Of all the countries affected by a drop in global oil prices, Venezuela will be the most critical to watch for major political repercussions. Venezuela's public finances are already dangerously low, and falling oil prices reduce Caracas' ability to fund the country's social programs, which are crucial to maintaining public support for the government. In the next several months, Venezuela will have to confront economic problems, including high levels of inflation and increasingly dire food and goods shortages, with diminishing finances. A decrease in oil revenue flowing into treasury accounts will further hamper the government's ability to subsidize imports, thereby exacerbating the current shortages of food and consumer goods, further adding to citizen discontent.
Venezuela's government has limited options to mitigate the effects of reduced oil revenue. Caracas will probably continue printing more bolivars to finance its deficit spending, but this will only add to the country's inflation problem. In June, the official year-on-year inflation rate was over 60 percent. Moreover, declining oil revenue could also threaten Caracas' ability to pay the $18.5 billion in foreign debt due between 2015 and 2017 — debt the state-owned energy firm Petroleos de Venezuela (PDVSA) is attempting to restructure.
Caracas has leveraged its oil exports for loans from China for several years, but Venezuela has been unable to meet its oil-shipment quotas under these deals. If crude prices remain low, China may be unwilling to offer loans as often or for as much money as before. China's reluctance to finance Venezuela will worsen the effects of lower oil prices on the country.
Venezuelan President Nicolas Maduro will use the limited tools available to him to attempt to minimize the effects of the ongoing economic deterioration on his base of support. He will continue enforcing anti-corruption measures to stem the use of dollars for financing imports but will back off from targeting politically important individuals involved in such schemes. Maduro will also target the black market for food and goods to reduce shortages and, in turn, lower prices for consumers. Neither of these measures will have the desired effect. Consequently, Maduro's political approval rating, which is already a low 30 percent, will decline in coming months if the price of oil does not rebound. Failure to satisfy domestic constituents could lead to further unrest and to an erosion of the party's political base. Moreover, recent events in Venezuela suggest that the government may not have the full support of its security forces, which would be needed to deal with any unrest. This period of depressed oil prices hits Venezuela at a crucial time.
