Venezuela’s Petrostate Paradox: Inside Economic and Political Fault Lines

In an era of energy transitions and geopolitical uncertainty, Venezuela presents one of the most striking contradictions in the contemporary world. With the largest proven oil reserves at about 303 billion barrels, more than Saudi Arabia and Iran, in theory, the country should be economically viable and geopolitically relevant.

Illustration by The Geostrata

But the reality stands in antithesis to the expectations, becoming a textbook example of economic collapse, institutional decay, and political contestation. 

Once Latin America's most affluent country, it is now facing years of soaring inflation, amass exodus, infrastructure decay, and declining oil output, having locked the country into a prolonged crisis of governance and human welfare. 

THE PETROSTATE PARADOX OF VENEZUELA IN THE ECONOMY

Venezuela is a classic petrostate, where oil accounts for roughly 80-90% of exports, contributes 50-60% of government revenues, and dominates the broader economic framework.

This is where we establish the first paradox- possession of resources is not synonymous with productive output. Regardless of the plethora of oil resources in Venezuela, it is only able to produce barely 1% of global output- a drastic drop as seen earlier in the 1990s. In recent years, Venezuela has also faced profound economic challenges marked by hyperinflation and reduced access to essential goods like medicines and food.

The economic collapse of Venezuela is due to the government's reliance on unsustainable fiscal policies, including price controls, heavy expenditure, and overly subsidised goods, which in turn distort economic incentives and deplete national savings. While the economy is already suffering internally, economic sanctions by the US and other nations on oil and financial transactions tighten the situation. 

THE POWER IN CARACAS

Venezuela's failure is not based solely on economic collapse- it is deeply political due to governance realignments, democratic regression, and institutional failure, which together underpin the nation’s political upheaval. Under the political regimes of Hugo Chávez from 1999 to 2013 and Nicolás Maduro from 2013 to 2026, Venezuela has transformed from a democratic nation to a highly authoritarian system. 

From unreliable elections, reduced legislative powers, to the judiciary under the control of the ruling party, eroding the pillars of democracy, discouraging the political environment. 

The economic failure is also based on the politicisation of the oil sector, particularly its state oil company- PDVSA (Petróleos de Venezuela S.A), as it was transformed from a professional revenue-generating industry into a political tool for control, redistribution, and regime survival.

The political paralysis of Venezuela is also based on a constant conflict with opposition within the nation and the absence of mutually accepted electoral frameworks, making peaceful political competition difficult and increasing political instability.

VENEZUELA IN THE PRESENT GEOPOLITICAL ORDER

Venezuela's situation today has been shaped significantly by external geopolitical pressures that have compounded over the years towards its eventual decline. The major contributor has been sanctions by the US, which have restricted Venezuela's access to international financial markets, frozen overseas assets, and severely curtailed oil exports, which eventually hampered the country's foreign exchange reserves. 

The governments of several Latin American and Western countries don't recognise and even isolate trade and multilateral support towards Venezuela. Further restrictions on shipping and higher transaction costs have acted as de facto trade barriers.

These factors have discouraged exporters and importers by making transportation slower, insurance expensive, and financial transactions riskier. Eventually leading to a decline in trade volumes, disruption in supply chains, and essential goods becoming costlier.

In the present geopolitical positioning of Venezuela with the capture of President Maduro and US overtaking in January 2026, the nation needs domestic recovery over international gains. The current leadership must work towards restoring economic sovereignty by utilising the excess of oil reserves, national unity, and the revival of economic sectors.

Other than political and economic sovereignty, Caracas must also stabilise the social order by restoring democracy, human rights norms, and basic socio-economic stability with credible elections, rule of law, protection of civil liberties, and transparent governance. 

THE FUTURE OF VENEZUELAN OIL: BETWEEN PROMISE AND PRECARITY

Venezuela's revival routes back to the revival of the oil sector, as it is the foundation of the state itself. The cripple down effects of failure of the oil sector have been seen in other areas as well, like political authoritarianism, social unrest, and mass migration.

This proves that without successful revival of oil production through depoliticised management, investment and technology, there will be no sustainable recovery of the nation, and hence, in Venezuela's case, oil is the bloodstream of the economy, and until circulation is restored, every other organ- political, social, and institutional continues to fail.

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BY VASUDHA

TEAM GEOSTRATA

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