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Bombs Over Venezuela

Written by Luke Burgess
Posted August 6, 2018

Venezuela is falling apart. Two decades of socialist politics dating back to the election of the late Venezuelan President Hugo Chávez in 1998 have sent the economy into a tailspin.

Back in the late 1990s, Chávez nationalized the country’s farmland, manufacturing, and oil industries. At the same time, he enacted stringent capital control to stem capital flight and to prop up the Venezuelan bolivar.

Chávez’s plan was successful at first. It reduced poverty and increased opportunities for the nation’s poor. But that was short-lived.

During his 15-year term, human rights eroded, particularly in the freedom of the press and the rule of law. And the steep drop in oil prices from 2012 to 2016 tossed the Venezuelan economy into a downward spiral.

Now the chickens have come home to roost...

Over the past several months, President Nicolás Maduro’s socialist regime has been struggling with uncontrollable inflation, violent protests, and political instability. And now an assassination attempt on the president has put the country closer than ever to total collapse.

Over the weekend, Maduro was speaking to a live televised audience at an outdoor military event in the capital of Caracas when two drones loaded with explosives detonated above the crowd.

Pandemonium ensued. Video shows hundreds of soldiers running for cover.

The Venezuelan president blamed the assassination attempt on the “far right” working in cooperation with political opposition in the United States and Colombia. Both countries have officially denied involvement.

“This was an attempt to kill me,” Maduro said in a statement. “Today, they attempted to assassinate me.”

Six arrests have been made so far in connection with the bombing. But the amateur attack has made Maduro look vulnerable. And there’s a good chance that another attempt on the president’s life is coming soon.

Store shelves in Caracas are empty. People are eating their pets to stay alive. Annual inflation in Venezuela is now over 40,000%, and it's only expected to get worse from here. The IMF expects inflation to reach as high a million percent before the crisis is over.

The Venezuelan bolivar is already pretty much worthless. A single U.S. dollar can now buy 920,000 gallons of gasoline. The country's people have had enough.

Maduro’s government has repeatedly accused opposition of plotting to overthrow the deeply unpopular president. And it’s very likely Maduro will use the assassination attempt to crack down on legitimate political dissent.

That means the chaos in Venezuela is far from over. And continued destabilization in the struggling nation could send oil prices shooting higher.

Venezuelan oil production has been falling about 10% per quarter since mid-2017. But the country is still one of the world’s top oil producers. The country produces about 1.25 million barrels of oil per day now. And further political destabilization, perhaps leading to a military coup, could halt Venezuelan crude production.

That could lead to significantly higher oil prices.

Even with sanctions and mutual hostility, America is still Venezuela’s largest crude buyer. More than half of Venezuela’s oil output ends up in the United States.

There’s no shortage of reasons to believe Venezuela is collapsing. It now only seems like a matter of time before it happens.

Until next time,
Luke Burgess Signature
Luke Burgess

As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.

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