Name: How Venezuela's Economy Became a Disaster
Uploaded: 2026-01-04T13:29:05.000Z
Duration: 16 min 3 s
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Venezuela is the single most mismanaged economy in the world.

And while that's a big claim with some stiff competition,

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there are simply no other countries on earth that have fumbled such a privileged position quite so badly.

Venezuela has the largest oil reserves of any country in the world by a significant margin.

The runner-up, Saudi Arabia, would have to find an entire USA's worth of extra oil

just to meet the reserves of this single small South American nation.

Now, we have seen many times on this channel before

that natural resource wealth does not equal economic prosperity.

But at this scale of natural resource wealth,

the country could have effectively brute forced its way into the global upper class.

Unfortunately, what should have been an easy path to prosperity was squandered.

And from its peak, the country has lost more than 80% of its GDP in less than a decade.

The collapse was so bad that many international economic agencies just don't collect data on it anymore

It would almost be laughable if it wasn't so tragic.

The country is now one of the most dangerous and impoverished economies in the world.

Venezuela, for a variety of reasons that are each worth exploring individually,

has become very isolated from the rest of the world.

Its people are leaving in droves and governance has become so unstable

that it can't even get access to the manpower and investments needed to extract its abundant oil reserves.

This is a situation that is not getting any better.

Late last year, the country threatened to annex neighbouring Guyana,

further alienating it in the global community.

And now, just late last month, the country held a highly controversial election,

raising huge question marks about who is really in charge.

Venezuela is the national equivalent of a lottery winner that's too incompetent to even claim their winning ticket,

let alone manage the money once they get it.

But if there's more to learn from failure than success, it's a good place to start.

So how did a country with so much going for it end up so poor?

Were these problems coming purely from within?

Or were there external forces pushing for its demise?

And finally, of course, is there any realistic way for the country to turn its economy around?

we can put Venezuela, the most mismanaged economy in the world,

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For most of the country's history, Venezuela has been a petro-dependent territory.

Even the indigenous people would regularly use oil tars seeping out of the ground to keep fires blazing throughout the night

or waterproof their canoes before the Spanish even made contact.

Crippled after its 19th-century liberation,

the country not only benefited from the discovery of oil,

it was the one thing that allowed the government to remain stable via state funding or outright bribery.

And for a while, although far from perfect, this worked.

Modern Venezuela is one of the better-known petro rentier states,

receiving a large portion of its revenue from rent paid by businesses, governments and foreign individuals.

Annual production exploded during the 1920s from just over a million barrels to 137 million,

making Venezuela second only to the United States in total output by 1929.

By 1935, the Venezuelan Bolivar ballooned, with oil becoming the top priority,

accounting for 90% of the country's total exports,

which led to a terrible case of Dutch disease,

a trend that would remain common into the 21st century.

As a result, the country saw decent growth,

although it was based heavily on extracting said oil to fund an otherwise unsustainable economy.

This was also dependent on importing most of what it needed in exchange for its oil.

just three foreign companies controlled 98% of the Venezuelan oil industry:

Gulf, Royal Dutch Shell and Standard Oil.

The government tried to reform the oil sector to funnel funds into public coffers.

The hydrocarbons law of 1943 was first set up in that direction,

requiring foreign companies to give half of all oil profits to the state,

a move that increased government income sixfold over just five years.

In the 1950s, Venezuela took a seat at the table of economic superpowers.

At the time, they were the fourth richest country in the world.

By the 1960s, Venezuela's Petro state status loomed so large that it joined Saudi Arabia, Kuwait, Iran and Iraq,

co-founding the Organization of the Petroleum Exporting Countries,

This was a masterful move in the realm of exports,

because it allowed them and the countries that followed, like the UAW, Qatar and Libya,

to determine pricing by controlling output to keep prices high.

This was technically price fixing through monopolistic market power.

But neither of these factors really became an issue because they are sovereign entities,

unlike a corporation that is, at least in theory, beholden to the laws of the countries they operate in.

Venezuela, as well as the other countries listed, then nationalised their oil industries.

For Venezuela, this nationalised body is Petroleum Venezuela S.A., or PDVSA for short.

This whole dynamic was put into overdrive when Venezuela continued to discover oil deposits

that took it from a modest oil state to the single largest oil state in the world.

From the early 2000s, this caused a boom in the economy,

with gross domestic product peaking at US$372 billion in 2012.

This was fuelled almost entirely by these prized exports.

GDP, after all, is consumption plus investments plus government spending plus net exports.

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How Venezuela's Economy Became a Disaster

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