The Political Economy of the Venezuelian Oil-Industry

A Case Study

Essay, 2007

5 Pages, Grade: Distinction


IRPG 849 International Political Economy

Sebastian Plappert

Case Study

"The Political Economy of the Venezuelian Oil - Industry”

The Orinoco belt in the east of Venezuela is considered to be one of the world's richest reserves of crude oil. Currently Venezuela is the sixth-largest net oil exporter in the world, but most of its oil is still to be found (EIA 2007, p. 2). An important part in the production process was conducted by multinational corporations, operating in Venezuela as well as in the US and all around the globe. However, the current developments in Venezuela have again spotlighted the political nature of oil production. In the following, this paper will explore and analyse the connections between political power, the mode of oil production in Venezuela and its implications internationally. Special focus will be put on the changing position of multinational corporations and the role of the state in shaping the economic framework.

Oil production and politics have been closely connected throughout modern Venezuelan history. The national oil corporation Petroleos de Venezuela (PDVSA) was put into existence as a result to the Yom Kippur War. When the Arab countries in 1973 denied supplying oil to nations supporting Israel, the price for oil went up to unprecedented heights and "created immense and unexpected Wealth for Venezuela” (Briceno-León 2005, p. 9). This assured the Venezuelan state to increase public spending and nationalise all its oil resources. PDVSA was completely state owned, but independent in its way of operation. As the main shareholder the Venezuelan state received about 80% of the profit (Guisti 1999, p. 122). Being "an economically autonomous entity”, the state was not dependant on national economic activity and its population's taxable income, but only on the international demand of oil. (Briceno-León 2005, p. 4).

However, "the bubble burst when the Venezuelan currency, the Bolívar, collapsed along with world oil prices” in the 1980's due to overstretched state expenses (Sylvia & Danopoulos 2003. p. 65). In order to stabilise inflation and restore economic growth neoliberal macroeconomics were applied to increase competitiveness and attract foreign investment (Sylvia & Danopoulos 2003. p. 65). Along with the strategy of 'aperatura' PDVSA was partially privatized, "allowing private individuals and firms to form strategic associations […] equivalent to joint ventures” (Guisti 1999, p. 118). Multinational Corporations like Exxon Mobil operated the oil fields, paying royalties and selling fixed percentages of the extracted crude to PDVSA for previously negotiated rates (EIA 2007, p. 3). Although the bulk of the profits was made by private international corporations transferring the surplus globally to invest in further operations, PDVSA and the Venezuelan government returned to generate high revenues (Martinez 2007, §§ 8-10).


Excerpt out of 5 pages


The Political Economy of the Venezuelian Oil-Industry
A Case Study
Macquarie University
IRPG 849 International Political Economy
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
367 KB
4 pages text, 2 pages sources
Political, Economy, Venezuelian, Oil-Industry, Case, Study, Distinction, Venezuela
Quote paper
Sebastian Plappert (Author), 2007, The Political Economy of the Venezuelian Oil-Industry, Munich, GRIN Verlag,


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