50 years ago the world experienced a global energy upheaval.
In October 1973, oil-exporting Arab countries imposed an embargo on oil sales to the United States and other states in retaliation for their support for Israel in the Yom Kippur War, which pitted the Jewish state against Egypt and Syria.
The price of crude oil skyrocketed. If in 1971 it was paid US$1.80 per barrel, in 1974 it reached 11.65. The rise was one of the main reasons for an economic crisis from which the world took years to recover. It went down in history as the Oil Crisis.
For most Latin American countries it was a severe setback that forced them into massive debt to cover its energy needs, which laid the foundations for the debt crisis that would economically suffocate the region in the so-called “lost decade” of the 1980s.
But there was one country that benefited greatly: Venezuela. At least at the beginning.
This is the story of how it became one of the richest countries in Latin America, while its neighbors suffered.
“An unexpected manna”
In an article published by the United States Federal Reserve, researcher Fabrizio Perri stated that “Venezuela stands out as the only country that has experienced both a miracle in its economic growth and a disaster in the course of a century.”
The “disaster” has occurred in the last seven years, in which Venezuela has lost approximately three quarters of its Gross Domestic Product.
The “miracle” was that of the 1970s. Just in the two years that followed the 1973 embargo, the country received an additional US$10 billion from the sale of its crude oil.which boosted its Gross Domestic Product and stimulated decisive changes in its economy.
As it had done in previous crises in the Middle East, Venezuela remained neutral and avoided joining the Arab embargo against Washington.
This allowed him to become alternative supplier of crude oil for the United States and the other developed countries affected by the embargo.
Capable of producing 3.3 million barrels a day, a far cry from just over 800,000 today, Venezuela was the largest oil exporter outside the Middle East and its production exceeded the sum of all other Latin American countries.
That strength It also increased its international weight.
According to Stephen J. Randall of the University of Calgary, Canada, “Venezuela had become a major international player as one of the largest exporters of crude oil.”
Strengthened by skyrocketing oil income, Caracas was even able to dedicate generous aid through the Inter-American Development Bank to the countries of Central America, especially hit because they had to import all the oil they consumed.
The boom period drove profound changes in the country, then led by President Carlos Andrés Pérez.
José Toro Hardy, an economist specialized in the history of oil in Venezuela, told BBC Mundo that “Pérez found himself with an oil manna that he did not expect due to the rise in prices and that encouraged him to decree shortly after the nationalization of oil.” .
Venezuela was no exception. Since the previous decade, following the theses of Import Substitution Industrialization, (ISI) economic theory then in vogue, many developing countries had begun to choose to nationalize their natural resources to allocate the income from its export to promote local growth.
The high prices reinforced these theses, which the majority of notable figures on the Venezuelan scene at that time, such as Rafael Caldera or Arturo Uslar Pietri, had already embraced. Not in vain, it had already been one of Pérez’s promises in the 1973 electoral campaign.
“When Carlos Andrés Pérez decided, the entire country was clamoring for nationalization”says Hardy Bull.
In 1975, finally, Venezuelan oil was nationalized. The foreign companies that exploited it were compensated and their assets and personnel passed to a newly created state company, Petróleos de Venezuela (PDVSA), which would be one of the engines of development in years. later.
At that time it was believed that Venezuelan oil reserves were much smaller and the foreign companies that had been exploiting them had abandoned exploration work due to the near end of their concessions.
The newly created PDVSA began active exploration work that revealed the true magnitude of Venezuela’s reservesthe largest in the world according to its government.
The action of the state company also helped to develop the technology that would make profitable the extraction of crude oil from the so-called Orinoco Oil Belt, which was not exploited because it was very heavy and of low quality.
After nationalization, the country experienced a time of prosperity that would be known as that of Saudi Venezuela.
Under the slogan of “Great Venezuela”, the Pérez Government promoted an ambitious “state capitalism” and with oil revenues modern infrastructures were paid for and the basic industries dedicated to metallurgy, electrical energy and other activities were also nationalized.
The Venezuelan State became one of the main economic agents and one of the largest employers in the country. Its dynamic growth attracted many Colombian migrants to Venezuela.
That was also a time of easy money.
It was then that a defining expression of that time became popular and is still well remembered by Venezuelans when they compare it with the hardships of their present: “It’s cheap, give me two”.
An over-indebted region
On the other hand, the wind was blowing in the face in other Latin American countries.
Unlike Venezuela, most of them needed to import oil and other raw materials to generate energy and the Oil Crisis put them in serious difficulties.
According to Randall, “at the time of the embargo and the increase in prices, two thirds of Latin American countries had an energy deficit and had to import energy; “oil represented 65% of that energy.”
As much of the region depended on imports, “the sudden and sharp increase in the price of oil had a significant impact on the balance of payments. The external debt of most countries increased and served as a prologue” to what would happen in the 1980s.
Only Brazil, protected by its large amount of international reserves, was able to face the increase in oil prices with relative ease.
The rest were forced to resort to deficit and debt to pay an out-of-control energy bill.
Peru, for example, completely exhausted its international reserves and in 1978 was looking for ways to refinance a foreign debt that had become impossible to pay despite the fact that only two years earlier it had obtained US$210 million in loans from US banks.
The other widespread evil was inflationwhich, despite being a global problem, was particularly difficult to correct in Latin America.
In Argentina and Chile, prices rose by 300%, and Peru would enter the 1980s mired in hyperinflation, the memory of which still shakes many Peruvians.
No happy ending for Saudi Venezuela
But the story of Saudi Venezuela did not end well.
The arrival of so much easy money led to some vices and imbalances in the economy who ended up condemning her.
In the wealthiest sectors, frivolous and ostentatious consumption spread.
The budgetary waste and high public spending fueled the rise in prices, which hit especially the most humble homes.
Meanwhile, as Randall points out, “Venezuela’s new wealth did not reach its people in any meaningful way.” According to this author’s research, The most disadvantaged 20% of Venezuelans only received 3% of the national incomedespite the fact that his country’s per capita income had risen to around US$2,000 annually, one of the highest in the region.
And inefficiency and corruption began to gain ground and cause losses in the public sector.
Gustavo Coronel, a researcher at the Cato Institute, an analysis center in the United States, estimated that only between 1972 and 1977 around US$100 billion were improperly diverted of the Venezuelan oil industry.
Furthermore, according to Toro Hardy, the state investment had undesired effects: “A state that was all-powerful due to oil revenues came to control the economy to such an extent that all incentives for the private sector disappeared.”
The economist believes that “the tragedy of Venezuela is that sudden wealth when oil rises creates a fiction and unleashes the populism of governmentsbut then prices fall and the euphoria disappears.”
“That is why Venezuela lives on an economic roller coaster.”
Indeed, the Venezuelan GDP curve shows many pronounced oscillations since it was discovered that there was oil in the country in the 1920s.
After the boom of the 1970s, the decline of the following decade would come.
By the time Carlos Andrés Pérez returned to the presidency in 1989, Venezuela was so trapped in foreign debt like its neighbors and the president had to approve a severe adjustment plan under the tutelage of the International Monetary Fund similar to that applied in other countries in the region.
The plan motivated strong protests in the streets, such as the Caracazo of 1989, and in 1992 a young colonel named Hugo Chávez led a frustrated coup against Pérez that ended with dozens of deaths and him in jail.
In 1998, amid discontent against traditional politicians, Venezuelans elected Chávez president. But that’s another story.
Now you can receive notifications from BBC Mundo. Download the new version of our app and activate them so you don’t miss our best content.
- Do you already know our YouTube channel? Subscribe!