Venezuela’s PDVSA: The World’s Worst Oil Company

ForbesMy Misery Index for 2016 placed Venezuela at the unenviable top spot: the world’s most miserable country. However, to gain a real appreciation of the depths of Venezuela’s socialist disaster, we must look under the hood of Petróleos de Venezuela (PDVSA), Venezuela’s state-owned oil giant. After all, PDVSA is, for all practical purposes economically, Venezuela. Indeed, PDVSA accounts for virtually all of Venezuela’s foreign exchange earnings (93% over the past 5 reported years).

An understanding of the workings of PDVSA requires a good grasp of petroleum economics, a field I was introduced to many years ago, when I was on the faculty of the Colorado School of Mines, and where I taught both petroleum and mineral economics. It was then that I had the good fortune to be befriended and mentored by the world’s greatest petroleum economist, the late Prof. M. A. Adelman of the Massachusetts Institute of Technology. I mention this because it is only by learning Adelman’s lessons that we can make sense of the dodgy accounts of what is undoubtedly the world’s worst oil company: PDVSA.

The extent of PDVSA’s mismanagement can be seen by taking a look at its production and reserve figures. Under the direction of Luis Giusti in the 1994-98 period, PDVSA’s production soared. But, that boom was cut short. In 1999, the socialist fire-brand Hugo Chavez became Venezuela’s president and introduced Chavismo. With that, PDVSA’s oil output started a downward slide (see the chart below). That slide became a plunge after the coup attempt of April 2002. It was then that Chavez purged PDVSA of its professionals en masse and replaced them with “reliable” hands – those who worshiped at Chavez’s altar. …

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During the last several decades, the United States has invested billions of dollars in trying to help the governments of Latin America and the Caribbean deliver better lives for their citizens. This has meant helping them increase internal security by combating the illicit growing and trafficking in narcotics and the activities of terrorist groups, as well as helping them to shore up their democratic and free market institutions.

Unfortunately, in recent years, continued progress in these areas has been threatened, not least by the elections of radical populist governments in Venezuela, Bolivia, and Ecuador. These governments have instituted retrograde agendas that include the propagation of class warfare, state domination of the economy, assaults on private property, anti-Americanism, support for such international pariahs as Iran, and lackluster support for regional counter-terrorism and counter-narcotics initiatives.

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