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Oil in Venezuela

Venezuela is one of the largest producers of oil in the world. It frequently lines as one of the top suppliers of the oil to the United States of America. The oil industry is of great significance to the economy of Venezuela. Since Venezuela is the founding member of OPEC, it plays an essential part in the intercontinental oil market trade. In accordance with the oil and gas Journal, the country had approximately 211 billion barrels of oil reserves by the end of 2011. This constituted a major upward from the publication that previously listed the country’s reserves at 99.4 billion barrels two years ago (Salazar-Carrillo & West, 2004). The oil industry in Venezuela plays a crucial role in shaping the economy of the country. The oil revenues in the country account for more than 90 percent of the export earnings. In 2010, the country had a net oil export of 1.7 million barrels per day, the eight largest in the world and largest in the western hemisphere. Furthermore, the oil and gas industry in the country forms approximately 25 percent of gross domestic product. As a result, it is undoubtable that the oil shapes every aspect of Venezuela politically, socially and economically (Salazar-Carrillo & West, 2004).

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Oil being the major source of foreign revenue through export, plays a positive role in the economic development of the country. It is apparent that the effect oil has had on Venezuela’s economy is the occurrence of the Dutch Disease. This refers to economic disease that occurs to a country when a commodity brings a sudden increase of the income in one sector of the country’s economy (Hassan, 2005). Sudden sectorial increase causes detrimental problems in other sectors. Nonetheless, the oil has enabled the country to adjust appropriately even in time of economic crises. For instance, a recurring pessimistic scenario on a collapse of oil prices that provides more than 95 percent of foreign exchange earnings, the presence of oil still gave the country capacity to borrow in order to finance counter-cyclical spending especially when the oil prices collapsed. This is because the oil revenues made the debt burden remain quite low, therefore, even with an additional drop in oil prices, the country will still be able to adjust effectively. In the last ten years, the country Gross Domestic Product has risen to more than $ 300 billion. This represents a significant growth resulting from proper management of the oil reserves compared to 1990’s when the country’s GDP was only $100 billion (Hassan, 2005).

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Furthermore, the oil has facilitated an increase in private investment in the country that plays a crucial role in economic development. Although a lot has been published about the effect of nationalization on the investment climate in the country, it is apparent that the probability of any individual company being nationalized remains low (Eastwood, 2010). In addition, investors face much bigger risks in respect to uncertainty over future prices of the oil and the demand for their output. As a result, the private sector that promotes diversification in the country’s economy has been found to grow with current economic recovery and reforms. Furthermore, more foreign direct investment has been realized due to increase in a number of foreign investors willing to invest in the nations (Eastwood, 2010). This is a result of heavy investment of the revenue obtained from the oil in public infrastructures such as transportation, utilities, bridges, roads, ports, hospitals and electricity.

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In respect to social development, the Venezuelan government has been using the oil revenues to promote human development and social exclusion and poverty that has ravished the country for many years despite the country having huge oil reserves. This has been completed through the use of different state-funded program referred to as social missions (Ragazzi, 2007). In accordance with the National institutes of Statistics, the Venezuelan government total social investment in the last 12 years amount to more than $468 billion. Such initiatives have been designed and supported by the national oil company Petroleos de Venezuela (PSVSA). They are fundamentally framed to address the basic needs of the Venezuelan population through provision of programs that offer free access to basic services such as health, education, housing, nutrition and job training. One of the famous programs is referred to as “Inside the Neighborhood." The program has provided clinics and doctors to previously excluded communities where such service never existed (Ragazzi, 2007).

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The social spending by the government between the periods ranging from 1999 to 2011 has accounted for more than 60 percent of the state’s revenues from the oil. The outcome of such initiative to the benefit of the citizens is clear since the number of people living in poverty has significantly reduced from more than 55 percent to 26 percent since 2003. Furthermore, other indicators show positive and remarkable social development resulting from the proper investment of the oil revenues (Grugel et al, 2013). For instance, the infant mortality and malnutrition have significantly reduced, while enrollment to the academic institution continues to increase. In 2012, reports from the United Nations Economic Commission from South America noted that Venezuela has made a milestone achievement in reducing inequality in the last 10 years. This is significantly attributable to the reforms in the oil sector that have seen a more equitable distribution of the national revenue to all segment of the population irrespective of the geographical location, creed, religion and political affiliation among other (Grugel et al 2013).

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In Venezuela, ragged socio-economic development has been attributed to lack of employment opportunities since the country depends entirely on the revenue obtained from the oil exports. However, through implementation of sustainable policies, the government has managed to use revenues obtained from the oil to diversify the economy thus reducing absolute dependence on the oil industry s main source of employment (Hassan, 2005). Such policies have promoted the creation of employment opportunities across various sectors in the economy.

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