A recent sharp contraction in oil production in Venezuela and projected further declines this year will increase already-severe pressure on the government of President Nicolás Maduro, according to investors, especially if the US takes further moves to cut off its dollar funding. Mr Maduro’s troubled government faced its toughest test yet this week as thousands marched in protest through the streets of Caracas, as the US, Canada, Brazil and other American nations withdrew recognition of the Maduro administration and instead recognized Juan Guaidó, head of the National Assembly, as Venezuela’s interim president.
An estimated 3m Venezuelans have fled to neighbouring countries as falling oil revenues have led to severe shortages of basic goods and medicines in the import-dependant country. If the US decides payments should go into accounts controlled by the National Assembly rather than the government, Maduro won’t last very much longer Anthony Simond of Aberdeen Standard Data from Opec, the cartel of oil exporting countries, show crude output in Venezuela— which has the world’s biggest proven hydrocarbon reserves — fell to 1.1m barrels a day in December, less than a third of its level when Hugo Chávez, predecessor and mentor of Mr Maduro, was elected president in 1998.
Analysts blame an exodus of experienced oil workers after PDVSA, the state oil company, was packed with political and military appointments and descended into mismanagement and incompetence. “Production has fallen dramatically and is likely to continue to decrease if there is no change of government,” said Uday Patnaik of Legal & General Investment Management in London, which owns Venezuelan bonds. “It could fall a further 20-50 per cent this year.” Anthony Simond of Aberdeen Standard, which held Venezuelan bonds before the country defaulted last year and has bought more since then, said any further fall in revenues from oil could bring down the Maduro administration. “They have been trying to route their oil exports away from the US to allies such as Russia, China, Turkey and even India but it has been a real struggle,” he said. “The large majority still goes to the US, and if the US decides payments should go into accounts controlled by the National Assembly rather than the government, Maduro won’t last very much longer.”
Recommended Venezuela bondholders are betting on Maduro’s downfall Hyperinflation has added to pressure on the government. The International Monetary Fund expects consumer prices to rise by 10m per cent this year, up from an estimated 80,000 per cent in 2018. Capital Economics, a consultancy, said this alone was likely to trigger a change of government within the next year. “First, countries typically do not usually remain in hyperinflation for much longer than two years,” its analysts said in a note on Thursday. “And second, hyperinflation usually triggers regime change. Venezuela has been in hyperinflation for around 14 months.”