The oil ministers of Saudi Arabia and Venezuela met on Sunday to discuss the global glut of oil, but the countries didn’t come to an agreement to cut oil production to boost global prices. This move effectively dooms Venezuela and much of the Organization of Petroleum Exporting Countries (OPEC) to continued instability.
The Venezuelans wanted the Saudis to help them “stabilize the international oil market,” but the Saudis ensured that “nothing really happened at the meeting.” Venezuela wants to increase the global price of oil through production cuts to prop up their faltering finances, while the Saudis want to keep prices low to punish their political rivals and gain market share.
Starting in August, Saudi Arabia ostensibly prevented several planned emergency meetings of OPEC to discuss production cuts to boost the price of oil, which Venezuela has repeatedly asked for and desperately needs.
Oil prices have fallen more than 70 percent from a peak of $105 a barrel in June 2014, and are currently hovering around $30 a barrel.
Low oil prices have been killing Venezuela’s economy, placing the country on the verge of total economic and social collapse. Venezuela has even been forced to import American oil, while government officials admit that the country’s revenues have fallen by 70 percent and its economy contracted by 5 percent last year. This has allowed corruption and chaos to rule Venezuela, forcing the country to effectively beg Saudi Arabia to reduce oil production in a bid to raise the price of oil.
All of this has been compounded by Venezuela’s socialist government excessively spending. The country now faces an inflation of 808 percent, according to Forbes — the country’s economic czar doesn’t even believe in inflation. Venezuela has the second highest murder rate in the world and has massive shortages of essentially every product.
Venezuela’s socialist government was defeated in legislative elections for the first time in 17 years in December, but the country’s socialist stacked Supreme Court has attempted to invalidate the election. The country’s government is extremely divided, but the president remains committed to socialist economic policies.
Venezuela maintains frosty diplomatic relations with the U.S. and frequently accuses the U.S. of plotting to overthrow its government.
Saudi Arabia is partially responsible for low oil prices. The country boosted oil production as a weapon in its rivalry with Iran, and in the hope low prices would curb American oil production. Cheap oil hurts Iran and American fracking more than it hurts Saudi Arabia.
However, American oil production hasn’t died off — it’s actually expanded. This means Saudi Arabia can no longer exercise sole control over the global oil price. Saudi Arabia has weathered cheap oil much more effectively than Venezuela, even though oil accounts for 90 percent of the government’s revenue.
Despite this relative resilience, Saudi Arabia is expecting a budget deficit of $140 billion— roughly 20 percent of the Saudi economy. When compared to 2013’s surplus of $48 billion, the fiscal outlook for the Kingdom looks so dire, the International Monetary Fund warned it could go through its fiscal reserves within five years. Saudi oil export revenues dropped 46 percent in just the last year and the country is selling bonds for the first time since 2007.
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