The essence of the “hydrocarbon man” phenomenon
In a certain sense, it can be argued that oil is the best currency on the planet. Pulitzer Prize winner Daniel Yergin, in his book The Prize: An Epic Journey for Oil, Money and Power, uses the term “hydrocarbon man” to describe a modern society deeply dependent on oil. He writes: “We live in a hydrocarbon society, and we are, in the terms of anthropologists, hydrocarbon man.” This highlights how much oil has become an integral part of our lives, influencing where we live, how we live, how we travel and even social interactions.
But can humanity be blamed for this? After all, many regions of the world still suffer from a lack of energy, and access to inexpensive energy resources remains vital.
High energy intensity, ease of transportation, technical advances in the field of production, diversity of suppliers, significant reserves and ready infrastructure support the relevance of oil as the main resource for the economy. The global oil market is currently valued at $2 trillion each year, more than the value of the following ten of the most important raw materials together (gold, silver, copper, coffee, cotton, etc.).
Oil provides about a third of global energy consumption, while fossil fuels in total account for about 4/5 of the world’s energy consumption. So, is it appropriate to consider oil a remnant of the past or a reliable foundation for the future?
How the “Oil Giant” became critically dependent on oil
For many, Venezuela has long been associated directly with oil. Thanks to the discovery of oil deposits, the country went from a poor country at the beginning of the 20th century to the fourth largest economy in the world in terms of GDP per capita in the middle of the century. However, excessive dependence on “black gold” finally led the Bolivarian Republic to economic decline. The example of Venezuela illustrates how risky a country’s dependence on a single natural resource, especially one that is aging, can be. Venezuela faced serious economic and social challenges when the price of oil fell and its economy could not quickly adapt to the new conditions.
At the beginning of the 20th century, the first large oil fields were discovered in Venezuela, which symbolically coincided with the global energy transition from coal to oil products. The invention of Karl Benz’s car became possible thanks to the possibility of using gasoline for it as a cheap petroleum product. Later, when Ford introduced the Theo in 1908, cars became widely available, which caused a sharp jump in demand for fuel. Gradually, other modes of transportation, including airplanes, ships, and trains, also began to switch from coal to oil as a more efficient energy source. Venezuela caught its first “goldfish” when the first Venezuelan oil field was discovered in the state of Sulia in 1914 Zumaka-1, a little later – in 1922 – the Shell company found large deposits of “black gold” in the Maracaibo basin. Until 1929, the volume of oil production in the Bolivarian territory was equal to the European total. And of course, in the Middle East there was no talk of “petrodollars” yet.
In a short time, Venezuela became extremely wealthy. In the middle of the 20th century, when the world was coming to its senses after the Second World War, in terms of GDP per capita, Venezuela ranked fourth in the world, after the United States, Switzerland and New Zealand. However, what seemed like a source of endless wealth quickly turned into a problem akin to releasing a genie from a lamp that did more harm than good.
For decades, oil was the “chicken that lays golden eggs” for the Bolivarian Republic. But later the country found itself excessively dependent on it, which led to a serious economic decline. In 2009, the US Geological Survey estimated oil reserves in the Orinoco Belt at 513 billion barrels. The exact amount of oil worth producing is unknown, but even this amount could satisfy 15 years of global oil demand!
OPEC is more cautious in assessing Venezuelan reserves, naming figure at 303 billion barrels of proven reserves, but even if this estimate is more reliable, it is still the largest in the world. By the volume of reserves, Venezuela is significantly ahead of Saudi Arabia, where about 260 billion barrels have been explored. For comparison: oil deposits in Iran are estimated at 208.6 billion barrels, Canada – 171 billion barrels, the USA – 74 billion barrels.
Venezuela has quickly become a country that lives on resource revenues from rent payments to foreign companies, governments and investors, with no added value outside the extraction of natural resources. This made Venezuela a typical example of a state dependent on oil. According to political scientist Jeff Colgan, a country is considered an “oil state” if more than 10% of its GDP consists of oil revenues, and in the case of Venezuela, this share reaches 25%.
In the book “Petroaggression: when oil provokes wars” economist Geoffrey Colgan examines how dependence on oil affects the aggressiveness of countries’ foreign policies. He argues that states with large oil reserves, especially those with authoritarian regimes or unstable political systems, often exhibit a higher propensity for conflict. He cites Russia, Iran and other countries as examples, showing that dependence on oil revenues can stimulate aggressive action on the international stage.
This pattern is also evident in Venezuela. Although the country has been on the rise for most of the past century, its economic stability has remained subject to fluctuations in oil prices and demand, which can be highly unpredictable. Venezuela experienced the effects of oil dependence in the 1970s and 1980s, especially in the run-up to the decade’s oil glut. Until now, the country had been making big profits thanks to the sharp rise in oil prices that began after the 1973 Yom Kippur War between Israel and the Arab coalition. During the OPEC conflict, the Association of Arab Oil Exporting Countries introduced an embargo on the supply of oil to allied states of the “Promised Land”. This meant that the US, UK and other major European economies were fuel hungry due to fuel shortages and a sharp rise in oil prices. This was another star moment for the Bolivarian Republic, because it did not fall under the embargo.
However, when oil prices began to fall, the country began to stagnate. In the early 1980s, the situation worsened even more: there was a surplus of oil on the world market, which collapsed prices and reduced Venezuela’s income. As a result, the country was forced to turn to international loans to avoid financial collapse. The situation was complicated by widespread corruption in the state, which further undermined economic stability.
“Dutch disease” of Venezuela
In 1997, it was revealed that about 100 billion dollars of oil revenues had been squandered or appropriated by those in power. In addition, a phenomenon known as “dutch disease“. This phenomenon occurs when the economy focuses excessively on one resource, which leads to the decline of other industries and increased dependence on this resource. The term was first used in The Economist magazine to describe the decline in industrial production in the Netherlands following the discovery of large reserves of natural gas.
A similar situation was observed in Venezuela: an oil glut on the world market led to a drop in prices and, as a result, to a decline in the standard of living in the 1980s, although it remained relatively stable at the time. However, the situation only worsened, and against the background of the economic crisis, dissatisfaction was accumulating in society, which reached its climax in 1989.
“El Caracaso”, Chavismo and “Bolivarian missions”
“El Caracaso” – mass protests in the streets of Caracas and other Venezuelan cities – began after President Peres announced severe economic measures to get financing from the IMF. It all started with an increase in public transport fares, which sparked a wave of protests that were harshly suppressed, leading to the death of three hundred people and thousands of injuries. Hugo Chavez came to power on a wave of social tension. In 1999, after years of political controversy, a failed coup and imprisonment, he became president.
The time of his rule from 1999 to 2013 – known as the era of Chavismo – left warm memories for some of the population. And this is understandable, because Chávez introduced numerous social programs, known as “Bolivarian missions”, which were aimed at overcoming poverty and improving the living conditions of citizens. His administration depended heavily on oil revenues, which allowed these programs to be funded without significant tax increases.
Next time, we will continue the story about the collapse of Venezuela’s oil industry. A case demonstrating the pattern: excessive dependence on “black gold” sooner or later leads to economic and social instability and geopolitical conflicts.
Tetyana Viktorova
