National Geographic News
A refinery in Puerto la Cruz, Venezuela.

A worker makes adjustments at a Venezuelan refinery. Though the nation is rich in oil, it has lacked the expertise needed to realize the full potential of its oil wealth under late leader Hugo Chavez (below).

Photograph by Piet den Blanken, Hollandse Hoogte/Redux

Hugo Chavez.

Photograph by Leo Ramirez, AFP/Getty Images

Marianne Lavelle

National Geographic News

Published March 6, 2013

Venezuela's oil wealth fueled Hugo Chavez's socialist programs at home and policies abroad, but the world's largest petroleum reserves were never enough to deliver prosperity in his 14-year rule.

One of Chavez's final acts, ordered last month from his hospital bed, was to cut the price of the national currency by a third—the seventh devaluation of his presidency—in an attempt to narrow a staggering deficit with a hike in the cost of living for Venezuelans. He died yesterday at the age of 58, leaving behind a nation struggling with shortages of housing, food, goods, and electricity, along with high inflation and rampant crime.

In the economic isolation that Chavez imposed, development of the nation's vast oil reserves languished, most outside observers agree. Venezuela's oil production has declined 25 percent since 2001. Crude exports to Venezuela's long-time chief customer, the United States, have fallen roughly to the level seen before Chavez took office. Indeed, after a deadly explosion last year in its main refinery, Venezuela was forced to rely on gasoline imports from the United States to keep its economy moving. (See related: "Venezuelan Refinery Under Scrutiny After Deadly Blaze.")

Now, in addition to electing a new leader, Venezuela must choose a path for managing its immense resources—either staying the course that Chavez plotted in support of his "Bolivarian revolution," or attempting to forge a future that better realizes the value of its natural treasure.

Large, Sticky Oil Stores

Because oil accounts for 95 percent of Venezuela's export earnings and nearly half of its federal budget revenue, Venezuela is deeply dependent upon a factor largely outside its control—the global price of oil. Chavez took office in 1999 amid economic turmoil in Venezuela caused by a precipitous fall in the price per barrel during the Asian economic crisis. As oil prices climbed steadily over the next decade, the new flow of revenue bolstered Chavez's regime.

"Oil prices are what made Hugo Chavez possible," said Daniel Yergin, a leading energy industry consultant, in an email from Houston, where he is hosting one of the industry's biggest conferences, IHS Ceraweek, which was abuzz with the news out of Caracas. "The collapse of oil prices [from 1997 to 1998] and the resulting discontent in Venezuela gave him the opening to become president, just seven years after he was sent to jail for leading a coup," said Yergin, author of two histories of the oil industry. "And it was rising oil prices since 2000 that gave him the financial resources to consolidate power, court public opinion and try to turn his Bolivarian revolution into a global campaign for 'twenty-first century socialism.'"

Meanwhile, advances in technology had made it possible to extract heavy oil mixed in sandstone, like the vast reserves in Venezuela's Orinoco belt, in the basin of one of the longest rivers in South America. In 2010, in a review of Venezuela's stores based on the current state of technology, the U.S. Geological Survey concluded that, based on the state of technology at the time, Orinoco held the largest accumulation of oil it had ever assessed. One widely followed global review of resources, BP's, put Venezuela ahead of Saudi Arabia as the nation with the largest stores of oil. Others said Venezuela was in a close second place.

But much like the tar sands of Alberta, Canada, the heavy oil of the Orinoco belt requires specialized production and refining processes. Canada's tar sands oil production has skyrocketed over the past decade thanks to application of the new technologies, but Venezuela's heavy oil development has stagnated.  The state-run oil company, Petroleos de Venezuela (PdVSA), had made an effort to attract foreign investment and the technical expertise of the large multinational oil companies before Chavez took office, but those efforts were halted.  In 2002, nearly half of PdVSA's employees walked off the job in protest against Chavez's management of the company's operations; Chavez responded by firing 18,000 and consolidating control.

In 2006 and 2007, Chavez fully nationalized oil exploration and production, forcibly seizing assets of Exxon Mobil, France's Total and Italy's Eni. Last year, Venezuela said it paid Exxon $250 million to settle Exxon's legal claims over the seizure; the company originally had sought to freeze $12 billion in PdVSA assets as compensation.

Isolation and Declining Oil Production

Expelling the foreign oil companies served Chavez's leftist aims, but deprived Venezuela of the expertise to tap its unique geology and the ability to earn far more oil revenue. "In a way it showed just how ideological Chavez was," says David Jhirad, professor and director of the energy resources and environment program at Johns Hopkins University's School of International Studies, who served during President Bill Clinton's administration as the U.S. Department of Energy's deputy assistant secretary for international energy policy. "The state still could have gotten a lot of those revenues through taxing the companies and through partnerships. Venezuela could have achieved far more for the goals of social justice with an approach that was much more pragmatic and smart."

While oil production declined, Venezuela's take on each barrel also declined due to Chavez's policies at home and abroad. Venezuelans paid the lowest prices in the world for gasoline—from 6 cents to 12 cents per gallon in recent years—and even Chavez threatened in recent years that the high subsidies for fuel would have to be rolled back, blaming citizens for energy waste. (See related gallery and map: "Eleven Nations With Large Fossil Fuel Subsidies" and "Fossil-Fuel Burden on State Coffers.")

Under Chavez's "Petrocaribe" initiative, Venezuela provided a sizable amount of its crude oil and gasoline to regional allies at below-market prices and with favorable financing terms. About 400,000 barrels per day, nearly a quarter of the nation's exports, went to Cuba, where Chavez spent much of his final months in ultimately futile treatment for cancer. (See related story: "Cuba's Oil Quest to Continue, Despite Deepwater Disappointment.") The favorable exports rankled many in Venezuela and were taken up by opposition leader Henrique Capriles in last year's election.

Capriles, a centrist and governor of Miranda state, is expected to make another bid at the presidency in the elections that should be held within the next 30 days under Venezuela's constitution. But Chavez's hand-picked successor, former bus driver turned loyal lieutenant Nicolas Maduro, has signaled his devotion to continue Chavez's path. "Our people will never again see the bourgeoisie plundering this country," he has said. "Better to be dead than traitors to the people and to Chavez!"

Jhirad says it remains to be seen whether Venezuela "can take all this ideological baggage of Chavez and kind of bury it" in an effort to rebuild its economy. Yergin notes that post-Chavez Venezuela now stands greatly weakened by spending, capital flight, and shortages. "Without his charisma and force of character, it is not all clear how his successors will maintain the system he created," he said.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

10 comments
Grant Stewart
Grant Stewart

 Shame on you, NatGeo, for publishing this tripe.  NatGeo is supposed to publish articles that offer a balanced, even 'scientific', perspective on situations.  While it is perhaps possible that everything stated in this article is factually correct, given the obvious political slant, I highly doubt it.

NatGeo, since its founding, has been serious about publishing articles that are written from the standpoint of an impartial observer, taking the good and the bad as is.  The mission of NatGeo is exploration, and this is how an explorer would write.  It is for this reason, among several others, that I have read this magazine almost every month since I first learned how to read!  Please stay true to your mission, NatGeo.  Let this author sell her 'position paper' to another publication where it belongs.

Brad Smith
Brad Smith

Sponsored by Shell.... Shell's opinions reflected in this "article."

Imagine using a country's resources to directly benefit its citizens without exporting billions in profits to the criminal petro-chemical cartel that is the world's leading oil companies! Outrageous! Chavez has greatly helped the poor and has made great strides towards creating a more equitable society. I hope that Hugo's successors follow his policies and his motivations.

Soap Berries
Soap Berries

One lifetime is almost never enough time to turn a country around. Chavez died at the age of 58, so could have made a bigger difference if he lived longer.

sarah DIJOLS
sarah DIJOLS

Quite a partisan view on Chavez's achievements! Quoting Jhirad and Yergin, both accomplished scholars but both pro-American doesn't convince all of us that the path chosen by Chavez to free the oil industry from foreign management and to launch numerous social projects was illegitimate. You should check the evolution of many economic indicators of social development (starting from the Gini index) available on the World Bank website for eg before adopting this stubbornly anti-socialist view on Venezuela.

Maria Eugenia Pereira
Maria Eugenia Pereira

@Grant StewartEverything this article says is true. I should know since I am a venezuelan and this is the reality I live everyday. It's amazing how you guys have believed all of Chavez lies. I used to think that people from developed countries were smarter, but i've already seen a lot of foreign people who got deceived and think that Venezuela is some sort of fairytale and there are not poor people. You guys should know better...A LOT better.


In fact, National Geographic has been lying about my country's situation during all these years. I never understood why they didn't dare to tell the truth about Chavez's government. I still remember the article NG published in their magazine on April 2006 and how disappointed I was that the magazine didn't tell the whole truth. And everytime they would alude to him in this website, they would refer to him as a leader who help the poor. A leader who DECEIVES the poor is what he truly was and what this government is. Unfortunately most of the poor people are too ignorant and mediocre to realize they are being deceived. The harsh reality of Venezuela hits them in the face every day, but they still refuse to SEE.

I am truly thankful to National Geographic for finally telling the truth about my country's situation. Please read my reply to Brad Smith just below you;  in there I explain why you guys are so wrong in your beliefs about Chavez's government.

It is really worrisome to see comments such as these. You guys are very misinformed. This government si NOT socialist, they are just a corrupt incompetent government disguised as socialism. NatGeo is FINALLY telling the truth.

"leaving behind a nation struggling with shortages of housing, food, goods, and electricity, along with high inflation and rampant crime"  <-- This is the PURE TRUTH. Please nobody else from any other country dare to deny that this is true. I live this situation every single day, so please don't talk about things you know nothing about. It's incredible how all of you have believed Chavez shameless political propaganda.

Maria Eugenia Pereira
Maria Eugenia Pereira

@Brad Smith PART 2:

Chavez's government has also violated the human rights in many ocassions and there's barely any freedom of speech. They've even tried to control to internet but they couldn't.

There are some good things that his government has done, but they are so insignificant when you compare them with all the negative things that he brought upon our country. Chavez's government did WAY more harm than good.

I can't even begin to tell you about all the things that are wrong with my country. This is just the tip of the iceberg. Seriously, it's so infuriating to see misinformed comments such as yours.

I congratulate National Geographic for FINALLY telling the truth. I was so disappointed at them for always telling these lies about Chavez being a leader who help the poor and how there was nothing wrong with Venezuela. I started to doubt of their reliability and began to suspect that Chavez may have been funding them or giving them resources so they wouldn't tell the truth, because it's difficult to believe that NatGeo would be so misinformed. I started to think "If they lie like this about my country, then they might be as well lying about everything else they publish in their magazine. Can I even trust NG as a reliable source anymore?"

 But they finally dared to tell the truth. So, as a venezuelan I thank you for this. Please keep it up, people need to know the truth. It's especially worrying that there are many misinformed comments in this thread.

Judging by these comments, there seem to be quite a lot of people in other countries who believe this venezuelan fairytale, that there are not poors in Venezuela. I SEE THEM EVERY DAY.  There are lots of poor people and their numbers keep increasing. If this government keeps going on, I'll be on my way to become poor as well in a few years from here on (it's not that I'm currently rich or anything, at this moment I am just a low-middle class college student and my economic situation worsens every year). Everyone in this country will become increasingly poor, while Chavez's government and his allies enjoy all of our resources. It seems this is Chavez's government idea of equality. All of the venezuelan population being EQUALLY POOR.

Once again, thank you NG for telling the truth. By the way, although it has always been sort of dificult to get my hands on a NG magazine in this country, this year it has been especially difficult for me to find them in my city (Caracas). There are almost nowhere to be seen and when you finally find one, it's a really old release. They are coming very delayed to our country and are currently very expensive (due to the double devaluation and inflation). Most of the time I can't afford them, since I must always save money for food and personal hygiene items. Our current income is not enough to afford the luxury of buying a National Geographic magazine. It's already enough with paying the luxury of the internet.

Maria Eugenia Pereira
Maria Eugenia Pereira

@Brad Smith Wow, it's amazing how you people are so ignorant about my country. I am a venezuelan and everything that this article says is the truth. I should know because I live this reality every day. All of you in this comment thread shouldn't really be talking when you don't even live in this country. I guarantee that if you actually lived in Venezuela you would have actually opposed Chavez's government, you definitely wouldn't be saying such pretty words about him and his government.

"Imagine using a country's resources to directly benefit its citizens..." I'm sorry but...what? All this goverment does is give away OUR resources to OTHER countries. They only give little snippets of our resources to our citizens, while the big majority of our resources go to OTHER COUNTRIES. Chavez did this so that people on the outside would think that Venezuela is just fine and think of him as a great president, basicly he did this just to boost his ego. And apparently his plan worked really well, 'cause you guys swallowed all of his garbage. "Venezuela is giving away money and resources and is helping other countries, that must be because they are a thriving country"

That's what you all think but guess what, WE ARE NOT. We are actually sinking lower and lower by the day. People who support this government are just too ignorant and mediocre. They don't realize they are being decieved. This is NOT a socialist government. This a corrupt government disguised as socialism. And this is why there are many other people (including me) who oppose this government. Because we want REAL SOCIALISM and we know that the current government has deceived this country (and apparently the rest of the world and people like you) during all this years.

Cubans are taking over our country. This government spends most of its time delivering speeches against the US and how they want to invade us, when in reality the government is letting Cuba take over Venezuela. Cubans are assigned to very important positions in the government and in the army. Many venezuelans are unemployed and unable to find jobs because cubans are taking most of them, the government is giving most if not all of the jobs to cubans. Fidel Castro is the real mastermind behind this government, he's their advisor. Hence our country is now Cubazuela instead of Venezuela.

 In this country you can only find a job if you agree with the government, if you don't share the same ideology then you better forget about finding a decent job. Even if you are a professional and studied your heart out in university, you won't get a job if you don't agree with their mediocre regimen, they'd rather give your position to a cuban. When in the world has been seen that this happens in a democratic socialist country? NEVER. Is this your idea of EQUALITY? NO, Venezuela is nowhere near achieving EQUALITY.  It shouldn't be this way. If something similar to all this happened in America or in any other country, you people would have already put you panties in a twist and would be freaking out, you would have probably brought down that government already. YOU would never want any of this to happen in YOUR country, so please stop spewing so much nonsense in favor of this government, because the truth is... you know nothing. Why don't you come and live here if you think Venezuela is so fantastic? Let's see how much will you last.

Did you know that Caracas (Venezuela's capital city) is the third most dangerous city in the world? And during all these 14 years (and despite the inmmense reserve of resources our contry has), this government has NEVER been able to resolve this crucial problem, they don't even try. And not only Caracas, Venezuela as a whole is a very dangerous country to live in. It is not justified that we are living in this situation, given all of the resources we have. Let alone after 14 YEARS of a supposedly socialist government.

Our prisons are a joke, they are more like universities than prisons. Criminals do as they please and get away with it, they don't get punished. Our judicial system is... there is no judicial system at all. There is no justice in this country. People get killed by criminals and never get justice. In this country you would only get "justice" if you are part of the government or one of their supporters, otherwise you are screwed. Actually, not even their supporters get justice nor they get all the benefits. You would think that by being Chavez's supporters they would get all the benefits and great life quality...but they don't. Most of them only get little snippets, only enough to survive day by day. Only the ones who work directly with the government gets everything they want. The rest of Chavez supporters don't even get half of what they deserve as venezuelan citizens, but they are so ignorant and mediocre that they don't realize they're being decieved by this government.

In addition we often have energy and food shortages. You have to travel all around the city to find the essential foods. And currently we can't even find chiken nor red meat. Products are dissapearing from the shelves, and the food products that remain are of very poor quality (and REALLY expensive). There are only few high quality food products available and their numbers keep decreasing. You call this food security and availability? Oh please, give me a break... We often can't even find a freaking TOILET PAPER PACKET. And you dare to say that this government is "using the country's resources to directly benefit its citizens"?  When most of the time we can't even find most of the essential items we need to have a good quality life?

We've had TWO devaluations of our currency in only about 1 MONTH, this year. The inflation is unbearable and this government don't even have the decency to increment our salaries by at least a 50%.  Latest news are that they will increase them by only 20%. Do you still dare to think that this governmet is using Venezuela's resources to directly benefit its citizens? Do you really think that it's normal for us venezuelans to endure this situation when we are such a rich country and we are swimming in oil? We should be like Japan or Switzerland right now, NOT this mess.

Our health system is also in a very deplorable state. Many public hospitals are falling to pieces. To the point that they often don't even have alcohol nor syringes. Yet you could see Chavez giving away money (OUR money) to other countries and building pretty hospitals in OTHER countries, while OUR hospitals fall to pieces. And don't even try to tell me about his health social programs such as "Barrio Adentro", 'cause these programs never fully worked and many of the units are currently abandoned. Besides, CUBANS are the ones on charge of these health units. Needless to say that the cuban health personnel are not even close to the venezuelan health personnel in terms of qualifications for the task they must execute. And as a result, these social health programs are currently a FAILURE.

Chavez created a lot of so called social programs, which never really worked properly and never did much of a difference in solving our issues. Many of his programs are actually really good in theory, but they are (and always have been) very poorly executed. His government is so incompetent and corrupt that they have never been able to properly pull off the social programs they created. All of this "social programs" are more of a facade and they are all executed half-heartedly. And this shouldn't be in a country with so many resources and whose government claims to be socialist.

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