

  • Rent-seeking, institutional decay, energy geopolitics, economic sanctions

• Way Forward (Analytical):

  • Diversification beyond hydrocarbons

  • Professionalisation of state enterprises

  • Gradual sanctions relief linked to reforms

  • Investment in refining and value addition

  • Strengthening governance and fiscal discipline

UPSC Relevance (GS-wise):

• GS 3: Economy – resource dependence, growth challenges

• GS 2: International Relations – sanctions, geopolitics, oil diplomacy

• Prelims: OPEC, sanctions, petrostate concept