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What Led To Power Cuts In Venezuela?

Byline: Christine H, Guest Writer

For six days, the country of Venezuela experienced a power blackout that brought a struggling country to its knees.

The power outage shut down businesses, schools, public transportation, and telecommunications systems. Hospitals had to run on backup power generators, but those also started to run out of fuel, threatening the lives of patients. Food supplies were rotting in stores and home, and families were lining up to buy drinkable water because water pumps were not working.

The power has been mostly restored; however, this blackout has shed light on the poor infrastructure in this failed state.

What Happened?

The prolonged blackout is the latest problem to afflict Venezuela, which has been suffering from a severe economic downturn as we had explained here.

Venezuelan President Nicolas Maduro has blamed the U.S. and its allies for sabotaging its electrical substations without providing any proof. However, critics say that without investing regularly to maintain the infrastructure, most of Venezuela's dams (that generate hydro-power energy) are damaged.

Venezuela has also seen a decline in its oil production, soaring debt to other countries, and an increasingly autocratic government. All of these are classic symptoms of a failed petrostate.

What Is A Petrostate ?

A petrostate is a country that depends on oil or natural gas exports for income. It has weak and corrupt institutions, and power is in the hands of a small group of people. Petrostates include Venezuela, Saudi Arabia, Iran, Iraq, Russia, and Indonesia, to name a few.

Petrostates depend on exporting their oil to support their economies and fund government programs. Therefore, they are susceptible to swings in oil or gas prices. Oil prices tumbled from over $100 per barrel to under $30 per barrel between 2014 and 2016.

While other oil-producing countries haven't seen the same extent of the problems as Venezuela has, they too have been affected. For example, Saudi Arabia has dipped into money it had saved, cut its government spending and is promoting its "Vision 2030" plan to lessen its dependence on oil. This is true of other neighboring Arab Gulf states as well. Some of the stronger Gulf states such as Saudi Arabia and Qatar have also been pledging money to weaker states such as Bahrain and Oman to avoid economic decline in the region.

What does the future look like for Petrostates? The International Energy Agency (IEA) recently released a report that warns petrostates to start diversifying their economies because of continued low oil prices. The report states that improvements in energy efficiencies, the rise of electric vehicles and changes in government policies to combat air pollution and climate change will lessen demand for oil. In addition, improvements in the U.S. shale oil production will lower its cost, bringing price competition to the petrostates.

Here is a look at how some countries in the Middle East are preparing for a future that is not dependent on oil.

Sources: BBC, Reuters , c,, Bloomberg, Newsweek

Side notes: Inflation in Venezuela

Venezuela's inflation rate at the end of 2018 passed 1,000,000%. In contrast, the U.S. inflation rate for 2018 was about 2%. At 2% inflation rate, an item that cost $1 at the beginning of 2018 would cost $1.02 at the end of the year. With a 1,000,000% rate, the item would cost $10,000 at the end of the year!

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Title Annotation:World News
Author:H, Christine
Geographic Code:3VENE
Date:Mar 18, 2019
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