The recent extreme fluctuations in oil prices can create serious problems for countries that are highly dependent on exporting oil. If the ruling elite derives its legitimacy primarily from such income they may lose their political power. Venezuela is a potential example of this kind of development. After assuming office in 1999, President Hugo Chávez was for a long time able to utilise growing state revenues based on rising gains of oil sales for systematically expanding his sphere of influence. Following his election, he projected himself as a man of the people opposed to the then prevailing system where petrodollars were cornered by the elite. The Venezuelan poor, who make up 80 percent of the population, did in fact directly benefit from the new policies. Chávez placed revenues from oil exports, which soon amounted to over half of Venezuela’s budget, under his personal control and undertook extensive social programmes with these enormous sums.



This "socialism of the 21st century" project, however, increasingly came at the cost of democracy, as Chávez attempted to assume widespread control over all organs of the state. The first domestic setback to his presidency occurred in 2007 when he attempted to extend his term in office by means of a constitutional amendment. In autumn 2008, moreover, declining oil prices forced the government to impose unpopular austerity measures. Public support for Chávez consequently dipped, as evidenced in the regional and municipal elections at the end of November. While he did win in about three-fourths of the provinces, his political opponents were able to succeed in oil-rich Zulia as well as in Caracas with its huge slums. Thus, absolute dependence on oil revenues can prove to be a curse. (Manuel Adams)



Further information is available at the Council on Foreign Relations: http://www.cfr.org/publication/12089/venezuelas_oilbased_economy.html?breadcrumb=/region/254/venezuela



Published in:ECC-Newsletter, December 2008