Venezuela’s oil industry is one of the most striking illustrations of how politics can both create and destroy economic prosperity. Endowed with the world’s largest proven oil reserves, Venezuela should, in theory, be among the most prosperous energy economies globally. Instead, it has become a case study in how political choices, institutional decay, and misaligned incentives can cripple a strategic sector and, by extension, an entire national economy.
At the heart of Venezuela’s political economy lies oil. For nearly a century, petroleum has shaped the country’s fiscal structure, foreign policy, social contract, and political power dynamics.
The state’s dominance over oil revenues transformed government into the primary allocator of wealth, embedding rent-seeking behavior deep within political and economic institutions. Over time, this created an economy heavily dependent on oil rents…
