Oil is no substitute for productive economy

Out of the oil-exporting countries that have benefited greatly from the record high prices over the last few years, Venezuela is among the leaders of spending its new-found riches rapidly and in a politically motivated way. The Christian Science Monitor reports,

    With crude reaching $145 a barrel this year, [President Chávez] has been able to pour billions into social programs at home and lavish the rest abroad, sending subsidized oil from Nicaragua to New York – including up to 100,000 barrels of oil per day to Cuba, discounted by as much as 40 percent – and making pledges to invest in infrastructure, refineries, and agricultural programs everywhere in between.

But with the price of oil 55 percent less than its peak in July, continuing this largess may no longer be feasible, either internationally or domestically. A new report from Deutsche Bank implies this by showing that Venezuela needs oil prices to stay at a minimum of $95 a barrel to balance its budget.

Oil income accounts for more than half of the country’s federal budget and more than 90 percent of export earnings. At the same time, Venezuela relies heavily on imports, including most of its food, which makes it extremely vulnerable to oil price shocks. The current price dip and the risks it carries for countries like Venezuela is a reminder that oil-based fortunes can be vulnerable as a political tool and are no substitute for having a productive economy.

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