‘No one more vocally opposed the Apertura than a charismatic army colonel named Hugo Chávez, who had been imprisoned after leading a coup in 1992. By the time of the 1998 presidential election, the country’s economic crisis had become worse: The price of oil, the lifeblood of the economy, had collapsed to $10 a barrel.’
Daniel Yergin
The country’s answer during the 1990s was the Apertura Petrolera, the oil opening. International companies were invited to come back to Venezuela, bring their technology and investment, and work once again directly, not as owners of concessions but rather as partners and operators. The plan met violent opposition. Nationalists charged that the sovereignty of Venezuela was being violated once again and that control of the country’s oil, which had been wrested away from foreign companies, would be undermined.
No one more vocally opposed the Apertura than a charismatic army colonel named Hugo Chávez, who had been imprisoned after leading a coup in 1992. By the time of the 1998 presidential election, the country’s economic crisis had become worse: The price of oil, the lifeblood of the economy, had collapsed to $10 a barrel. Running as an outsider, Chavez, amnestied from prison only four years earlier, won the presidency, though with a total turnout of just 36%.
Once in power, Chavez wasted little time in dismantling the democratic system, centralizing all power in his hands and that of his clique, under the rubric of his “Bolivarian Revolution” and his motto “socialism for the 21st century.” He rewrote the constitution, eliminated one house of parliament, undermined the supreme court and took direct control of PdVSA and its enormous revenues.
Cuba’s influence
Cubans arrived to help Chavez cement his control. Parents decried the “Cubanization” of school textbooks, and Chavez took to playing ball—literally—with Fidel Castro, pitching against him in a game in Havana. Castro’s team won 5 to 4. More important, Cuba won subsidies and oil supplies from Venezuela, a lifeline for its own economy. Castro blessed Chavez as his political son and sent his secret services to help protect the Venezuelan strongman. “There is only revolution and counterrevolution,” Chavez declared. “We are going to annihilate the counterrevolution.”
Chavez had the good fortune of rising oil prices to help bolster his regime, but by 2002 most Venezuelans had grown weary of his increasingly dictatorial rule. Mass opposition and a coup briefly deposed him, but after three days under guard on a military island, he helicoptered back to Caracas. At the end of that year a general strike brought the country to a halt. Oil workers stopped working, oil output fell to almost nothing, and exports ceased. The shutdown lasted a couple of months. When it was over, half the workforce was fired.
Most of the foreign investment under the Apertura had gone into the Orinoco Belt, a 54,000-square-mile region, rich with oil, but oil so thick that it would not flow by itself. Before Chavez came to power, a half dozen companies had entered into contracts with PdVSA to produce the oil, which required extra investment and extra technology.
But Chavez would not have it. In 2007, dressed in red fatigues, he descended on the Orinoco to announce “the true nationalization of our natural resources” and thundered, “Down with the U.S. empire.” Behind him was a poster declaring “Full Oil Sovereignty, the Road to Socialism.” Most of the companies left and went into arbitration, which, after lengthy processes, left them with judgments that went largely unpaid.
In 2013, Chavez died and was succeeded by his Vice President Nicolás Maduro, a former bus driver who had risen through the union movement. He had held various jobs under Chavez, including foreign minister, but had none of Chavez’s charisma. What he did have was the capacity to run a highly repressive dictatorship that would imprison and torture opponents or even those who had wandered into a protest on the streets.
He also presided over an economic disaster, as the country, through mismanagement and corruption, suffered simultaneously from both hyperinflation and deep recession. At one point, GDP declined by 35%. By one estimate, 75% of the population was living in poverty. Crime was endemic, and cartels turned drugs into a big business. Out of desperation, eight million of the country’s 30 million fled as economic refugees, mostly to neighboring countries.
Falling production
For decades, Venezuela had been a petrostate. But under Maduro, the country hardly even made the grade. Over the course of his presidency, production fell 60% and was actually 75% lower than when Chavez had come to power.
For oil companies now thinking of returning to Venezuela, the immediate problem is the wreckage left by Chavez and Maduro. “The oil industry has been in a state of continuing destruction of assets and value because of lack of investment and maintenance, corruption, and political control,” said Juan Szabo, a former senior official of PdVSA.
For two decades, corruption and theft reached from the top of the government down to the field, where unpaid workers sold off drilling equipment and metal from pipelines to pay for food. Talent fled the industry, with many of the most capable managers in exile. And PdVSA itself, once one of the most respected state oil companies in the world, was turned into a political machine and a piggy bank for the regime, which is still very much in power even after Maduro’s arrest.
Some larger companies may return to Venezuela in the hope of somehow collecting billions of dollars of unpaid debts, and some smaller companies and entrepreneurs with a high tolerance for risk will certainly look for opportunities there. But none of this promises a full-scale revival of the once mighty Venezuelan oil industry. For that to happen, there will have to be a more fundamental change in Venezuela’s politics and policies and also in the readiness of companies to make a new deal with a country that, despite the ruin left by Chavez and Maduro, is still committed to the idea that it should control its own oil.
The current situation reminds me of a conversation I had with the CEO of one of the major international oil companies on the eve of the 2003 invasion of Iraq. “You know what I’ll say to the first person in our company who comes to us with a proposal to invest a billion dollars?” he said. He’d ask them about the new regime’s legal and political system, economic and fiscal policies, standards for contracts, arrangements for arbitration and security. “Tell us about all those things,” he added, “and then we’ll talk about whether we’re going to invest or not.”
Venezuela today is very different from Saddam Hussein’s Iraq, and 2025 is not 2003. But similar questions will be on the agenda before billions of dollars of investment start to flow again into Venezuela, and the answers will have to be worked out. That will take time.
