Oil Price Crash: Devastating Effects On Angola And Venezuela

The crash in oil prices had a devastating impact on Angola and Venezuela, two countries heavily reliant on oil exports. In Angola, the economic fallout led to a surge in public debt, a decrease in fiscal revenue, and a devaluation of the national currency, resulting in increased prices and a lack of essential goods. Venezuela, once the richest country in South America, faced soaring crime rates, runaway inflation, and a contracting economy, with citizens struggling to access food, medicine, and basic services. The situation was exacerbated by political unrest and economic mismanagement, triggering a downward spiral for both nations.

Political mismanagement and corruption

Venezuela, which possesses the world's largest crude oil reserves, once enjoyed a booming economy and was a relatively stable democracy. However, starting in 2014, the country began to suffer a startling economic collapse. The decline in oil prices hit Venezuela particularly hard due to its dependence on oil exports. The situation was further aggravated by the Maduro government's economic policies and failure to diversify the economy away from oil.

The government of former President Hugo Chávez spent lavishly on social programs, taking advantage of the high oil revenues. However, this spending was not accompanied by investments in the oil industry or efforts to develop other sectors of the economy. As a result, when oil prices crashed, Venezuela's economy was left vulnerable.

The Maduro government's response to the crisis has been heavily criticised. Instead of cutting spending and implementing necessary economic reforms, Maduro's administration denied the existence of a crisis and violently repressed opposition. Extrajudicial killings, human rights violations, and political corruption became commonplace. The government also failed to address chronic shortages of food and medicine, leading to widespread hunger and disease.

The situation in Angola is similar, with the country's economy heavily reliant on oil exports. When oil prices crashed, Angola's economy suffered a significant decline. The country's political leadership failed to effectively manage the situation, and corruption further exacerbated the crisis.

Overall, the devastation in Angola and Venezuela following the crash in oil prices can be largely attributed to political mismanagement and corruption, which worsened the economic fallout and led to severe social and political consequences.

Hyperinflation

Venezuela's economy has long been dependent on oil, and the country has been experiencing continuous and uninterrupted inflation since 1983. However, hyperinflation in Venezuela was specifically triggered by currency instability in 2016 during the country's ongoing socioeconomic and political crisis.

Causes

The primary causes of hyperinflation in Venezuela are heavy money-printing and deficit spending by the government. The growth in the money supply of the Venezuelan currency, the bolívar fuerte, accelerated during the beginning of President Nicolás Maduro's term, increasing price inflation in the country. The money supply of the bolívar fuerte increased by 64% in 2014, three times faster than any other economy observed by Bloomberg News at the time.

Effects

The effects of hyperinflation in Venezuela have been devastating. The minimum wage in Venezuela decreased significantly during Maduro's presidency, dropping from about $360 per month in 2012 to $31 per month in March 2015 based on the weakest legal exchange rate. By 2018, inflation exceeded 1,000,000%, and the economy suffered an unprecedented collapse. The International Monetary Fund (IMF) estimated a 500% inflation rate and a 10% contraction in GDP.

Responses

In response to hyperinflation, the Maduro administration lifted several economic controls in 2019, which helped partially tame inflation until May 2020. Additionally, in December 2021, economists and the Central Bank of Venezuela announced that Venezuela would have more than 12 months of monthly inflation below 50%, indicating a technical exit from hyperinflation. However, the consequences of hyperinflation persist, and the country continues to grapple with economic challenges.

While there is no specific mention of hyperinflation in Angola, the country experienced a significant oil crash in 2015, which led to a series of economic problems. Angola is heavily dependent on oil production, with oil contributing 75% of fiscal revenues and 95% of exports. The oil crash resulted in a 43% decrease in fiscal revenue and a 30% increase in public debt.

The lack of foreign currency, particularly USD, is a significant issue for Angola, as oil is the country's primary source of USD. The depreciation of oil prices means Angola has fewer USD to purchase goods from abroad, and the national currency, the kwanza, is losing value. This has led to increased prices and a lack of availability of imported goods, causing difficulties for Angolans.

While there is no explicit mention of hyperinflation in Angola, the country has undoubtedly faced severe economic challenges due to the oil crash, including increased inflation and economic instability.

Dependence on oil

Venezuela's economy has long been dependent on oil revenues. The country has the world's largest crude oil reserves and was once a stable democracy with one of Latin America's fastest-rising economies. However, the country's reliance on oil exports left it vulnerable to fluctuations in global oil prices.

In the early 2000s, increasing oil prices led to a surge in funds for Venezuela, which had not been seen since the 1980s. This allowed Hugo Chávez's government to establish Bolivarian missions, which provided public services to improve economic, cultural, and social conditions. According to a 2010 OAS report, these missions achieved advancements in addressing illiteracy, healthcare, and poverty, as well as economic and social advances. The quality of life for Venezuelans also improved during this period.

However, Venezuela's dependence on oil revenues became a problem when oil prices plummeted due to a glut in the late 1980s. This led to sharp rises in consumer goods and public transportation prices, causing protests and civil unrest.

Chávez's successor, Nicolás Maduro, continued most of the existing economic policies and faced similar challenges due to declining oil prices. The country entered an economic recession in 2014, and by 2016, Venezuela had an inflation rate of 800%, the highest in its history. The low oil prices, coupled with a drop in oil production due to a lack of maintenance and investment, further exacerbated the economic crisis.

The economic turmoil resulted in hyperinflation, food and medicine shortages, business closures, unemployment, and a decline in productivity. The crisis affected all aspects of life for the average Venezuelan, with hunger becoming a significant issue. By 2017, almost 75% of the population had lost weight due to a lack of proper nutrition, and more than half did not have enough income to meet their basic food needs.

The country's heavy reliance on oil exports also had political implications. Oil revenues gave the Venezuelan government significant influence within the Organization of Petroleum Exporting Countries (OPEC). However, as oil production declined, Venezuela's role and influence within the organization diminished.

The economic collapse and the subsequent social and political crises led to a massive emigration of Venezuelans. By 2021, about 20% of Venezuelans (5.4 million) had left the country.

Food shortages

The crash in oil prices in 2014 had a devastating impact on Venezuela, causing hyperinflation and a sharp economic contraction. This, in turn, led to widespread food shortages, with long lines outside supermarkets and people waiting for hours, often without receiving any service.

The situation was exacerbated by the policies of the Venezuelan government, which had previously relied heavily on oil revenues to fund large quantities of food imports. With oil profits declining, the government began limiting imports, leading to shortages of basic goods such as milk, meat, coffee, rice, oil, flour, butter, and medicine. The government denied the extent of the crisis and refused to accept humanitarian aid, claiming that there was no humanitarian crisis and that Venezuela had adequate access to food.

The food shortages had a severe impact on the population, with people resorting to eating wild fruit and garbage, and over three-quarters of Venezuelans losing weight due to inadequate food intake. The shortages also led to a lucrative new profession of queuing, where people would be paid to wait in line to buy goods for others.

While there is limited information specifically on food shortages in Angola following the crash in oil prices, it can be inferred that the country suffered from similar issues. The oil price crash would have reduced the government's ability to import food, leading to shortages and higher prices. This is supported by the mention of "empty shelves across Venezuela due to tumbling oil prices" in one source, indicating that a similar situation likely occurred in Angola.

Human rights abuses

Venezuela's oil industry has been in a state of collapse, with mismanagement, political purges, and deviations from standard company policy by the government of Nicolás Maduro since 2014. This has destabilised the national economy and led to a devastating humanitarian crisis.

Maduro's government has been accused of human rights abuses, including extrajudicial killings, with the UN reporting 5,287 killings by the Special Action Forces in 2017, and at least another 1,569 in the first six months of 2019. The UN stated that some of these killings were done as a reprisal for the victims' participation in anti-government demonstrations.

Maduro's regime has also been accused of restricting internet access and arbitrarily prosecuting and detaining political opponents and critics.

In response to human rights abuses, degradation of the rule of law, and corruption, the US, EU, and other countries have applied sanctions against government officials, members of the military, and security forces.

The human rights abuses and economic collapse have fuelled a massive emigration, with nearly eight million Venezuelan refugees fleeing to neighbouring countries and beyond.

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