Low Oil Prices Pushing Venezuela Towards Default.
Low oil prices are putting major oil producers in a squeeze. The Russian central bank has been forced to cough up foreign exchange in order to defend itself from a currency crisis. But it may be Venezuela that is the least prepared and most in danger of an economic freefall because of the dramatic decline in oil prices.
Venezuela is particularly vulnerable as its economy depends on oil for 95 percent of its export revenue. The economy was stagnant even when oil prices were in triple digit territory. In fact, the violent protests that broke out in Caracas in February 2014 occurred when oil prices were well over $100 per barrel. But mismanagement of the economy is not a new phenomenon – inflation-adjusted per capita GDP in Venezuela is 2 percent lower today compared to what it was in 1970.
However, the South American OPEC member saw its fortunes go from bad to worse when oil prices started to decline. In October, prominent Harvard economists Carmen Reinhart and Kenneth Rogoffpredicted that Venezuela would most likely default on its bonds as a result of oil prices. And that was when Brent crude was trading above $80 per barrel. Since then, it has tumbled another 25 percent to $60 per barrel.
