From Prosperity to Economic Collapse: Venezuela’s Story

Venezuela was once considered one of the wealthiest countries in South America. With some of the largest oil reserves in the world—about 303 billion barrels of crude oil—the nation appeared poised for long-term prosperity. Yet today it is widely regarded as having one of the poorest economies on the continent. How did this dramatic reversal happen?

The Early Years: Oil Discovery and Growth

Venezuela discovered oil in the early 20th century, and from that point its economy began to transform. Oil exports drove economic growth and government revenue for decades. By the mid-1900s, Venezuela was one of the leading oil exporters globally and enjoyed high incomes compared to other Latin American nations.

On paper, the country’s massive reserves should have guaranteed ongoing prosperity. But the reality of managing—and growing—an economy that depends almost entirely on one resource proved difficult.

Nationalization of the Oil Industry

In 1976, the Venezuelan government nationalized all foreign oil companies operating within the country, bringing them under the state-owned oil company known as Petróleos de Venezuela, S.A. (PDVSA). This shift gave the state full control of oil production and revenue. For a time, the economy remained stable because oil was still being produced and exported. But this change also began a long-term trend of government dominance over what was once a more diversified and privately managed sector.

Hugo Chávez and Socialist Policies

The next major turning point came with the election of Hugo Chávez in 1998. Chávez launched a series of socialist reforms that he called “Plan Bolivar,” which were intended to reduce poverty and expand social services. While some programs may have had positive intentions, they were funded largely by oil revenue rather than broad economic development.

Chávez’s government also began reshaping PDVSA. In 2002, thousands of experienced oil workers—many of whom had specialized technical skills—were fired after the government clashed with industry professionals. These layoffs included top executives and left the company with fewer skilled workers. The replacements were often political loyalists rather than trained petroleum experts, weakening operational capacity.

Decline in Oil Production

With PDVSA increasingly mismanaged and underinvested, oil production declined sharply over the years. Where the country once produced millions of barrels per day, output fell to around 1.1 million barrels per day—a dramatic drop that directly impacted national revenue.

This decline was not just a result of poor leadership; it was also linked to the difficulty of extracting Venezuela’s extra-heavy crude oil, which requires sophisticated technology and maintenance. As the infrastructure aged and investment dried up, production dropped faster.

Hyperinflation and Economic Mismanagement

After Chávez’s death, Nicolás Maduro took power in 2013. Under his leadership, the economy suffered even more severe problems. The government continued extensive social spending but funded these programs by printing money, which caused hyperinflation. Prices soared and the local currency became almost worthless. By 2019, inflation in Venezuela reached hundreds of thousands of percent.

Hyperinflation made everyday life difficult for ordinary citizens. Basic goods became scarce or too expensive for most people, and wages could not keep up with runaway prices.

Emigration and Loss of Skilled Workers

The economic collapse prompted a mass exodus of Venezuelans seeking better opportunities abroad. In 2015, around 700,000 Venezuelans were living outside the country. By 2025, that number had swollen to roughly 7.9 million. Many of those leaving were skilled professionals—engineers, doctors, teachers—further depleting the nation’s human capital at a time when it was needed most.

International Sanctions and External Pressures

Another factor in Venezuela’s economic difficulties has been international sanctions, particularly from the United States. These measures, aimed at pressuring the government over human rights and corruption issues, restricted access to international financing and made it harder for Venezuela to engage in global markets. While sanctions did not create all of the country’s problems, they exacerbated existing ones by limiting economic options.

Consequences for Venezuelan Society

The collapse of Venezuela’s economy has had profound effects on daily life. Food and medicine shortages became widespread as supply chains broke down. Many hospitals struggled to operate, and schools faced closures due to lack of funding. Chronic shortages made everyday needs difficult to secure, especially for lower-income families.

Overall, the combination of economic mismanagement, dependency on oil, loss of skilled labor, and external pressures turned what was once South America’s richest country into one of its most challenged.

Hope for the Future?

Although Venezuela's situation is dire, some analysts suggest that political change and economic reform could open the door for recovery. With substantial oil reserves still in the ground, investment and improved governance could help stabilize the economy in the long term. But achieving this will require structural reforms, better management, diversification beyond oil, and rebuilding trust with both citizens and the international community.