Simon Constable
Venezuela just keeps on delivering new economic absurdities. The country, which has the largest oil reserves in the world, is now considering the idea of importing the stuff.
It’s a symptom of socialism.
The state-run oil company, PDVSA, could start refining tens of thousands of barrels of imported oil each day this month, according to a report from Reuters on Wednesday.
It begs the obvious question as to why a country which has more than its fair share of oil reserves would even consider importing it.
The problem is that Venezuela in general, and PDVSA in particular, are blighted by the leftwing policies of the government which is currently headed by president Nicolas Maduro.
The country now produces around 1.5 million barrels of oil a day, down from 2.9 million barrels as recently as early 2014, according to data reported by TradingEconomics.com. That drop is due to a variety of reasons.
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- In the first place, the state-run oil enterprise is poorly run with political appointees taking precedence over seasoned petroleum engineers with expertise. In other words, the people in the critical roles often cannot do their jobs.
- Hyperinflation makes it hard for any business to run efficiently. Inflation in the country is now a staggering 34,458%, according to the latest estimate (June 14, 2018) from Steve Hanke, professor of applied economics at the Johns Hopkins University. That’s down from more than 37,000% earlier this month. Hanke uses the prices of goods inside the country to estimate the rate of inflation.
- U.S. sanctions mean critical oil extraction equipment is hard to come by in the country. Drill bits and metal pipes quickly get worn out in the oil business because the oil itself is highly corrosive. Without replacement parts, the wells cannot operate.
However, that inability to extract crude oil makes no difference to the people and companies who have contracted with Venezuela for delivery of refined fuels. Fuels such as diesel or gasoline get produced by refining crude oil.
That need to fulfill contracts is likely why PDVSA may be considering importing crude oil, a substance of which the country has an abundance. If it can’t get the crude out of the ground at home, then it can’t refine the stuff. Hence there is a clear need to import oil from abroad.
Anyone who has flirted or is flirting with the idea that socialism offers a reasonable remedy for the drawbacks of capitalism should mull the utter absurdity of Venezuela’s current plight.
Considering importing additional oil into a country where it is already more abundant than anywhere else is not just ridiculous but also a reflection of an economic system that doesn’t work.
The common refrain is that capitalism makes what is scarce abundant, whereas socialism makes what is abundant scarce. It seems like that is happening in this case.
The possible importing of oil is of course just the latest laughable move by the South American country.
Other Venezuela government actions that were high on the extra-dumb scale include the following two from recent months :
- The idea of removing zeros from the currency, the Bolivar, in order to combat the country’s crippling hyperinflation. It is something that has never worked in the history of mankind. Worse still, it made a mockery of the increasingly dire humanitarian crisis in the country.
- Launching a new oil-backed cryptocurrency named the Petro while providing few details of exactly how the copycat bitcoin-style money would work.
One wonders when the regime will get the message that such gimmicks won’t fix a broken system.
Simon Constable is a writer, economics commentator, and a fellow at The Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise.
Bron: Forbes