Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

October 15, 2008

If You Live By The Petrodollar, You May Die By The Petrodollar, Right Hugo?

by Brad Warbiany

For the better part of a decade, Hugo Chavez has been running “La RevoluciĆ³n!” It’s been an attempt to remake Venezuela and then the rest of South America into a socialist powerhouse that would stand up to el Diablo del Norte.

He’s financed this movement on high oil prices. As an oil exporting nation, and as a dictator who has nationalized oil into a fully state-owned enterprise, he’s been living high on the hog for quite some time. Many of us predicted that he was wasting money that would be better spent exploring for more oil on his social programs and would eventually face the reckoning of declining production. Instead, though, he may face his fate more quickly:

According to studies prepared by PFC Consulting Limited, a Washington-based wholly owned subsidiary of Power Finance Corporation Limited, and German bank Deutsche Bank, Venezuela is the most vulnerable country to the financial crisis.

PFC considers that Venezuela needs that the price of oil averages USD 97 to balance its accounts while in 2000, the South American country required that the price of the barrel of petroleum was USD 34.

Deutsche Bank says that next year Venezuela and Iran require that the average price of oil remains at USD 95; Saudi Arabia at USD 55 and Russia at USD 70.

The Ministry of Energy and Petroleum only releases the weekly price of the Venezuelan basket of crudes, and based on the statistics, oil prices dropped 35.3 percent, from USD 126.46 on July 18 to USD 81.78 at the end of last Friday session.

Venezuela has been spending and spending, like the good times of high oil prices will never end. In a weakening economy, perhaps with oil heading downwards further, it seems likely to put a stop to his wider dreams of regional domination. I’d say that it puts his own administration in jeopardy, though, but I think he’s got enough of a lock on power at this point that very little will challenge his reign internally.

Of course, it’s not like America is without fault, as we’re reeling from the same overexuberance and feeling like the good times would never end. But we didn’t put all our eggs in one oil barrel, so I think we’re much more capable of weathering this storm than Venezuela.

Hat Tip: Cato @ Liberty

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