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January 18, 2018

LATE-STAGE SOCIALISM: Venezuela’s Oil Production Is Collapsing. “Sharp drop in output increases the odds of a debt default, worsens economic crisis.”

Production fell 216,000 barrels a day to 1.6 million in a month to December, the 15th consecutive monthly decline, according to data reported by Venezuelan government to the Organization of the Petroleum Exporting Countries released Thursday. During 2017 as a whole, Venezuelan output fell 649,000 barrels a day, a decline of 29%.

This ranks among the deepest declines in the industry’s recent history. Russia’s output slid 23% during the fall of the Soviet Union, and Iraq’s output dropped by the same share after the 2003 U.S. invasion, according to data from OPEC and BP Statistical Review.

The decline has been caused by a deep economic crisis and widespread corruption and mismanagement, compounded by a purge of state-run Petroleos de Venezuela SA by President Nicolás Maduro that has paralyzed the oil giant. U.S. sanctions have scared off some of the last remaining investors.

“In Venezuela there is no war, nor strike, but what’s left of the oil industry is crumbling on its own,” said Evanán Romero, a former PdVSA director.

Since the country exports little else, Venezuela’s centrally planned economy relies on oil exports for 95% of its hard currency, according to the latest official data. That means the output decline will add more pressure to the government, which has drastically cut back on imports of everything from machinery to food and medicines to make ends meet. The economy has shrunk an estimated 40% in the past four years.

And yet I had been assured just last week that Venezuela’s oil production was in full recovery, and as recently as yesterday that Venezuela was suffering a mere recession due entirely to low oil prices.