Will the second Latin lefty paradise in four months default soon? Dropping oil prices have placed Venezuela in a precarious position. As The Financial Times reports:
Although Venezuela has the largest energy reserves in the world, its deteriorating economy has forced Nicolás Maduro, the president, to slash imports to cover foreign debt payments amid a severe hard currency crunch that has already produced shortages of almost everything, from toilet paper to medical supplies.“It is hard to believe, but there are worse shortages in Venezuela than there are in Syria,” said Moisés Naím, senior associate at the Carnegie Endowment for International Peace in Washington.But this week’s fall in the oil price has further fomented worries of a possible default, pushing up Venezuelan bond yields to more than 18 per cent and boosted credit default swaps to over 2,230 basis points. Oil accounts for about 95 per cent of Venezuelan export revenues.
Venezuela’s economy runs on little else besides oil, so this would be a make or break issue for them if the situation persists. The country has called for OPEC to impose restrictions, but as we examined yesterday, that is unlikely to happen. In fact, leading crude suppliers such as Saudi Arabia are actually cutting prices as they try to maintain their market share in the face of competition from US shale.Only Venezuela—only Chavismo—could manage to produce the kind of shortages in Venezuela that we’ve seen over the last few years while floating on a sea of oil during a bull market. How bad will it get if even that market runs out?