Below is a very good video from the FT about how the fall in oil prices poses big problems for the Venezuela government already trying to cope with a shortage of basic goods. Some key points from the video:
* Venezuela has the largest oil reserves in the world
* 95% of Venezuela’s export revenue is from oil
* For every $1 fall in the oil price Venezuela loses almost $700m. A $20 drop in oil prices would result in a $14bn loss in gross revenues for the country.
* With falling oil revenue and therefore foreign currency the government has less money to buy imports. The reduction in imports includes: toilet paper, maize flour, sugar, powdered milk, medical supplies.
* People have been queuing for 2 to 3 hours for three weeks trying to get basic provisions. The further the oil price drops the longer the queues become.
* The Government have introduced mandatory finger printing in some supermarkets so people don’t try and hoard basic foodstuffs.
* The government, in trying to rally support, are slashing the prices of Chinese imported goods like fridges.
* At the heart of the problem are Venezuela’s price and currency controls
* Printing local currency (Bolivar) will keep widening the government deficit and fuel further inflation – see graph below.
* Oil exports aren’t enough to subsidise everything else