Bolivar Plummets amidst Economic uncertainty

venezuela’s economy is facing renewed pressure as tightened US sanctions send shockwaves through its exchange market. The unofficial exchange rate, often called the “parallel dollar,” has surged to 100 bolivars, marking a significant 30% drop in value within just days. This contrasts sharply with the official rate of 68 bolivars,creating a widening gap and the most substantial depreciation of the bolivar in four years.This devaluation directly impacts the cost of imported goods, further straining the already burdened Venezuelan consumer.

Oil Sector Under Strain: Chevron Exits, Reliance Halts Purchases

The impact of the sanctions is already being felt across various sectors. Multinational energy corporation Chevron, responsible for a significant portion of Venezuela’s oil production, has announced its departure from the contry. Furthermore, India’s Reliance Corporation, a key trading partner, has declared it will cease purchasing Venezuelan oil following Washington’s latest measures, which include a 25% tariff on Venezuelan oil exports. These developments are contributing to rising prices and a palpable decline in consumer spending.

According to the U.S. Energy Details Administration (EIA), sanctions on Venezuela’s oil sector have significantly reduced its production capacity. In 2016, Venezuela produced approximately 2.4 million barrels per day (bpd) of crude oil. By 2024, that number had plummeted to around 700,000 bpd, demonstrating the severe impact of international pressure.

Sanctions Spark Debate Within Venezuelan Society

The effectiveness and ethical implications of international sanctions as a tool to influence the venezuelan government are hotly debated within Venezuelan society. While some, like María Corina Machado, beleive that increased pressure will ultimately led to a change in leadership, others, including Henrique Capriles, criticize the sanctions for exacerbating the suffering of ordinary Venezuelans. Capriles has openly accused the current administration of insensitivity to the plight of its citizens.

There is an increase in negative expectations with Venezuela from all economic agents given the certain possibility that there is a very crucial decrease in their cash flow these months. The fear of having bolivars increases and there is nervousness.
Luis Oliveros, academic at the Metropolitan University of Caracas

Government Response: Defiance and Contingency Plans

The Venezuelan government, seemingly accustomed to international pressure, has responded with a mix of defiance and contingency measures. State television broadcasts images of returning citizens being welcomed at the airport, emphasizing human rights and the rule of law. The government maintains a public image of control, asserting its ability to navigate the current crisis.

The Venezuelan Foreign Ministry has condemned the US sanctions as “illegal and desperate,” vowing that the country will resist what it calls an “imperial onslaught.”

They will never be able to defeat us, the Venezuelan people are prepared to resist this attack.
Venezuelan Foreign Ministry

Navigating the Crisis: Repression, Alternative Oil Routes, and Inflation Concerns

To manage the social unrest stemming from the economic crisis, the government is expected to rely on controversial measures, including the Anti-Loca Law, and explore alternative routes for oil sales, often involving unknown intermediaries and significant discounts. The state oil company, Petroleum Directive of Venezuela, has stated it will assume operations of the fields previously managed by Chevron, a claim met with skepticism by industry experts.

Economists warn of the potential for hyperinflation. Luis Oliveros,an academic at the Metropolitan University of Caracas,acknowledges the government’s experience in navigating sanctions but cautions that the intended affect of these measures is to create economic hardship. He predicts that, under the current circumstances, avoiding a triple-digit inflation rate in 2025 will be nearly impossible.

The government has some tools to face this…They have been sanctioned since 2017, they have had to learn that for the bad and something can do to counteract the effects of the sanctions. But, these sanctions are designed to generate economic problems and the country will have many problems in that reality. In a scenario like the approaching, it will be almost impossible to avoid an inflationary rate of three digits in 2025.
Luis Oliveros, academic at the Metropolitan university of Caracas