This article first appeared at The McAlvany Intelligence Advisor on Monday, December 29, 2014:
As oil prices have dropped, so has Venezuela’s revenue stream that supports its welfare state. Ninety-five percent of Venezuela’s export earnings come from crude oil, and the industry makes up one quarter of the country’s gross domestic product. With oil prices setting new lows last week, Venezuela’s economy, already on the ropes, is set to descend into chaos, anarchy, and looting. The decision by Saudi Arabia to continue to pump in order to maintain its market share reveals not only the inherent inability of any cartel to maintain itself over time, but also the inability of a welfare state to sustain itself without outside help.
With the world’s largest oil reserves, surpassing those even of Saudi Arabia, an uninformed observer would be unable to explain how a country as richly blessed with natural resources as Venezuela could go broke,