Venezuela Will Be The First Sovereign Oil Producer To See An "All-Out Collapse"

Tyler Durden's picture

Venezuela’s anti-government protests are growing increasingly violent, with the death toll from clashes between protesters and government forces that began in May topping 100. Despite the country’s increasing political instability, and US President Donald Trump’s half-serious threats of an invasion, President Nicolas Maduro has decided to press ahead with his vote to create a rubberstamp constituent assembly that will allow him to amend the country’s constitution.

With the country’s finances looking ever more precarious, Bloomberg warns that that this decision could bring about the first collapse of a sovereign oil producer. Venezuela has the largest natural oil reserves of any country on Earth, yet the decline in oil prices that began in 2014, coupled with years of economic mismanagement, have been enough to bring the country’s economy to its knees.

“We may be about to see the first sovereign producer to unequivocally fail. The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA. In a global oil market mired in excess inventory and low expectations, Venezuela is the most tangible of wildcards. Its tragic and volatile mix of a failing, oil-dependent economy, political gridlock and simmering unrest is well known at this point.But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”

While many oil dependent nations are working to diversify or ride out low oil prices in other ways, it seems unlikely that the crisis in Venezuela will be reversed anytime soon. Here’s the full fiscal breakeven needed by OPEC producers, including Venezuela, to help normalize things:

The country’s fate, as Bloomberg explains, is largely tied up in the bond market, where yields on Venezuelan bonds recently soared to 36% as Maduro renewed his calls to rewrite the Constitution. With the US threatening sanctions, investors are worried that the situation could reach a crisis point by Christmas.

“Venezuelan bonds, which haven't looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country's constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.


Whether Maduro will, and what those sanctions might be, are the big unknowns here. But there's an awful confluence of factors that could quite easily push this toward a debacle by the end of the year.”

Regardless of what happens to the Maduro regime, the country’s citizens are already living in hyperinflationary hell. As we recently reported, Venezuelans are paying 1000x more for dollars than they were in 2010. The collapse in social services like police has created lawlessness reminiscent of the Mad Max film series, where members of the public routinely lynch suspected thieves, and gangs of bikers waylay merchants carrying commodities to market.

The country’s economy is in free-fall: By the end of this year, it will have shrunk by 32 percent compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt - including bonds owed by the state-owned oil company, Petróleos de Venezuela S.A., or PdVSA - plus billions more in interest. As of this week, Venezuela's international reserves stood at less than $10 billion.

Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies have caused Venezuela's oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela's surplus of oil available for earning export dollars has shrunk considerably.

Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University's Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.

While the US and Venezuela have for years traded hostilities as part of the leadership’s rhetoric, the two countries have enjoyed a lucrative business relationship, with the US buying hundreds of thousands of barrels of Venezuelan oil a day. Even under the late socialist firebrand Hugo Chavez, who never missed an opportunity to antagonize the US, business was steady.

But by pursuing sanctions against Venezuela, the US risks pushing it closer toward Russia’s sphere of influence.  

Further isolation of Venezuela, or a sovereign default, could easily push the country further toward the embrace of Moscow. Rosneft Oil Co. PJSC, Russia's national oil company, loaned money to PdVSA last year collateralized with a 49.9 percent stake in Citgo Petroleum Corp., the U.S. refining and marketing business owned by the Venezuelan oil company. Rosneft is now said to be negotiating swapping that collateral for stakes in Venezuelan reserves and a fuel-supply agreement instead, according to a report from Reuters on Thursday. Swapping valuable downstream assets on U.S. soil for reserves under Venezuelan soil wouldn't look terribly rational from a purely economic point of view. So if this were to happen, the rationales could range from an expectation on Rosneft's part that U.S. sanctions against Russia, and national security considerations, might stymie any chance of actually taking possession of a Citgo stake to a desire to further cement Russian influence in Venezuela on the ground.

According to Bloomberg, allowing Moscow set up camp in Caracas would appear to violate the Monroe Doctrine. Moreover, blocking Venezuela's relatively heavy inflow of oil would squeeze the margins of US refiners set up to process it, and likely lead to higher gasoline prices. Two unattractive options for any president.

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Blue Balls's picture
Venezuela is the zionist plan executed to perfection. The goy are starving,penniless,killing each other.

Any zionist from the outside can buy up the country for pennies on the dollar because the dumb leader rendered their currency worthless.

Just like Germany in the 1920's the privileged few in government live like kings and queens. The bankers hide behind Maduro, evil has overtaken the land and the zionist celebrate in NYC, Tel Aviv, London, and Frankfurt.

Zionist high on the blood of men and women who are their victims. Someday the Venezuelan people will realize who victimized them like Germans did in the 1930's and they will take actions against the evil bastards.
Richard Chesler's picture

sovereign producer

Socialist thugs aren't sovereign and they certainly don't produce shit.


Scrimpy's picture

 My friends all say if something bad was happeneing in Venezuela, we'd all be seeing it on the news!


cheech_wizard's picture

and yet those seven jews are still drawing breath... explain that to me.


SWRichmond's picture

Wait, everyone told me the oil-pocalypse was when we ran out of "low-hanging fruit" oil that was cheap to produce.

Now you tell me the oil-pocalypse is when oil producing countries go BK.  Didn't Saudi start issuing government bonds?

Some people (like me, for instance) have been telling people that peak credit was driving peak oil demand.  The oil-pocalypsers didn't want to hear that.

Chris Martenson (you idiot), call your office.

GUS100CORRINA's picture

Venezuela Will Be The First Sovereign Oil Producer To See An "All-Out Collapse"

My response: Another example of a keynesian Marxist Socialism experiment gone horribly wrong. If I am not mistaken, I believe that under Hugo Chavez, the CHRISTIAN church was persecuted and decimated. I guess this current situation is payback from GOD.

When CHRISTIANITY gets thrown out which was effectively done in Venezuela under Chavez, something else will replace it. What we saw under Chavex was Marxism on steroids. What happens next in Venezuela is going to depend on the FAITH of the people of Venezuela.

The book titled "Was Marx a Satanist?"written by Richard Wurmbrand, a faithful Romanian Christian who spent eight years in a Communist prison for sharing the Gospel and refusing to deny his Lord. His best known book is Tortured for Christ, his testimony of God's triumph in the midst of Communist persecution. He was re-arrested in 1959 through the conspiracy of an associate, and sentenced to 25 years... accused of preaching ideas contrary to Communist doctrine."

Richard Wurmbrand's story was experienced by many in Venezuela under Chavez. Truly sad.

Blue Balls's picture

I worshiped freely there in the Catolic Church.  It was one of the best parts of my visit.

XBroker1's picture

The Catholic Church (CC-33) is run by Satan. This is from a former altar boy. If you study the architecture of almost all catholic churches, you'll see both the male and female body parts. The child rapes weren't a clue?

Heavy McNuggets's picture

Be a part of the spiritual ponzi scheme or have your government force it on ya. Don't forget to chop your sons dick skin off and hand him over to the priest also.

WillyGroper's picture

all the more reason to support this man, if possible with a few coins, for taking them on & not with out great tribulation on his part.

where to donate is in the vid.

fiftybagger's picture
Venezuela is the jesuit plan executed to perfection. The peasants are starving, penniless, killing each other. Any rich Catholic from the outside can buy up the country for pennies on the dollar because the dumb leader rendered their currency worthless. Just like Germany in the 1920's the privileged few in government live like kings and queens. The bankers hide behind Maduro, evil has overtaken the land and the jesuits celebrate in NYC, Tel Aviv, London, and Frankfurt.  The whore of Babylon is high on the blood of men and women who are their victims. Someday the Venezuelan people will be duped into thinking the Jews victimized them like Germans did in the 1930's, and they will take actions against the Jews. Then they will be slaughtered as the Rome laughs at them. Fixed it for ya!
c2nnib2l's picture

Russia have nato bases all around its border.

maybe they could have one in Venezuella for a change ^^ 

wmbz's picture

Wonder why the people down there voted Manduro into office in the first place?

I am not sure but I'll bet he promised a whole lot of "free shit" to them all.

Blue Balls's picture

The people are idiots like in the USA who vote for Hillary.  Which is why democracy needs to end.  Too many dumb people voting.

XBroker1's picture

There is no coke and pepsi. They both come from the same tap.  Hillary & Trump both work for the same puppeteers.

847328_3527's picture

That's similar to all the Hillary voters. Although she also had the neocons in her pocket being the war monger she is. One thing for sure is Hillary would have continued the destruction of America's middle class which she openly trashed as "deplorables" and "uneducated."

Lucky Leprachaun's picture

Of course.And that's what happened in PR as well.

Jubal Early's picture

Putin needs to start the Putin Doctrine:  No US military bases allowed in Europe, Africa or Asia.

Omega_Man's picture

the jews want that oil

PitBullsRule's picture

Fortunately, we have a president who is very good at making videos of himself beating up news networks at fake wrestling matches, so he'll be able to figure out what to do about Venezuela...

shovelhead's picture

Trump can send Maduro a pitbull to eat.

2banana's picture

Bernie Sanders call Hugo a hero and wanted to emulate their policies if elected. 


Feel the burn....

Anarchyteez's picture

Socialism works great don't it?

Anteater's picture

Fracking is a flash in the pan, 3 - 5 years and it's played out.

7 years and CBO estimates SS / MC funds will be tapped out.

What we're seeing in Venezuela, we are already seeing here

under USAs ALL-REPUBLICAN deficit-running Trump regime.

He will be long retired, and the Kushners made billionaires,

when the food riots will begin across the Southern Red States,

the Southern Welfare States that take more than they give.

Enjoy your neighbor's demise, you'all, 'cause you're up next.

"You're gonna have a shit-hemorragh from all the pardoning!"

Harry Paranockus's picture

Your tin foil hat is causing anoxia.

wmbz's picture

"Southern Welfare States that take more than they give"

So, please list the states that give more than they take? Enlighten us.

therover's picture

Top 4 of 5 takers are 'red' states. Top 5 givers are 'blue' states. 

Just a Google search away and it's pretty obvious what states are subsidizing others. 


Thorny Xi's picture

Odd, how trolls never google anything.

XBroker1's picture

Being taxed to death isn't 'giving'; but whatever keeps you from a drunken stupor. Lots of socialist programs equate to higher taxes, aka 'taking' aka theft. TN, where I live now, has its financial house in order and few social programs. Car manufacturers reside here now. Do  any blue states build cars anymore? Don't say Canada.

therover's picture

Most of my wifes family worked at GM in NJ. They all moved to TN when I believe the Saturn plant got set up.  That was I think at least 20 years ago. 

Should have put the sarc tag on my comment...thought the quotes of 'red' and 'blue' would handle that.

There are no 'red' states or 'blue' states. We are all being robbed. Robbing Peter to pay Paul isn't subsidizing when both pockets are empty. 



cheech_wizard's picture

I try (on rare occasion) to imagine what it would be like to go through life on a daily basis being as retarded as you demonstrate yourself to be with every post you make here on ZH.

Standard Disclaimer: Here's the thing, I can't even remotely picture it. Do dogs mistake you for a fire hydrant? Does your pet cat routinely shit in your shoes? How many strains of venereal disease have you contracted since no normal women would sleep with you? Do hookers charge you double based on your looks? Do you have to sneak up on mirrors? Are the number of years of bad luck that you currently are cursed to live with because you can't walk past a mirror without it breaking in excess of a normal human lifespan?

Seek professional help.

Lucky Leprachaun's picture

"the Southern Welfare States that take more than they give."

And that is because of the high proportion of negro welfare parasites in those states.

Dragon HAwk's picture

Sooner or later you run out of other peoples oil..

Dumpster Elite's picture

A bit unrelated, but it makes you think...I saw an old movie the other night, from the late 70s/early 80s, about the "end of the world". In it, they talked at length about how "ALL" the oil that there was, had already been found, at what was going to happen once it had all been used up. This was a prevailing view back then...EXACTLY like the "climate change" doomsayers these days. In fact, I'm wondering if it's not the same damn people. Of course, we are awash in oil these days. We'll probably be 20 degrees cooler, heading into a new ice age, 40 years from now, with the world's oceans greatly receding, and icebergs everywhere.

Yippie21's picture

This.   And it is the same people.

Joebloinvestor's picture

Socialism 101 final exam question and answer.

It ends in failure.

PGR88's picture

Chavez and Maduro are Venezuelans, representing Venezuelan culture and society.  They were not imposed by alien invaders.  They came from the country and were mostly elected and supported (at least for the first 10 years) by their countrymen.

So do NOT feel sorry for Venezuela.  Sit back and enjoy the social experiment being conducted before our very eyes.  Venezuelans wanted to know what it was like to keep a tiger as a pet, now they are finding out.

We should also be thankful the idiot Venezuelans are providing a slow-running public exposition on the evils of socialism for the rest of the world.  People seem to constantly need a reminder.

mendigo's picture

The point is, government leadership matters.

Can the us be far behind?

How many us states and cities are on brink of bankruptcy?

Can a bankrupt federal government bailout a bankrupt state?

Is the trend of us debt positive?

Is the us sitting on fat reserves?

Even if us were to declare bankruptcy they then still produce little.

Whats going to happen to grandpas cat food rations and little beauregards college fund.

cheech_wizard's picture

>Whats going to happen to grandpas cat food rations and little beauregards college fund.

Gunfire. ...Oh, and rope burns...

JohnGaltUk's picture

Socialism has been tried in every four corners of the globe, we dont need to watch the result because we ALREADY FUCKEN KNOW.

Cordeezy's picture

Does Venezuela get an OPEC bailout?  USA could take over Venezuela and become a member of OPEC at the same time.  Then we can produce oil more efficiently and put all Venezuela on a welfare program including guranteed income like we do for Alaska even though it is very small it is still something.  Venezuelans might welcome this proposal now.


miketv's picture

So this attack on Venezuala is called socialism now huh.

land_of_the_few's picture

Can't understand why the West is taking so long to murder all those dirty Shia Venezuelan subhumans, did they learn nothing from Iraq? Fucking amateurs.

And clearly it is nothing to do with the massive oil discovery next door in disputed territorial waters off the coast of Guyana...

Sick Monkey's picture

 Get used to it. Many more Venezuelas to come soon.

2banana's picture

Really surprised there is not an armed insurrection yet. Especially in the rural areas.

cheech_wizard's picture

Are private citizens in Venezuela allowed to own firearms?

Standard Disclaimer: Why do you bother to post? Although you could obviously pick up the slack and start your very own gun-running operation. As far as I'm concerned, if you voted for Maduro or his predecessor, you deserve the current reaming sans lubricant...