From the 1920s to the late 1970s, Venezuela experienced decades of rapid growth, price stability, and significant immigration from Europe. This history as a global economic success story contradicts the simplistic narrative of an inevitable resource curse and highlights the scale of its later collapse.
During the 2012 oil boom, the Chavez government spent as if oil were $200 a barrel, even though it was only $100. They borrowed heavily to cover this gap. When prices later collapsed to the $30s, the financial shock was catastrophic because it came from a $200 spending level, not a $100 one.
To maintain power, the Venezuelan government uses a separate secret police, the DGCIM, specifically to police its own military. This unit monitors, tortures, and imprisons hundreds of military officers, revealing deep internal distrust and serving as a key mechanism to prevent any organized dissent from within the armed forces.
Contrary to perceptions of a deeply divided country, Ricardo Hausmann argues Venezuela has a massive political majority unified for change. He cites recent election results where the opposition won 70-30 even in military bases, framing the conflict as a small, repressive clique versus a united populace, unlike a fractured state like Iraq.
The country is "uninvestable" not just due to political risk, but because of its legal structure. Current law requires foreign firms to partner with the national oil company, giving it a 51% stake. As this state entity is bankrupt and in default, any revenue it receives would be immediately frozen by creditors, making partnerships non-viable.
One of Hugo Chavez's first actions upon taking power was to dismantle the national oil stabilization fund. This mechanism, designed to insulate the domestic economy from volatile oil revenues, was a critical defense. Its removal left the nation fully exposed to price shocks, directly enabling the subsequent economic collapse.
A key element of Venezuela's economic paralysis is that the country's vast human capital—the eight million people who left—will not return without fundamental changes. The regime's survival depends partly on this stalemate, as a mass return of talent and investment requires a restoration of freedom, safety, and property rights that would threaten its power.
The critical blow to Venezuela's oil production was Hugo Chavez's 2003 firing of 20,000 experienced staff. This loss of human capital, years before major sanctions, caused the collapse. When these exiled engineers went to Colombia, they increased one field's output from 30,000 to 250,000 barrels a day, proving their value.