Threatened U.S. sanctions on Venezuelan oil could further destabilize the beleaguered country, but some economists say there’s already a good chance the Latin American country could collapse on its own.
Venezuela’s oil exports are about half of what they were at its peak, and RBC expects a further decline of about 300,000 to 500,000 barrels a day this year, and several hundred thousand more with sanctions.
The U.S. also could cut off the export of diluents, a diluting agent Venezuela needs to thin down its heavy fuel.
As of 2018, the U.S. Gulf Coast refiners were importing some 500,000 barrels a day of Venezuelan heavy crude, about half of the country’s exports, and down from more than 900,000 barrels a day.
At the same time, Venezuela’s GDP has shrunk dramatically and a staggering esimated 3 million of its citizens have migrated, creating a huge loss of economic and brain power. According to Capital Economics, GDP per capita is half of what it was in 2012 and at the same level it was in the 1950s.
While Venezuela has seen hyperinflation for just over a year, it has been in a much longer economic crisis that was exasperated by the sharp drop in oil prices in 2014. Its budget deficit has been in the double digits for the past decade, reaching about a third of GDP last year.
What’s left of Venezuela’s oil industry continues to decline, with the country unable to import the basic capital equipment and materials needed to maintain it, according to Glossop. While it’s unclear what will happen in Venezuela, so far, Maduro appears to be supported by senior military leaders. Glossop said he does not see a long drawn out civil war as a base case.
“Tn terms of prospects for civil war, it would depend on whether you get a big splinter in the military,” he said. “At the moment the army has stuck together…It’s the question of where the country would get the resources to last through a civil war.”
“Hyperinflation should do the work I think. I think the U.S. will watch how things will pan out in the next few months and protests could gather momentum, and things will happen internally,” he said.