Venezuela

Venezuela demonstrates how oil wealth can destroy an economy. The country that held the world's largest proven petroleum reserves—and once ranked among Latin America's wealthiest—collapsed so completely that 7.7 million people fled and those who remained faced hyperinflation, shortages, and infrastructure failure.

Oil was discovered at Lake Maracaibo in 1914, and by 1928 Venezuela was the world's largest petroleum exporter. The revenue that followed created a prosperous middle class, funded infrastructure, and attracted immigrants from Europe and Latin America. Per-capita income approached Southern European levels. Venezuelan democracy, established in 1958, was stable by regional standards.

The dependency deepened rather than diversified. By the 1970s, oil generated 95% of export earnings and the majority of government revenue. When prices crashed in the 1980s, the economy entered sustained crisis. Hugo Chávez's election in 1998 brought socialist policies funded by the oil boom of the 2000s: price controls, nationalizations, social programs, and currency manipulation that created parallel exchange rates.

The collapse accelerated after 2014 when oil prices fell again—this time into an economy whose productive capacity had been destroyed by mismanagement. Nationalizations had driven away foreign investment. Price controls had eliminated domestic production of basic goods. Currency controls had created shortages of everything imported. PDVSA, the national oil company, had become a patronage vehicle rather than a producer.

GDP contracted by roughly 75% between 2013 and 2021—one of the worst peacetime economic collapses ever recorded. Hyperinflation reached 130,000% in 2018. Electricity blackouts became routine. Water systems failed. Hospitals lacked basic supplies. The minimum wage fell to a few dollars monthly at parallel exchange rates.

The humanitarian consequences were mass emigration. Over 7.7 million Venezuelans left the country—more than 20% of the population—creating the largest displacement crisis in Western Hemisphere history. Most fled to Colombia, Peru, Ecuador, and other Latin American nations.

Stabilization of sorts has occurred since 2021. Dollarization spread informally, replacing the worthless bolívar. Private businesses returned cautiously. Oil production, which had collapsed to 400,000 barrels per day from a peak of 3.3 million, has partially recovered. Sanctions relief in exchange for political reforms created incentives for increased output.

By 2026, Venezuela remains a cautionary example. The Maduro government retains power despite economic catastrophe. Oil still determines the country's fate. The diaspora sends remittances that help families survive. Whether meaningful recovery is possible under current governance—or requires political change the regime resists—remains the open question.