© 2018 by Robert Person.  The views expressed on this website are my own and do not represent the official policy of the U.S. Army, Department of Defense, or U.S. Government.

alexschung
Mar 26

Venezuela may divert U.S.-bound oil to Rosneft

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Edited: Mar 26

U.S. imports of Venezuelan oil have been halted completely in light of the recent sanctions, and the Venezuelan government is seeking alternative options. The head of the Venezuelan state-run oil company PDVSA, Manuel Quevedo, stated that PDVSA may shift U.S. oil sales to Rosneft, a Russian oil company. This shift to the Russian market in particular is interesting because it shows desperation on the part of the Venezuelan government – Russia is already a large exporter of oil, and PDVSA would have to sell their oil below the market price as buyers such as Rosneft have increasing monopsony power over Venezuelan oil purchases. Applying IPE theory, Venezuela is one of the countries that has experienced the resource curse due to its abundance of oil deposits. The Rybczynski theorem explains that as some factor endowment increases, the industry that uses that factor intensively will increase its output, while the other industries decrease their output. This explains how the Venezuelan oil industry dwarfs most other industries (Dutch disease) and why the Venezuelan government is now dependent on the Russians purchasing sanctioned oil in order to earn revenue.

Under the government of Hugo Chavez, the Venezuelan government nationalized its oil enterprises, leading investors to pull foreign direct investment out of Venezuela due to fears of expropriation. This further aggravated Venezuela’s resource curse as capital began to flow out of the country. The resource curse also has political effects. Frankel and Ross also both agree that endowments of oil can lead to poor institutions and inhibit democracy. Although this was not always the case in Venezuela, it is now a major concern, especially for the United States. In light of recent developments such as the Russian military transport planes arriving in Venezuela, political stabilization will be a prerequisite to transforming Venezuela’s economy and achieving diversification of its industries.

 

https://www.reuters.com/article/us-venezuela-oil/venezuela-may-divert-u-s-bound-oil-to-russia-says-jose-generator-back-online-idUSKCN1QZ1CA

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