Analyst Warns That After Contentious Vote, The First Sovereign Oil Producer To ‘Fully Fail’ Could Be Venezuela

A nationwide vote set for Sunday could send Venezuela over the edge even as the country is already having a major meltdown, believes a top commodities strategist.

As a state if President Nicolas Maduro moves forward with the vote to form a new legislative body named the National Constituent Assembly (ANC), Venezuela could become the first sovereign oil producer to “fully fail” despite the fact that this is the country that has the largest oil reserves in the world, said Helima Croft, global head of commodity strategy at RBC Capital Markets, in a note about the Latin American country going through a political crisis.

Maduro’s power could be cemented and the country’s constitution would be enabled to be rewritten as the ANC would supersede other legislative bodies which also includes the opposition-led National Assembly.

While on one hand, targeting its oil sector, and its state-run oil company Petroleos de Venezuela, AS., or PDVSA, the United States and other nations , have threatened to impose sanctions on Venezuela against the vote, the opposition has also vigorously opposed the vote and have taken to the streets in protest.

“The Trump administration has issued stark warnings to Maduro about the election and is
reportedly giving serious consideration to targeting the country’s oil sector by either
banning Venezuelan imports into the United States or prohibiting the use of dollars in PDVSA transactions,” Croft said.

“Either measure would result in extreme economic duress,” she added. “With the country’s foreign reserves recently having fallen below $10 [billion], PDVSA will be extremely hard pressed to avoid a disorderly default in the autumn or continue any semblance of regular salary
payments.”

The oil industry in Venezuela contributes 95 percent of the country’s exports and therefore the Latin American country’s economy is almost completely at the mercy of the oil industry. but in the recent years, that oil industry has been rendered less and less profitable and productive due to a lack of investment and the situation has further worsened after the oil price slide for at least three years now. Therefore, the economy was also sent into a tailspin after the crash in oil prices that started in late 2014. The impact on the economy can be gauged from the astronomical rates of inflation that are being predicted by the International Monetary Fund now which expects that the rate of inflation in the country would continue to rise very sharply and this year itself, it should touch an astounding and crippling 720 percent.

“Unless Maduro has an 11th-hour change of heart, Venezuela appears poised to earn the dubious distinction of being the first sovereign oil producer to fully fail,” Croft said

(Adapted from CNBC)

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Categories: Economy & Finance, Geopolitics, Uncategorized

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