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Venezuela Goes on Sale; Russia Takes the Lot

Written by Keith Kohl
Posted August 11, 2017 at 7:41PM

Venezuela’s death spiral is far from over.

The country has been in duress the last few years as oil prices plunged from more than $100 in 2014 to less than $25 in 2016.

Of course, the trouble started even before oil hit bottom.

The oil-rich country relies heavily on crude export revenues to balance its budget and fund the social programs enacted by its last president, Hugo Chavez. Since oil began its slide, current President Nicolas Maduro has had his work cut out for him.

With oil still floating near just $50, Venezuela is finding it hard to stay calm.

Reuters Venezuela Oil Price Production Paying Maduro Chavez Russia DebtInflation has gone through the roof, making even the most mundane household products into prized commodities. Public subsidies have already been cut to the quick, and riots are all but inevitable.

The country has had to take on even more debt to keep the situation from escalating past the point of no return, and we've seen that this isn’t going too well as it defaulted on its first loan earlier this year.

Now, instead of promising money it doesn’t have, Venezuela is paying its debts to countries like China and Russia with the only thing it’s got left in abundance: oil.

Russian Rosneft has been taking shipments of around 250,000 barrels of oil per day as payment on old loans. That’s nearly 14% of all of Venezuela’s exports.

As you can probably guess, this is a dangerous game to be playing.

Every barrel of oil Venezuela uses to pay back debts is a barrel of oil it’s not selling on the open market. This means even less money coming into the country, which is already losing billions on low-priced crude.

The issue only gets worse when you take into account the type of oil Venezuela produces.

Even though it’s got the largest oil reserves in the world, it’s all heavy crude which has to go through some intense refining before it can be used. This makes it even less attractive to buyers, and is an issue much of OPEC shares.

Still, Russia has been negotiating trades of credit for Venezuelan oil acreage.

Russia already owns as much as 40% of five major Venezuelan oil projects, and is now being offered a major share of nine more.

This is just an extreme example of the sort of situation all of OPEC finds itself in.

After decades of dominating the oil space, the group is struggling to cope with low prices and more competition out of the U.S. and elsewhere.

To continue reading about Venezuela’s money woes (with some handy visuals), click here to read the Reuters article.

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