Venezuela is on the brink of economic collapse.
According to the Washington Post, its currency has lost 93% of its black market value in two years, and is running out of beer and toilet paper.
The country is dependent on its inefficient oil-producing infrastructure for money and its budget has been wiped out by low oil prices.
That’s bad news for a centrally-planned economy like Venezuela.
Oil started to fall like a stone in 2014, from triple figures to around $30 this year, after OPEC refused to cut production as demand fell, causing a supply glut.
But even if oil returned to around $100 a barrel, as it was midway through 2014, the country wouldn’t be able to climb out its economic hole. It needs double that.
Analysts at Deutsche Bank have taken a look at the countries worst hit by falling oil prices. Here’s a quote from the note:
Of the top five most vulnerable countries, four are either net energy exporters, or heavily reliant on energy: Venezuela, Colombia, Argentina, Brazil (Ukraine is the exception). Realistically, these countries would remain vulnerable regardless of a moderately higher oil price.
To balance Venezuela’s budget, for example, requires oil closer to $200 than $100.
Venezuela this week signed up to an agreement with Saudia Arabia and Russia to freeze oil production at January levels. That output level is still too high to move prices up. What it really needs is a cut, and a big one at that.
According to Deutsche Bank, supply from the US will tighten, although it will take time and probably not enough to help out Venezuela.
Here’s the chart:
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