Imagine inheriting the largest proven oil reserves on Earth and somehow ending up with an economy in ruins, millions of your citizens fleeing abroad, and supermarket shelves that stay empty for years. It sounds almost impossible. Yet that’s exactly what happened in Venezuela. For a long time, the easy narrative has been to point the finger at foreign sanctions. But when you peel back the layers, a much more uncomfortable truth emerges.
The destruction of what was once one of Latin America’s most prosperous nations wasn’t primarily caused by external pressure. It was the result of a long series of internal decisions that systematically dismantled the country’s productive capacity.
The Convenient Narrative vs. The Timeline of Collapse
Most international coverage loves the sanctions story. It’s clean, it assigns clear villains, and it fits neatly into existing geopolitical frameworks. The problem? The numbers and chronology simply don’t support it as the main cause.
The most severe U.S. sectoral sanctions targeting the oil industry only began in 2019. By that point, Venezuela’s economy had already been in free-fall for years. Real GDP had been shrinking since 2013, hyperinflation had taken hold by 2016–2017, and the country had lost roughly half its economic output before any major oil sanctions were even announced.
In other words: the house was already burning long before anyone allegedly threw gasoline on it.
When Oil Prices Were Sky-High, Opportunity Was Squandered
Between 2004 and 2014, the world witnessed one of the most extraordinary commodity booms in modern history. Oil prices soared. Venezuela, with its enormous reserves, should have become an economic powerhouse.
Instead, during this golden period, the government managed to:
- Accumulate an astonishing amount of debt
- Run persistent double-digit fiscal deficits even with triple-digit oil prices
- Witness the near-total destruction of what was once considered one of the most efficient national oil companies in the world
- Watch private manufacturing and agriculture collapse under waves of expropriations and price controls
It’s difficult to overstate just how remarkable this failure was. Most countries dream of having such favorable external conditions. Venezuela had them—and the result was the exact opposite of prosperity.
The Destruction of PDVSA: From Crown Jewel to Hollow Shell
Perhaps no single institution tells the story of Venezuela’s collapse better than PDVSA, the state oil company.
In the late 1990s and early 2000s, PDVSA was internationally respected. It had built a reputation for technical excellence, professional management, and relatively clean operations compared to many other national oil companies.
Very few national oil companies in the world could match PDVSA’s operational efficiency and technical capabilities back then.
— Former international energy analyst
Then came the turning point. In 2002–2003, a major labor conflict led to a lockout and strike. The government responded by firing approximately 18,000–20,000 employees—most of them experienced engineers, geologists, managers, and technicians.
They were replaced with political loyalists. The company was gradually transformed from a professional energy enterprise into something closer to a political financing vehicle. Funds were diverted to social programs, political campaigns, and off-budget projects with little transparency.
The consequences were predictable. Investment collapsed. Maintenance was neglected. Production began a steady, seemingly unstoppable decline.
The Broader Assault on Private Enterprise
The damage wasn’t limited to the oil sector. Over more than a decade, more than 1,000 companies were either directly expropriated or forced into “co-management” arrangements that quickly became state control.
Industries affected included:
- Steel and aluminum production
- Cement manufacturing
- Agriculture and food processing
- Banking and finance
- Telecommunications
- Retail and distribution chains
- Electricity generation and distribution
The pattern was almost always the same: initial promises of improved conditions for workers, followed by political appointments, mismanagement, lack of investment, and eventual collapse or drastic reduction in output.
Meanwhile, those businesses that remained private faced an increasingly hostile environment: price controls that made production unprofitable, currency exchange controls that made importing inputs nearly impossible, arbitrary inspections, threats of expropriation, and constant legal uncertainty.
Is it really surprising that thousands of entrepreneurs and skilled professionals simply gave up and left?
Price Controls, Currency Controls, and the Shortage Spiral
Perhaps the most visible daily manifestation of the economic disaster was the chronic shortages of basic goods. Bread, milk, cooking oil, toilet paper, medicines—the list went on and on.
These weren’t caused by sanctions. They were the logical outcome of a system that made it economically suicidal to produce or import many basic items.
When inflation began to accelerate, the government’s response was to impose even stricter price controls. Businesses that raised prices to cover skyrocketing input costs were accused of “speculation” and faced heavy fines or seizure. Many simply closed rather than operate at guaranteed losses.
At the same time, currency controls created a multi-tiered exchange rate system that turned importing into a bureaucratic nightmare. Companies often waited months or even years for official dollars—if they ever arrived at all.
Price controls don’t control prices. They control quantities. When you set prices below production cost, supply disappears.
— Economic principle observed worldwide
Massive External Support That Changed Nothing
Another element that challenges the sanctions narrative is the enormous external financial support Venezuela received during the worst years of the crisis.
China and Russia alone extended more than 60–70 billion dollars in loans and investments, mostly secured against future oil deliveries. This was on top of continued trade relationships with India, Turkey, European countries, and many others.
Yet despite this lifeline, production continued to fall, inflation accelerated, and shortages worsened. Additional external resources simply disappeared into the same broken system.
I’ve always found this particular aspect particularly telling. When a country receives massive external support and still collapses economically, it’s usually a sign that the fundamental problems are internal rather than external.
The Human Cost: Poverty, Migration, and Institutional Decay
The economic statistics are devastating enough. But the human dimension is even more heartbreaking.
Poverty rates that once hovered around 20–30% skyrocketed to estimates of 80–90%. The middle class essentially evaporated. A country that once attracted immigrants now saw millions leave under desperate conditions.
- More than 7 million Venezuelans have left the country since 2014
- Child malnutrition reached levels not seen in decades
- Once-eliminated diseases like malaria and diphtheria reappeared
- The healthcare system largely collapsed due to lack of medicines and equipment
At the same time, democratic institutions were systematically dismantled. Elections became increasingly questionable, opposition leaders were disqualified or imprisoned, and freedom of expression was severely curtailed.
What began as a promise of social justice ended with widespread suffering and the loss of fundamental rights for millions.
What Venezuela Teaches Us About Economic Policy
The Venezuelan experience offers several sobering lessons—none of them new, but all of them repeatedly ignored.
First, natural resource wealth is no guarantee of prosperity. In fact, it can become a curse when institutions are weak and property rights uncertain.
Second, large-scale expropriations rarely improve economic performance. They usually destroy value far more quickly than any theoretical redistribution can create it.
Third, price and exchange controls inevitably lead to shortages, black markets, and economic inefficiency. The more comprehensive the controls, the worse the outcomes.
And perhaps most importantly: no amount of oil revenue or external financing can compensate for the systematic destruction of productive capacity and institutional trust.
Looking Forward: Is Recovery Possible?
Despite everything, Venezuela still possesses enormous natural advantages: the world’s largest proven oil reserves, valuable minerals, fertile agricultural land, and a population with historically high levels of education and professional training.
Recovery is theoretically possible—but it would require a fundamental change in direction:
- Restoring property rights and legal security
- Eliminating price and exchange controls
- Rebuilding professional management in the oil industry
- Reestablishing trust with both domestic and foreign investors
- Reconstructing democratic institutions and the rule of law
Each of these steps is enormously difficult politically. Yet without them, the country will likely remain trapped in a cycle of stagnation and crisis, regardless of what happens with international sanctions.
The tragedy of Venezuela wasn’t inevitable. It was the result of choices—choices that prioritized short-term political objectives over long-term economic sustainability.
Perhaps the most painful lesson is also the simplest: no ideology, no matter how well-intentioned, can overcome the basic laws of economics forever. When those laws are consistently ignored, reality eventually asserts itself—and the cost is almost always paid by the most vulnerable members of society.
Venezuela’s story isn’t finished. But the chapters written so far should serve as a cautionary tale for any nation tempted to believe that natural wealth alone can overcome bad policy.
