As Warren Buffet says, “Only when the tide goes out do you discover who’s been swimming naked.”
And, as Visual Capitalist's Jeff Desjardin details, in 2014, when oil prices crashed and burned, the tide was gone – and it was shown that too many countries were relying on frothy oil revenues to balance out their trade deficits.
A LINGERING CRISIS
Fast forward to today, and low oil prices are still causing big problems for many countries. The interactive visualization below from the Council of Foreign Relations shows how the world economies most reliant on oil exports have fared since the 2014 crash.
http://public.tableau.com/views/Brkvn_Rough/FinalStory
The end results are not pretty – and even in 2016, there were 18 economies that had breakeven prices (based on spending on imports) that were above the average oil price for the year:
Source: Visual Capitalist
The oil price crash made many oil-reliant economies more fragile, and this fragility can be triggered in different ways. One interesting case study is Venezuela, which is currently embroiled in an ongoing economic, currency, and humanitarian crisis.
BAD TIMING FOR MADURO
During the Hugo Chávez era, sky-high oil prices enabled fiscal and trade policies that subsidized Venezuelan life in many ways. That all changed in 2014, which was only one year after Nicolás Maduro took office.
Despite having largely the same policies as his predecessor, low oil prices have hammered the Venezuelan economy. Even with today’s prices, oil generates an estimated 95% of export revenues for the country. This has resulted in a disaster for the socialist nation, and Venezuela is now stuck with shortages in essential goods, crushing unemployment, a contracting economy, skyrocketing crime and murder rates, and even widespread malnutrition.
At the root of much of this, arguably, is an uncontrollable cycle of hyperinflation:
Source: Visual Capitalist
With an economy that is a runaway train, the government prints more and more cash to try to maintain the status quo. This almost never works, and last year it even led us to publish a chart comparing Venezuelan hyperinflation with that of Weimar Germany.
According to DolarToday.com, a website that tracks the black market rate for Venezuelan currency, it takes 8,470 bolívars to buy US$1 today. Right before the oil crash this was closer to 65 bolívars.
A LOST CAUSE
While many oil dependent nations are working to diversify or ride out low oil prices in other ways, it seems unlikely that the crisis in Venezuela will be reversed anytime soon.
Here’s the full fiscal breakeven needed by OPEC producers, including Venezuela, to help normalize things: