When Oil Drops Hard: The Case of Venezuela

We’ve discussed here before the potential impact that the adoption of a new energy source (LENR) could have on countries that depend heavily on oil revenues. With the recent sharp decline in oil prices we can see that an energy shock can put some countries in a very difficult position. Personally, I don’t think that LENR has very much, if anything, to do with this drop in oil prices, but I think it could have a major impact on energy prices if it recognized as being a commercially viable technology.

  • An article by Andy Tully on oilprice.com looks at the current case of Venezuela which gets 96 per cent of its revenues from oil sales. Here are some of the main points from the article.
  • Venezuela pled for OPEC to cut oil production by 1 million barrels to stem the price fall, but at a November meeting OPEC maintained current levels of production and the price dropped lower.
  • Venezuela’s President Nicolas Maduro announced a 20 percent cut in government spending. Maduro also announced cuts in transaction fees for exchanging the Bolivar to the US dollar.
  • Maduro will visit Iran and Russia looking for foreign aid from those governments (both oil producing countries also hit hard by oil’s drop) and is sending his finance minister to China for help

Venezuela is already in a bad economic situation, with 60 per cent inflation,  a shrinking economy, with many basic goods hard to obtain — the oil price drop is exacerbating the situation.

Oil is a commodity that has had wild price swings in the past decades, and there could be an upswing in the future that will change the fortunes of oil producing countries like Venezuela. But I think that oil’s use as a transportation fuel, at least, is probably going to continue to decline, even without a revolutionary technology like LENR making a big splash. One benefit of high oil prices is that it gives incentive to developers of alternative energy technologies. As an example, we see electric vehicles and fuel cell vehicles being developed across the auto industry now — and use of natural gas is also growing as a transportation fuel.

I’m not sure what the solution to the situation in Venezuela is, but surely diversification of an economy is important. We learned recently that some in Norway (another oil-rich nation) are looking beyond oil when they held a seminar about LENR. The attendees were looking at the possibility that oil could stop being an economic mainstay, and were trying to figure out what moves they might need to make to adapt economically.