Introduction
Over the past years, petroleum production in Venezuela has significantly impacted its economy and people’s livelihood. Aljazeera reports that oil comprises more than 90 percent of Venezuela’s export revenue (par. 2). According to an economic consultant based in Caracas, the country risked generating less than $8 billion export revenue in 2020, a significant decline from 2019’s $25 billion (Pons and Armas par. 3). In addition, Venezuela featured among the most vulnerable major oil producers on its microeconomic situation after oil prices collapsed in 2014 (Monaldi 6). The increasing effect of the oil crisis in the country has significantly affected various regions within Venezuela, economically, socially, and politically. This paper examines the effect of the oil crisis on the local economy of Caracas in Venezuela. The study will rely on key economic and economic-related factors that can indicate the effect of the oil crisis in this local region. Reverberate
The oil crisis has caused adverse effects on the country and the neighboring regions due to environmental degradation. Leadership in Caracas has led to the significant deterioration of the environmental standards despite paying lip service for ecological conditions (Berg 1). The PDVS, one of the state-owned oil companies in the country, announced in 2016 that it would not report oil spill cases, as President Nicolas Maduro planned to create an expansive oil mine in the region (Berg 1). These advances posed a significant social and economic threat to Venezuelans living in Caracas and the neighboring regions, especially those who rely on fishing activities in the waterways near the Caribbean. These individuals depend on fishing as a source of livelihood to educate their children and pay daily expenses such as food, house rent, and other basic needs. The Center for Strategic and International Studies reports that Venezuela’s oil crisis has caused the severe environmental impact, including coastal spills, which have devastated marine biodiversity (Berg 4). The crisis drive-by mismanagement of oil infrastructure in the country has caused unrestricted flaring and ruptures of inland pipelines that release hazardous gaseous to the communities living around the region (Berg 4).
The oil crisis has escalated negative economic relations between Caracas and other countries or regions. Washington has continued to escalate sanctions against Caracas in recent years, which has affected Maduro’s administration through a decline in the national income (Cheatham et al. 3). Sanctions usually undermine economic development, as the region does not have enough financial capabilities to develop key government and private sector infrastructures. For instance, sanctions would redirect funds and support from donors who would like to improve or develop transport system in the region that could have accompanied key economic benefits such as easy access to services and good delivery, increased employment opportunities, and economic indicators that can encourage local and domestic investment in the Caracas. Therefore, the oil crisis driven by poor leadership and bad economic policies has adversely affected Caracas’s economy.
Based on the literature reviews highlighted above, we have established that the main challenge facing Caracas’s local economy is the escalating oil crisis. Therefore, this study will attempt to examine the effects of the oil crisis on the local economy of CARACAS by answering the research question: How has the oil crisis affected the local economy of Caracas, Venezuela, since the early 2010s? The following section discusses findings from the scientific sources and data that address the effect of the oil crisis on the region’s economy.
Findings
The Oil Crisis and the Caracas Stock Exchange
One of Caracas’ economy’s key indicators, and Venezuela at large, is the Caracas Stock Exchange. Key data on the Caracas Stock Exchange Stock Market Index in figure 1 indicate a significant trend between 2017 and 2021. Between 2017 and 2019, the Stock Market Index shows a constant change where it started to increase significantly to 6614 VES in 2021. We can relate changes in the region’s stock market index with the oil crisis and note that the crisis undermined the growth in the past years, as the index reported an increase only after 2019. The stock market’s performance is among the key indicators that can attract various types of investment since investors will only invest in regions that can attract high investment and economic benefits. Since Caracas is Venezuela’s capital city, the region tends to report insignificant economic growth as investors divert their resources to other potential regions. Such decisions deprive the region of sufficient and reliable infrastructural development projects that can improve Caracas residents’ livelihood.
Figure 1: Caracas Stock Exchange Stock Market Index
Source: tradingeconomics.com
Unemployment Rate
This study examines the impact of the oil crisis in Caracas based on the country’s employment performance. Previous literature has associated the effect of the oil crisis in Venezuela with the increasing unemployment rate in the country. Using the country’s unemployment rate data between 2010 and 2020, we can observe that the countrywide unemployment rate has been unstable between 2010 and 2020, with a decrease between 2010 and 2010 before and an increase to 7.54 percent. However, the rate followed a successive steady decline between 2013 and 2019, although the over the change in the unemployment rate between 2010 and 2020 indicate an increasing trend since the rate increased from 7.11% in 2010 to 9.14% in 2020. Since the oil crisis is among the causes of unemployment in Caracas and across the country, it implies that the crisis has subjected the region to unemployment. However, using this variable has its limitation since other factors such as the COVID-19 pandemic and poor governance could contribute to the increasing unemployment rate in Caracas. o
Figure 2: Unemployment Rate
Oil Crisis and Environment Degradation in Venezuela
The study also examined the effect of the oil crisis on the climate and environmental changes in Caracas. Based on reported data in Córdova’s study, the study found that the oil crisis has caused an adverse detrimental effect on climate change and environmental degradation in Caracas. The literature highlighted earlier noted that poor governance and accountability from environmental threats such as oil spills and rupture of the pipeline had excessively increased environmental degradation in Venezuela (.Berg 4). Figure 3 shows vegetation index patterns in Caracas city, where urban areas without vegetation covered a significant area in the region in 2001. However, Eulogio et al. report that the vegetation index has significantly declined in the region (10). Environment degradation affects individuals’ lives in the region due to the decline inhabitable environment that can improve individuals’ health.
Figure 3: Camatagua Reservoir levels between 1986 and 2000
Source: Córdova (2011)
Figure 3 shows the trend of the Camatagua Reservoir levels between 1986 and 2000, with four successive year predictions. The trend shows an overall decline over the years while the study predicts a sharp decline after 2000. This decline indicates a change in climate that has led reduction in water levels in the reservoir. Chemnick reports that Venezuela has about 50 to 60 percent rainfall, less than the annual average e rainfall received between 2013 and 2016 (par. 6). Rainfall decline led to water and electricity rationing since the country highly relies on hydropower (Chemnick par. 6). Rainfall shortages in 2016 led to a decline in water levels at the Guri Dam in Bolivar, which is one of the largest hydropower stations that the country depends on, leading to power outages in Caracas for several months (Chemnick par. 6). Therefore, environmental effects caused by oil spills and rupture of oil pipelines could be among the key cause of the increasing effecting of climate change and environmental degradation. These effects tend to negatively affect the residents living in Caracas, especially in cases of power outages since businesses and organizations depend on electricity to run their daily operations.
Figure 4: Camatagua Reservoir Levels in millions of Cubic meters
Source: Córdova (2011)
Conclusion
Throughout this study, we have established how the oil crisis in Venezuela has adversely affected the local economy in Caracas. Poor governance and ineffective policies are among the drivers that escalated the oil crisis in Venezuela, subjective Caracas and its residence to lack of economic opportunities, environmental degradation, increased unemployment rate. The crisis prevents investors from investing in the region towards key infrastructural development such as transport systems and businesses to improve people’s livelihood. The oil crisis has also led to a lack of accountability on environmental issues such as oil spills and breakage of pipelines in the mainland and water bodies, affecting people relying on fishing activities as a source of livelihood. Besides, the oil crisis related to increased unemployment in the regions due to lack of employment opportunities deprived by issues related to the crisis, such as diversion of Investment funds.
Despite the findings, the study faced various limitations that affected its data collection process and preparation. First, I had challenges in identifying data related to economic development in Caracas despite having a significant association with the oil crisis. For example, I used the country unemployment rate data since I could not find data related to Caracas unemployment. Other challenges that I encountered in identifying variables closely related to the escalating oil crisis in Venezuela and Caracas. However, I delved deep into previous scholarly materials to establish key variables. It is important to note that these limitations do not affect the validity and reliability of the study’s findings and discussions since they use reliable sources to develop key findings.
Work Cited
Al Jazeera. “Venezuela’s Crisis: Oil Price War, COVID-19 Are Making It Worse.” Al Jazeera, 3 Apr. 2020, www.aljazeera.com/economy/2020/4/3/venezuelas-crisis-oil-price-war-covid-19-are-making-it-worse. Accessed 25 Feb. 2022.
Berg, Ryan C. “The Role of the Oil Sector in Venezuela’s Environmental Degradation and Economic Rebuilding.” Center for Strategic and International Studies, Oct. 2021, csis-website-prod.s3.amazonaws.com/s3fs-public/publication/211012_Berg_Venezuela_Environmental_Degradation.pdf. Accessed 25 Feb. 2022.
Chacón-Moreno, Eulogio, et al. “Impacts of Global Change on the Spatial Dynamics of Treeline in Venezuelan Andes.” Frontiers in Ecology and Evolution 9 (2021): 74.
Chemnick, Jean. “Where Climate Change Fits into Venezuela’s Ongoing Crisis.” Scientific American, 18 Feb. 2019, www.scientificamerican.com/article/where-climate-change-fits-into-Venezuela-rsquo-s-ongoing-crisis/. Accessed 25 Feb. 2022.
Cheatham, Amelia, et al. “Venezuela: The Rise and Fall of a Petrostate.” Council on Foreign Relations, 29 Dec. 2021, www.cfr.org/backgrounder/venezuela-crisis. Accessed 25 Feb. 2022.
Córdova, Karenia. “Spatial Geotechnology applied to urban climate studies: Thermal analysis of urban surface and urban land use in the city of Caracas.” Urban Climate News 39 (2011): 15-21.
Monaldi, F. (2015). The impact of the decline in oil prices on Venezuela’s economics, politics, and oil industry. Center of Global Energy Policy
Pons, Corina, and Mayela Armas. “Venezuela’s Financial Crisis Exacerbated by Oil Price War, Coronavirus.” Reuters, 3 Apr. 2020, www.reuters.com/article/us-Venezuela-oil-prices-idUSKBN21L251. Accessed 25 Feb. 2022.
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