Long before Venezuela’s economic collapse, Venezuelan economist and OPEC co-founder Juan Pablo Pérez Alfonzo issued a warning that sounded almost absurd at the time: “Oil is the devil’s excrement.”
Decades later, those words have come to define one of the greatest economic collapses in modern history.
Venezuela sits atop the world’s largest proven oil reserves -- more than 295 billion barrels, accounting for over one-fifth of global reserves.
For much of the twentieth century, that vast wealth transformed the country into one of Latin America’s most prosperous economies.
Oil exports fuelled rapid growth, attracted foreign investment and turned the state-owned oil company, PDVSA, into the backbone of the national economy.
But prosperity built on a single resource proved dangerously fragile.
When Hugo Chávez took office in 1999, soaring oil prices gave his government unprecedented financial power.
As crude climbed from roughly $10 to more than $60 a barrel, billions of dollars flowed into state coffers.
Chávez used that windfall to finance ambitious social programs, expanding access to education, healthcare, subsidised food and housing.
Poverty fell, and his popularity surged.
Yet the boom concealed deeper weaknesses.
Successive governments poured resources into the oil sector while expanding state control over telecommunications, agriculture, steel and other industries.
Many private businesses closed or left the country, investment slowed and domestic production weakened.
Venezuela became increasingly dependent on imports for food, medicine and everyday consumer goods -- all paid for by oil revenues.
The country’s fortunes became tied almost entirely to a single commodity.
That dependence became even riskier after the 2002 strike at PDVSA, when thousands of experienced engineers and technical staff were dismissed and replaced.
While oil income continued to sustain public spending, institutional capacity steadily eroded.
Corruption flourished, political power became increasingly centralised and critics accused the government of weakening democratic institutions, including the judiciary.
For years, rising oil prices masked those problems.
Then the market turned.
After Nicolás Maduro assumed the presidency following Chávez’s death in 2013, global oil prices collapsed from around $100 a barrel to nearly $30.
Because oil generated about 95% of Venezuela’s export earnings and more than half of government revenue, the shock devastated public finances.
Later US sanctions further restricted the country’s access to international markets, compounding an economy already weakened by years of mismanagement.
The consequences were catastrophic.
Hyperinflation reached an estimated 1.37 million percent in 2018 as the government printed money to finance spending.
Food and medicine became scarce, diseases such as malaria resurged, and millions of Venezuelans fled the country in one of Latin America’s largest migration crises.
By 2021, poverty affected more than 94% of the population by international income standards, while the economy had lost nearly 80% of its output over the previous decade.
Harvard economist Ricardo Hausmann described the scale of the collapse starkly: Venezuela’s economic contraction exceeded twice the size of the Great Depression in the United States.
Venezuela’s tragedy was never a shortage of natural resources. It was the failure to build an economy beyond them.
The country remains a powerful reminder of what economists call the “resource curse,” the paradox in which extraordinary natural wealth becomes a source of vulnerability rather than prosperity.
Without strong institutions, transparent governance and economic diversification, even the world’s richest oil reserves can become the foundation of a national crisis rather than national prosperity.