A Historic Political and Economic Analysis of the Fifth Venezuelan Republic

[This article assumes the reader has some basic knowledge of Venezuelan geography and contemporary history/current events (2018).]

“Socialism” may not be tearing the Bolivarian Republic of Venezuela apart—but it certainly is not a covert “U.S.-led economic war”, either. Ideologues of all camps appear entirely disinterested in anything outside of hyperbolic rhetoric. There are many valid, empirical, and historical reasons why the Venezuelan economy has, after decades of floundering, faltered—again. Venezuela is an unfortunate, cyclical story of turmoil, corruption, incompetence, and grandiose dreams centered around—and enslaved to—a hegemonic hydrocarbon commodity.

Early History

To better understand the current (2018) “crisis in Bolivarian Venezuela” one must first examine Venezuela’s historical development and material conditions.

The territories that today compose Venezuela were colonized by the Kingdom of Spain in 1522. These territories existed as a Spanish colony until the early 19th century, when—after a series of failed uprisings—Venezuelan independence leader Simón Bolívar (alongside figures such as José Antonio Páez and Antonio José de Sucre) successfully secured independence from the Spanish Empire. This struggle culminated in the formation of Gran Colombia in 1821, a state that encompassed much of northern South America and parts of southern Central America until its dissolution in 1830.

After the collapse of Gran Colombia in 1830, Venezuela emerged as a newly independent state and was officially recognized by much of the international community by 1845.

Historically, Venezuela was underdeveloped, poor, and agrarian. Early colonial economic activity centered on gold mining and exploration in support of Spain’s mercantilist economy. Slave labor—both indigenous and imported African—was used extensively to sustain these efforts.

More durable economic success emerged through livestock ranching on Venezuela’s vast grassy plains and, later, the establishment of cocoa plantations along the coast. These activities fostered the development of a feudal, plantation-based system heavily dependent on enslaved African labor concentrated on large haciendas.

Slavery in Venezuela was abolished in 1854 following independence from Gran Colombia. Nevertheless, agriculture remained the country’s near-exclusive economic foundation until the discovery and exploitation of Venezuela’s massive oil reserves in the early 20th century. Drilling began in 1910, with the first wells of major importance entering production between 1912 and 1914.

Oil in Bolivarian Venezuela

The production of oil in Venezuela was pivotal. It rapidly transformed the Venezuelan economy from one heavily dependent on agriculture into one almost entirely dedicated to petroleum extraction.

By 1922, following the catastrophic “blowout” of the Barroso No. 2 well in Cabimas, Venezuela had entered an era of major oil production. In an effort to alleviate Venezuela’s considerable debt, Venezuelan dictator Juan Vicente Gómez Chacón granted staggering concessions to foreign oil companies. These concessions were so extensive that foreign oil companies were even permitted to draft Venezuela’s petroleum laws themselves. Gómez and his inner circle, which maintained close relationships with Wall Street and foreign oil corporations, siphoned enormous portions of Venezuela’s oil profits through kickbacks and corruption schemes. Former Venezuelan president Rómulo Ernesto Betancourt Bello wrote of Gómez:

Gómez was something more than a local despot; he was the instrument of foreign control of the Venezuelan economy, the ally and servant of powerful outside interests.

Despite the depth of corruption, Gómez managed to repay all foreign and domestic Venezuelan debts by the early 1930s using Venezuela’s oil surpluses. Gómez ruled Venezuela—officially and unofficially—until his death in 1935, after which he was succeeded by one of his collaborators, José Eleazar López Contreras.

Throughout this period, Royal Dutch Shell (which had absorbed the former Venezuelan Caribbean Petroleum Company) and Standard Oil, under Rockefeller control, dominated Venezuela’s petroleum sector. Corruption flourished. By 1929, Venezuela had become the second-largest oil producer in the world and the world's second largest oil exporter.

This dramatic transformation produced an economic phenomenon later described as “Dutch disease”, whereby rapid development in a single industrial sector causes the decline of others through currency appreciation. In Venezuela’s case, this manifested in the collapse of agriculture alongside the rise of petroleum. Between 1920 and 1935, oil’s share of Venezuelan exports rose from 1.9% to 91.2%. Conversely, agricultural production withered, and Venezuela lagged behind the more balanced industrialization paths pursued by other Latin American nations. In the 1920s, agriculture accounted for roughly one-third of Venezuela’s economic output; by the 1950s, it accounted for barely one-tenth.

Venezuela’s trajectory reflects what is often described as the “resource curse”: a condition in which extraordinary natural-resource wealth, rather than fostering durable development, incentivizes fiscal indiscipline, political rent-seeking, institutional decay, and long-term economic fragility. In Venezuela’s case, petroleum revenues consistently displaced diversification, taxation, and accountability, embedding structural failure across successive governments regardless of ideology.

World War II sparked a massive surge in global demand for petroleum. By 1940, Venezuela had become the third-largest crude oil producer in the world.

In 1943, under the presidency of former general Isaías Medina Angarita—who had succeeded López Contreras in 1941—Venezuela enacted sweeping reforms to its petroleum policy through the passage of the “Hydrocarbons Law of 1943”. This legislation replaced earlier petroleum laws that had been drafted largely by, and for the benefit of, foreign oil corporations. The new law increased Venezuelan control over its oil industry and granted the state 43% of profits derived from petroleum production.

Between 1943 and 1944, Venezuelan oil production increased by approximately 42%. As a result, the Venezuelan state became increasingly dependent on continuously rising oil revenues in lieu of conventional taxation. This growing reliance on petroleum profits obscured the need for economic diversification, while government spending and corruption expanded rapidly.

Post-World War II

Venezuela’s postwar years were politically chaotic. Rising government debt and entrenched corruption fueled instability throughout the country. In 1945, a popularly supported military coup d’état deposed President Isaías Medina Angarita, laying the groundwork for a three-year period of corrupt democratic rule under Rómulo Ernesto Betancourt Bello. In 1947—during what is widely regarded as Venezuela’s first genuinely free and fair election—Rómulo Ángel del Monte Carmelo Gallegos Freire was elected president, only to be overthrown by another military coup d’état in 1948. The resulting military junta ruled Venezuela until 1952, when Marcos Pérez Jiménez, himself a senior member of the junta, was installed as president.

Marcos Pérez Jiménez’s government was, in practice, a dictatorship characterized by severe repression of dissidents and critics. Economically, his administration pursued Keynesian-inspired, state-capitalist ventures that dramatically expanded the government’s role across multiple industries while substantially increasing public debt. These accumulating debts, combined with the regime’s authoritarian nature, ultimately led to Pérez Jiménez being deposed following a massive national strike in 1958. In the subsequent elections, Rómulo Ernesto Betancourt Bello (AD) returned to the presidency, beginning a second term that lasted until 1964.

Betancourt’s second administration was marked by failed land-reform initiatives aimed at reviving Venezuela’s declining agricultural sector, large-scale investments in domestic development and public works, persistent agitation from extremist guerrilla groups—many of them Cuban-backed Marxists—and even an assassination attempt.

During this turbulent period, Venezuela’s hydrocarbon laws were repeatedly revised. Tax revenues on oil profits were increased to 50% under legislation commonly known as “Fifty-Fifty”, which stipulated that foreign companies could not earn greater profits from oil than they paid to the Venezuelan state. Betancourt’s government effectively set the country on a path toward de facto nationalization of the oil industry through taxation. For the first time in Venezuelan history, labor unions—supported by the government—organized on a national scale, forcing foreign petroleum corporations to concede to worker demands. This shift is significant: prior to this era, most Venezuelan workers had been systematically disenfranchised by concessionary regimes, and many were only 1–2 generations removed from slavery. The 1950s thus represented a notably progressive period for organized labor in Venezuela.

OPEC

Global demand for petroleum rose steadily until the mid-1950s when significant new supplies from emerging Middle Eastern producers entered the market. This influx led to a global oil over-supply, driving petroleum prices sharply downward. These falling prices—combined with other structural economic weaknesses (such as debt-financed development)—culminated in a major economic crisis by 1960.

In response to declining oil prices and the continued dominance of foreign petroleum corporations, the Betancourt government helped spearhead the creation of the international oil cartel: the “Organization of the Petroleum Exporting Countries” (OPEC). OPEC’s stated purpose was to allow oil-producing nations to coordinate policies in order to stabilize global oil prices and safeguard their national interests. This coordination was largely enforced through export quotas designed to mitigate chronic overproduction.

The United States under President Dwight D. Eisenhower responded to OPEC’s early actions by imposing quotas on imported Venezuelan oil, citing national security concerns and favoring Canadian and Mexican supplies. These measures significantly curtailed Venezuelan oil exports and further strained the national economy.

In 1964, Raúl Leoni Otero (AD), a longtime ally of Rómulo Betancourt, succeeded the presidency. Leoni’s administration was largely unremarkable, defined primarily by continued efforts to suppress the extremist guerrilla movements that had destabilized the Betancourt years and persisted into his own term. Leoni was succeeded in 1969 by Rafael Antonio Caldera Rodríguez (COPEI), who governed until 1974.

The mid-1960s through the early 1970s were a period of relative political stability and moderate economic growth. This stability was abruptly disrupted in 1973 when oil prices spiked dramatically following the Yom Kippur War and the subsequent OAPEC oil embargoes. During Caldera’s presidency peace accords were reached with armed guerrilla groups, granting them political legitimacy and official pardons. Caldera also reversed several Betancourt-era foreign policy positions, restoring diplomatic relations with the USSR and engaging with various South American military regimes.

Domestically, Caldera’s government advanced further petroleum reforms. These included the nationalization of the gas industry, increases in oil profit taxes to 70%, stricter regulation of American oil companies operating within Venezuela, and decisive steps toward full nationalization of the petroleum sector. Bolstered by rising global oil prices, Caldera directed massive state resources toward social welfare initiatives—particularly in education, public housing, and infrastructure development. Despite these investments, his administration was not immune to repression nor corruption.

'La Gran [Saudi] Venezuela'

In October of 1973, a coalition of Arab states launched a surprise attack against Israeli-occupied territories. Then-U.S. President Richard Milhous Nixon responded by providing Israel with a strategic military airlift of weapons and supplies, along with billions of dollars in aid. In retaliation, the Organization of Arab Petroleum Exporting Countries (OAPEC) leveraged its collective petroleum exports against the United States, Israel, and their allies through coordinated oil embargoes. Global oil prices surged, rising from roughly $3 per barrel to approximately $12 per barrel by 1974, with prices in the United States remaining significantly higher. Even after the embargoes were lifted in 1974, prices continued to climb and a global recession loomed.

Venezuela’s leadership interpreted the post-1973 oil price surge as a durable structural shift rather than a temporary geopolitical shock. While industrialized nations responded to the embargo by reducing consumption, expanding domestic production, and diversifying energy sources, Venezuela instead treated elevated prices as permanent—doubling down on spending, state expansion, and oil dependence.

In Venezuela, government revenues from petroleum quadrupled. Carlos Andrés Pérez Rodríguez (AD) won the presidential election, succeeding Rafael Caldera. Pérez’s first administration is often referred to as “Saudi Venezuela” due to the extraordinary wealth generated by petroleum exports in the wake of the 1973 oil shock.

Pérez inherited an unprecedented economic bonanza and used it to finance vast and ambitious government projects. Operating under the belief that petroleum revenues could rapidly transform underdeveloped nations into developed ones, his administration dramatically expanded public spending and state intervention across nearly all sectors of the Venezuelan economy. This strategy, known as “La Gran Venezuela”, sought to eradicate poverty, expand the middle class, diversify the economy, and accelerate national development.

Throughout the 1970s, massive investments were directed toward state infrastructure and expansive social-welfare programs, totaling an estimated $53 billion. Radical nationalization and bureaucratization of industry followed. The 1975 Nationalization Law effectively terminated existing agreements governing Venezuela’s natural resources and initiated a broad process of expropriation. That same year, the iron industry was nationalized. On January 1, 1976, Venezuela’s petroleum industry was officially nationalized and consolidated under Petróleos de Venezuela, S.A. (PDVSA), a new, state-owned oil and natural gas company.

Under nationalization, foreign petroleum corporations were folded into Venezuelan state-owned entities. PDVSA retained much of its predecessor workforce and gained international recognition. However, lacking strong executive management and suffering from chronic undercapitalization by the state, PDVSA struggled to develop Venezuela’s petroleum resources efficiently.

Elsewhere, government contracts were issued indiscriminately. The Bolívar, buoyed by oil revenues, became severely overvalued. Consumerism exploded as reckless spending engulfed both society and the state. Corruption increased incalculably, as did other forms of crime. With virtually no financial oversight, the economy was rapidly exploited. To incentivize development, the government subsidized foreign imports, stifling domestic production. Economic diversification stalled and non-petroleum industries began to evaporate. A second wave of “Dutch disease” took hold.

In 1976, Juan Pablo Pérez Alfonzo—widely regarded as the intellectual architect of OPEC—issued a prescient warning:

Ten years from now, twenty years from now, you will see—oil will bring us ruin… It is the devil’s excrement.

Despite mounting structural weaknesses, the oil bonanza continued. High oil prices persisted and petroleum revenues kept flowing. Public works and social programs did improve literacy, education, and welfare outcomes. Labor unions flourished as oil profits remained elevated, and Venezuelan workers enjoyed the highest wages in Latin America, further fueling consumer excesses. Although income inequality persisted, overall living standards rose sharply, and Venezuela recorded some of the highest growth rates and lowest inequality levels in the region.

By the end of Pérez’s first term in 1979, however, the consequences were undeniable: public debt had skyrocketed, agriculture had collapsed (forcing Venezuela to import roughly 80% of its food), and tens of billions of dollars in surpluses had been exhausted. “La Gran Venezuela” had largely failed. The newly elected president, Luis Antonio Herrera Campins, famously declared in his inaugural address that he was “inheriting a mortgaged country”.

The 1980s Economic Crisis

By 1980, the world price of oil peaked at roughly $35 per barrel and began a gradual but persistent decline. OPEC member states routinely ignored production quotas, while many industrialized nations spent much of the late 1970s reducing dependence on petroleum in response to the shocks of the 1973 embargo. The result was a global oil glut. At the same time, inflationary pressures spread throughout Western financial systems and interest rates climbed to historic highs. By 1982, oil prices were falling sharply.

Venezuela entered this period with massive public debt exceeding $33 billion, an overvalued Bolívar, and dwindling access to international credit. These conditions triggered the largest episode of capital flight in Latin American history, often described as a form of “insider trading”. While the Venezuelan state quietly approached insolvency, political and economic elites were forewarned. Between 1982 and 1983, billions of dollars were withdrawn from the Venezuelan central bank and converted into foreign currencies.

In 1983, Venezuelan oil exports fell by approximately 30%. The Herrera government was forced to declare insolvency. Price and exchange controls were imposed, and the Bolívar was devalued by 100%. By 1984, Luis Antonio Herrera Campins had vacated the presidency, and OPEC itself was in crisis. The remainder of the decade was marked by sharp declines in per capita income. By the early 1990s, Venezuela’s middle class had been largely erased.

While Herrera may have inherited “a mortgaged country”, Jaime Ramón Lusinchi (AD) assumed office amid full economic free fall. Oil prices continued to deteriorate and public debt mounted. Lusinchi’s administration focused primarily on economic stabilization. Public spending was cut, yet by 1985 national debt exceeded $36 billion. His government negotiated international debt restructurings and coordinated with OPEC in attempts to raise oil prices. Despite these efforts, conditions remained dire: prices fluctuated downward, reserves were drained as quickly as they were replenished, and public resentment toward austerity intensified.

In 1986, global oil prices nearly halved from their 1980 peak. Venezuela was forced to devalue the Bolívar again, this time by 93%. In 1987, mounting social unrest pushed Lusinchi to abandon austerity altogether in favor of political populism. Fiscal discipline collapsed. External debt payments were deprioritized while salary increases, price controls, and state subsidies were reintroduced. PDVSA acquired a 50% stake in the U.S.-based Citgo Petroleum Corporation, with plans to purchase the remaining shares by 1990. PDVSA’s partial acquisition of Citgo during the 1980s—intended to secure downstream access to U.S. refining and distribution—ultimately became a strategic liability. Rather than insulating Venezuela from price volatility, the investment tied PDVSA to high-cost downstream operations, political exposure in the United States, and mounting capital obligations that delivered little protection once oil revenues collapsed. Oil production increased, further exacerbating the global glut.

These policies predictably fueled inflation and expanded debt. Lusinchi left office in 1989, later to be widely criticized for severe mismanagement and corruption on a massive scale. Ironically, he was succeeded by Carlos Andrés Pérez Rodríguez (AD)—the same figure Herrera had earlier accused of “mortgaging” Venezuela—returning to the presidency for a second term.

The 1990s

Carlos Andrés Pérez Rodríguez assumed office for his second term at the head of an economically shattered Venezuela. Almost immediately, his administration accepted a $4.5 billion loan from the International Monetary Fund (IMF), accompanied by a package of ten economic prescriptions drafted with substantial U.S. influence. Despite accepting the loan, Pérez publicly condemned the IMF as “la bomba sólo mata gente” (“the bomb that only kills people”) and described the World Bank as “genocide workers”, reflecting deep popular hostility toward externally-imposed austerity.

Nevertheless, Pérez moved forward with sweeping neoliberal reforms, particularly within the petroleum sector. These reforms, combined with aggressive austerity measures, triggered a sharp spike in consumer prices and ignited widespread popular unrest. Massive demonstrations erupted across the country, prompting the declaration of a state of emergency. Fearing revolution, Pérez ordered the National Guard to suppress the protests. Martial law was imposed, civil liberties were suspended, and hundreds of civilians were killed. Some estimates place the death toll above 1,000. The violence generated deep and lasting public animosity toward the Pérez government.

Amid this political collapse, two coup d’état attempts were launched in February and November of 1992 by a clandestine movement within the military known as Movimiento Bolivariano Revolucionario 200 (MBR-200). Led by lieutenant colonels Hugo Rafael Chávez Frías and Francisco Javier Arias Cárdenas, the movement rejected the entrenched AD-COPEI political duopoly, which they characterized as a corrupt, clientelist establishment. MBR-200 condemned the scale of corruption under Pérez and argued that only a radical break from Venezuela’s political tradition could produce lasting reform.

Many participants in the coup attempts were former members of the Partido de la Revolución Venezolana, a left-communist guerrilla organization active in the 1970s that had since disbanded and infiltrated the armed forces. Both coup attempts failed and resulted in the deaths of several hundred people. Chávez and Arias Cárdenas were imprisoned, but the failed uprisings propelled them into the national spotlight.

In 1993, Pérez was formally accused of embezzling approximately 250 million Bolívars from a presidential discretionary fund. The Venezuelan Supreme Court ruled the charges valid, and the National Congress removed Pérez from office. Octavio Lepage Barreto (AD) briefly assumed the presidency as interim leader, followed by Ramón José Velásquez Mujica, who governed until new elections were held in 1994. Those elections returned Rafael Antonio Caldera Rodríguez (COPEI) to the presidency for a second term.

Venezuela throughout the 1990s was plagued by collapsing oil prices, chronic fiscal deficits, runaway inflation, and deep recession. Caldera inherited an economy in disarray. A severe banking crisis had been developing since 1993 and erupted fully upon his return to office in 1994. Banks failed in rapid succession, forcing state intervention and nationalization. By the end of 1994, the government controlled vast portions of the financial sector through bank seizures. Researcher René Salgado noted that the bailout guaranteed roughly $6 billion to depositors—equivalent to 7% of the national budget and approximately 13% of GDP. Additional bank failures persisted into 1995.

Between 1990 and 1998, non-petroleum industrial production declined by roughly half, signaling the near-total collapse of the meager economic diversification that existed. Mounting deficits compelled Caldera to impose severe austerity and structural reforms. His administration accepted additional IMF loans, imposed currency and price controls, and privatized telecommunications and metals industries. PDVSA was partially liberalized under a policy known as Apertura Petrolera, granting preferential contracts to foreign operators and securing international investment.

The petroleum sector gradually stabilized, and oil production increased. By 1997, inflation had fallen by nearly 50% and GDP growth had resumed. This fragile recovery was derailed by the 1997 Asian financial crisis, which, by late 1998, had driven oil prices to their lowest levels in half a century. The collapse forced another round of austerity and government cuts, stalling recovery once again.

Caldera also dismissed legal charges against military officers involved in the 1992 coup attempts, including Chávez and Arias Cárdenas. Both men were released from prison and transitioned into formal political careers. Their failed rebellions had earned them considerable support, particularly among Venezuela’s left wing.

When Caldera left office in 1999, the economy showed signs of stabilization and his administration had implemented a broadly successful anti-corruption campaign. Nevertheless, Venezuelan society remained deeply dissatisfied. The middle class had been hollowed out by decades of crisis, savings had evaporated, and austerity had eroded living standards. Liberalization policies—particularly within PDVSA—fueled resentment. By the end of the decade, Venezuela was the world’s fifth-largest crude oil exporter, with petroleum accounting for approximately 85% of all national exports.

A New Government

Hugo Rafael Chávez Frías—the coup-leading lieutenant colonel from 1992—won the 1998 presidential election. Chávez ran as the candidate of Movimiento V [Quinta] República (MVR), a political outgrowth of MBR-200, with the support of much of Venezuela’s left. He won with 56% of the vote, drawing his base largely from the country’s poor and an increasingly disenfranchised middle class. Chávez officially assumed office in 1999.

His election marked the collapse of the long-standing AD–COPEI political duopoly that had dominated Venezuelan politics for decades. Chávez campaigned on a progressive, left-leaning platform, but assured foreign investors that nationalization was not on the agenda, instead promising a government friendly to business. Early in his presidency, Chávez pursued center-left, capitalist policies, adhered to IMF guidelines, and actively sought foreign investment.

One of the defining features of Chávez’s early presidency was the launch of the so-called “Bolivarian Missions”—large-scale social-welfare programs designed to reduce poverty, expand access to healthcare and education, and address long-standing social inequalities. Many of these initiatives relied heavily on the armed forces, which Chávez reframed as a “force for development”. Military units built and repaired roads and hospitals, provided free medical services to impoverished communities, and distributed food and welfare supplies. These programs earned Chávez widespread support, particularly in poorer and rural regions, solidifying his political base.

Simultaneously, Chávez moved quickly to consolidate power within the state and the military. Political allies, former army colleagues, and even family members were appointed to key positions across government institutions and military commands. While political purges and patronage were not unprecedented in Venezuelan politics, Chávez pursued them with exceptional speed and scope. He also called for a public referendum to replace the 1961 constitution, arguing that it no longer reflected the needs of the Venezuelan people. The referendum passed with 88% approval.

In August 1999, a National Constituent Assembly was convened to draft a new constitution. That December, catastrophic floods and landslides devastated the coastal state of Vargas, killing tens of thousands, destroying entire communities, and collapsing regional infrastructure. The disaster inflicted an estimated $20 billion in damage, setting the country back significantly.

Later that month, a series of elections and constitutional referendums—conducted amid voter absenteeism exceeding 50%—granted Chávez-aligned candidates all but six seats in the Constituent Assembly. Of those who voted, 72% approved the new constitution. The document abolished Venezuela’s bicameral legislature in favor of a unicameral National Assembly, dramatically expanded presidential authority, and formally assigned the military a central role in national development. These changes effectively dismantled many institutional checks and balances.

The new constitution mandated fresh elections across all branches of government, commonly referred to as the “megaelections” of 2000. Chávez again ran under the MVR banner and entered the contest with effective control over state institutions. Chavez won with 60% of the vote—an increase over his 1998 result—and his supporters secured a supermajority in the new National Assembly. Notably, Chávez’s closest rival was his former co-conspirator from 1992, Francisco Javier Arias Cárdenas, now serving as a regional governor.

With electoral legitimacy secured under the new constitutional framework, Chávez and his allies consolidated power and moved swiftly to enact sweeping reforms. Using enabling legislation commonly referred to as the “49 laws”, the government passed a broad package of social and economic measures. Central among these was a new Organic Law on Hydrocarbons, which required that all petroleum development be conducted either directly by PDVSA or through “mixed companies” in which the state retained majority ownership.

Chávez argued that PDVSA had evolved into “a state within a state” and required tighter political control. The government assured foreign operators that existing contracts would be honored. Additional legislation enabled land reform through the expropriation of “idle” estates, ostensibly to stimulate agricultural production, and granted the state expansive regulatory and censorship authority over the media.

Under the guise of emergency powers, the National Assembly effectively granted itself the authority to legislate with minimal oversight. Critics argued that the Assembly had become the de facto supreme authority within the Venezuelan state. Collectively, these reforms and the restructured political system marked a turning point in public sentiment toward Chávez, signaling the beginning of a far more polarized era in Venezuelan politics.

During this period, Chávez strengthened ties with Fidel Castro’s Cuba and worked to reinvigorate OPEC by pressuring member states to adhere more strictly to production quotas in order to elevate global oil prices.

Terrorism and Turmoil

On September 11, 2001, a group of Saudi-financed Islamic extremists carried out coordinated terrorist attacks against the United States, hijacking commercial airliners and flying them into the World Trade Center towers in New York City and the Pentagon in Arlington, Virginia. That same afternoon, then–U.S. Secretary of Defense Donald Rumsfeld reportedly instructed aides to search for any “good enough” justification to pursue military action against Saddam Hussein’s Iraq. By October, the United States had invaded Afghanistan, and by March 2003, American forces had begun military operations against Iraq.

These events, combined with stricter adherence to OPEC production quotas, triggered a sharp rise in global oil prices that would continue until 2008, briefly recover through 2014, and then collapse further.

Conditions within Venezuela, however, deteriorated rapidly. Throughout 2001, opposition to Chávez’s government intensified. The enactment of the “49 laws”, along with the accelerating concentration of power under the new constitutional framework, generated broad political backlash. Chávez was increasingly denounced as authoritarian and undemocratic, and organized efforts to remove him from office gained momentum. While opposition demonstrations expanded in size and frequency, Chávez retained a fiercely loyal base among poorer and left-leaning segments of the population.

The private sector proved especially hostile to the “49 laws”, which many described as the breaking point in Chávez’s relations with business leaders, religious institutions, and private media. Protests escalated nationwide, deepening political polarization.

Discontent also spread within the armed forces. Since Chávez’s election, the Venezuelan government had cultivated close ties with Cuba and expressed ideological sympathy toward left-wing guerrilla groups operating in neighboring states. Historically, however, Cuba and guerrilla organizations such as the Fuerzas Armadas Revolucionarias de Colombia (FARC) had been adversaries of the Venezuelan state and its military. Tensions intensified when Chávez ordered the armed forces to assist FARC fighters by allowing the construction of camps on Venezuelan territory and supplying them with ammunition and logistical support.

The situation worsened further when Chávez authorized coordination between Venezuelan and Cuban military forces, granting Cuban officials unrestricted access to Venezuelan military installations, personnel files, and intelligence databases. These directives generated deep resentment within large segments of the armed forces, many of whom viewed the actions as a profound betrayal of national sovereignty. By late 2001, distrust between Chávez and the military had reached dangerous levels.

Strikes and a Coup

In December 2001, as political tensions escalated, Chávez’s opposition—working in coordination with elements of the private sector—organized a massive national strike. The strike paralyzed roughly 90% of the economy and exceeded the scale of the general strike that had precipitated the overthrow of dictator Marcos Pérez Jiménez in 1958. By early 2002, enormous anti-government demonstrations, some involving hundreds of thousands of participants, had become routine.

PDVSA

Fearing further destabilization, the Chávez government moved to consolidate control over Venezuela’s economic core: PDVSA. On January 1, 2002, a new hydrocarbons law came into force, and the state initiated measures to enforce its provisions.

At the time, PDVSA operated with considerable autonomy and generated approximately 70% of Venezuela’s foreign revenue, deposited directly into the Venezuelan Central Bank. This arrangement was largely the product of apertura petrolera, a policy adopted during Rafael Caldera’s presidency in the 1990s to attract foreign investment by granting private operators access to Venezuelan oil reserves at extremely low royalty rates, often between 1% and 17%.

Apertura petrolera had been fiercely criticized by the Venezuelan left as a retreat from nationalization and a return to foreign exploitation. Chávez himself had been a vocal opponent. Compounding tensions, private operators under apertura continued high production levels to meet elevated global demand following the American wars in the Middle East, undermining competing OPEC efforts—supported by Venezuela—to restrict output and maintain elevated oil prices.

Miraflores Confrontation and Coup D'État

Although the Chávez government secured majority control over PDVSA, it faced stiff resistance from the company’s senior management, which had grown supportive of apertura policies. Chávez sought to raise royalties on oil sales from 16.6% to 30% while reducing extraction taxes from 67.6% to 50%, and to align production levels with OPEC quotas. These initiatives directly conflicted with the interests of private concessionaires.

Chávez accused PDVSA’s leadership of conspiring with foreign oil corporations to re-privatize the industry, pointing to a 54.9% decline in royalty revenues from their 1981 peak as evidence of collusion. In April 2002, he dismissed five of PDVSA’s seven board members, including PDVSA president Brigadier General Guaicaipuro Lameda Montero, replacing them with political loyalists and leftist figures. PDVSA employees responded with a general labor strike.

By this point, Venezuelan society was deeply fractured. Chávez maintained strong support among the poor and indigenous populations but was widely despised by much of the middle class and private sector. Rumors of an impending coup had circulated for months. Chávez’s constitutional restructuring and intervention in PDVSA transformed political hostility into a powder keg.

On April 11, 2002, the PDVSA strike escalated into a nationwide general strike organized by a broad opposition coalition known as Coordinadora Democrática de Acción Cívica (CD). Businesses shuttered, hundreds of thousands marched, and private television networks broadcast continuous anti-Chávez coverage. A protest march toward PDVSA headquarters was redirected toward Caracas and the presidential palace at Miraflores.

As demonstrators reached central Caracas, clashes erupted between opposition marchers, armed pro-Chávez Chavistas, and National Guard units. By the afternoon, 19 anti-government demonstrators had been killed and roughly 60 wounded. Graphic images of the violence were broadcast nationwide. In response, senior commanders from the Air Force, Navy, and National Guard publicly withdrew support from Chávez. General Efraín Vásquez Velasco, commander of the army, declared:

Mr. President, I was loyal to the end, but today’s deaths cannot be tolerated.

A coalition of military officers demanded Chávez’s resignation. After negotiations failed, and amid threats to bomb Miraflores Palace, Chávez conceded. A military delegation was dispatched to arrest him.

Detention

Chávez was detained and transported under military escort to an army base. Following meetings with military representatives and the Catholic Church, Chávez formally agreed to resign—a narrative quickly disseminated by the military in an effort to legitimize events and avoid accusations of a coup. Chávez requested exile in Cuba, but this was denied. Instead, he was transferred to a military base on La Orchila, an island off Venezuela’s coast.

During his detention, Chávez watched televised reports claiming he had voluntarily resigned and feared he would be executed under the guise of suicide. Through his daughter and loyal telecommunications workers, Chávez managed to contact Fidel Castro and broadcast messages on Cuban television. Military prosecutors later conveyed statements from Chávez denying his resignation to Attorney General Isaías Rodríguez, who announced on national television that Chávez was being held illegally and that a coup had occurred. Much of this broadcast was cut short.

Interim Coalition Government

With Chávez detained, business leader Pedro Francisco Carmona Estanga was installed as interim president. Carmona immediately issued sweeping executive decrees. Within hours, he reversed the country’s official name, halted oil shipments to Cuba, repealed Chávez’s “49 laws”, dissolved all branches of government, suspended elected governors and mayors, dismissed the National Assembly and Supreme Court, and voided the 1999 constitution under what became known as the “Carmona Decree”.

Carmona reappointed Guaicaipuro Lameda to head PDVSA, which promptly announced increased production. Carmona purged the armed forces, sidelining pro-Chávez officers, and appointed a naval admiral as defense minister, bypassing General Vásquez Velasco. Many cabinet appointments went to associates, including members of Catholic Opus Dei.

Initially celebrated by anti-Chávez supporters, Carmona’s actions quickly proved divisive. The dissolution of constitutional order alarmed even coup backers. Arrests of Chávez officials and loyalists intensified public backlash. As political scientist Barry Cannon observed:

all institutions were abolished, leaving the country effectively without the rule of law.

The military coalition soon regretted its choice in backing the coup. Carmona’s brash decisions and declarations had not been coordinated with military leaders, and divisions deepened as loyalty to Chávez persisted within the lower ranks of the Venezuelan military. Guards overseeing Chávez’s detention continued referring to him as “president”.

Collapse of the Interim Government

On April 13, the interim government unraveled. Public disorder grew, internal infighting paralyzed decision-making, and revelations that Chávez had not resigned sparked massive pro-Chávez demonstrations. Hundreds of thousands of supporters descended on Caracas demanding his reinstatement.

Presidential guards loyal to Chávez, backed by paratrooper units linked to MBR-200, retook Miraflores Palace. The divided military declined to intervene. Chávez was returned to power on April 14 after being transferred from detention near Puerto Cabello. Carmona was placed under house arrest before receiving asylum in the Colombian embassy and fleeing to Bogotá.

The New-New Bolivarian Republic & Oil Strike

After surviving the failed coup, Chávez returned to the presidency appearing conciliatory. Only the most visible participants in the coup were targeted for reprisal, and several cabinet positions were offered to figures acceptable to the opposition. Chávez reinstated the five PDVSA board members he had previously dismissed and removed those he had appointed as replacements. He also increased funding and benefits for the armed forces.

These gestures, intended to stabilize the political environment, were interpreted by the opposition—Coordinadora Democrática de Acción Cívica—as weakness. Demonstrations demanding Chávez’s resignation resumed. Political unrest continued throughout 2002. In October, a one-day national strike was held to demand new elections. In November, clashes between demonstrators and security forces in Caracas resulted in three deaths. By December, the political situation again approached collapse.

The national business federation, opposition political parties, and major private media organizations coordinated a new nationwide strike calling for Chávez’s removal. PDVSA management, despite Chávez’s reconciliation efforts, re-emerged as central participants.

Although the fourth paro cívico produced mixed results (many businesses were owned by now pro-Chávez interests after the brief Carmona disaster) PDVSA management successfully sabotaged the state’s petroleum infrastructure. Despite the government’s agreement to hold non-binding referendums, the opposition pressed forward. PDVSA executives grounded internal systems, disabled production equipment, locked out computer networks, and staged a walkout. Facilities were secured to prevent pro-government workers from restoring operations. One oil tanker was deliberately anchored in the narrow shipping channel of Lake Maracaibo, halting traffic, while the remainder of PDVSA’s fleet was similarly immobilized.

Oil production collapsed by more than 33%. Domestic fuel supplies were rapidly exhausted. By mid-December, Venezuela entered a state of economic paralysis. Businesses closed nationwide, domestic airlines suspended operations, and food shortages emerged. Opposition groups promoted the slogan “2002 without Christmas, 2003 without Chávez”. Private media networks suspended normal advertising and broadcast continuous pro-strike, anti-government messaging.

In response, the government organized emergency import networks with support from regional allies and sympathetic business leaders. Chávez initiated sweeping purges within PDVSA, including the removal of managers he had previously reinstated. Sabotaged tankers were eventually recovered, some requiring days of labor due to explosive traps. By early 2003, more than 300 PDVSA managers had been dismissed and replaced with lower-level personnel unaffiliated with the strike or otherwise openly loyal to the government.

Oil production resumed slowly. The recovery was arduous, as much of PDVSA’s operational infrastructure had been deliberately damaged. It was not until April 2003—nearly one year after the strike that preceded the coup—that production levels fully recovered.

The economic damage was severe. GDP contracted by approximately 27% in early 2003, while losses to the petroleum sector reached an estimated $13.3 billion. Inflation rose to 31.1%, foreign exchange trading was suspended to prevent capital flight, and major industries contracted sharply: construction by 55.9%, petroleum by 26.5%, commerce by 23.6%, and manufacturing by 22.5%. The Bolívar, already weakened by decades of inflation and devaluation, deteriorated further.

Following internal investigations, the government ultimately terminated roughly 40% of PDVSA’s workforce for participation in the strike or related activities. Critics described the move as a catastrophic “brain drain” that would take decades to reverse.

Despite persistent unrest, conditions began to stabilize in 2004. A recall referendum mandated by petition was held to determine Chávez’s fate. Approximately 70% of eligible voters participated amid massive demonstrations. Chávez survived the vote with 59% support, retaining strong backing among poorer, rural, and working-class Venezuelans.

Socialism of the 21st Century & Collapse

After surviving the recall referendum, Chávez accelerated a leftist socioeconomic agenda commonly described as socialismo del siglo XXI (“socialism of the 21st century”). A vast array of social programs was expanded, many financed directly through PDVSA’s budget. Initially, these policies appeared sustainable. U.S. military operations in Afghanistan and Iraq had driven global oil prices upward, providing Venezuela with billions in additional foreign exchange reserves. Economic growth exceeded 10% in 2004 and averaged 9.3% in 2005, although the country remained in recessionary recovery.

During this period, the Chávez government enacted additional measures that further centralized power. These included “anti-libel” laws that imposed severe restrictions on private media, expanded Bolivarian Missions, and a strategic military realignment away from the United States. Venezuela began sourcing arms and equipment from Brazil, Russia, and China, straining diplomatic relations with the United States. As tensions escalated, Chávez ordered all active-duty U.S. military personnel to leave the country. The United States responded with diplomatic and geopolitical pressure, leading to recurring confrontations within international forums.

Throughout the mid-2000s, government policy focused on anti-neoliberal development, political consolidation, and regional diplomacy. Venezuela remained economically fragile and struggled to recover from the deep recession of the early 2000s.

In 2005, PDVSA opened offices in China, signaling an effort to redirect oil exports away from dependence on the United States. By 2006, petroleum accounted for 56% of total government income and 89% of export revenues. The country’s extreme reliance on oil was increasingly recognized as one of the central vulnerabilities of the Chávez administration.

In December 2006, Chávez won reelection with 63% of the vote. Despite persistent opposition from Coordinadora Democrática de Acción Cívica, his support among poorer Venezuelans had grown substantially. Between 2003 and 2006, household income among the poorest sectors increased by more than 150%. From 1998 to 2007, Venezuela’s GDP expanded by approximately 36%, driven largely by sustained increases in oil prices rather than structural economic reform. This growth proved fragile.

In early 2007, Chávez reshuffled his cabinet and secured a new set of enabling laws granting the National Assembly authority to renationalize industries privatized during the Caldera years. The government acquired controlling stakes in electricity and telecommunications companies and imposed heavy controls on the Central Bank. That year, Venezuela repaid outstanding debts to the World Bank and IMF ahead of schedule and launched the Bank of the South. PDVSA was directed to reclaim control over apertura petrolera projects, provoking renewed protests.

In December 2007, Chávez proposed constitutional amendments to expand executive power, extend presidential terms, and permit indefinite reelection. The proposal narrowly failed in a national referendum, receiving 49% support amid high abstention. Undeterred, Chávez returned with a narrower referendum in 2009 focused solely on removing term limits for elected officials. The measure passed with 54% approval and widespread participation, intensifying political polarization.

The global financial crisis of 2007–2008 and the ensuing Great Recession reversed Venezuela’s tentative recovery. Worldwide demand for petroleum fell sharply, and oil prices collapsed. The downturn compounded Venezuela’s structural weaknesses, deepening recession and accelerating economic contraction. Non-petroleum exports effectively disappeared. The housing sector deteriorated rapidly, exacerbated by the collapse of construction following the 2002–2003 strikes. Government “emergency policies”, including expropriation of “idle” properties for public housing, further discouraged private investment and accelerated capital flight.

A new form of Dutch disease emerged. Oil revenues crowded out diversification as unemployment rose and dependence on state welfare expanded. Crime and corruption surged. By early 2010, the economy had contracted by nearly 6% and inflation exceeded 30%, the highest rate in Latin America. In 2010, Venezuela ranked last globally in property rights protections. Squatters occupied abandoned developments, most notably the unfinished Centro Financiero Confinanzas in Caracas, originally intended to symbolize economic modernization. Venezuela was the only country in the region to remain in recession in 2011.

However, despite economic deterioration, international observers acknowledged limited social gains. A report by the Organization of American States cited progress in literacy, primary healthcare access, land distribution, and poverty reduction, while also noting severe economic, infrastructure, and social crises.

In 2012, petroleum accounted for 96% of Venezuelan exports and more than half of government revenue. The World Bank characterized Venezuela’s economy as “extremely vulnerable to changes in oil prices”.

Chávez won the 2012 presidential election with 54% of the vote and high turnout. His victory was short-lived. After a prolonged battle with cancer, Chávez died in March 2013.

Vice President Nicolás Maduro Moros assumed office days later and narrowly won a special election in April with 50.62% of the vote. Maduro inherited an economy already in advanced decline. By 2014, GDP had contracted by roughly 4% across the first three quarters. Mass protests erupted nationwide against crime, corruption, and shortages. In October, oil prices collapsed again, pushing Venezuela deeper into recession.

By 2015, the economy contracted by an estimated 10% and inflation surged to historic levels. Oil production fell to a 28-year low, shortages exceeded 70%, and official statistics grew increasingly unreliable. Emergency economic powers expanded executive authority, effectively enabling rule by decree. By late 2016, Venezuela entered full hyperinflation.

By 2017, PDVSA could no longer afford basic maritime export operations. Much of its tanker fleet was grounded. In January 2018, the government acknowledged inflation exceeding 4,000% for the previous year. A new currency was introduced, unemployment surpassed 20%, and foreign investment evaporated. Debts were serviced in oil. Crime and corruption reached endemic levels.

As of 2018, Venezuela remained almost entirely dependent on petroleum, with oil generating roughly 96% of export revenues. The economy lay in ruins, the currency effectively worthless, and the population increasingly malnourished. Maduro was unlikely to win a competitive election. Whether meaningful change would follow remained an open question.