Separate Worlds Collide: How Venezuela’s Life is in Saudi Arabia’s Hands

To many, Saudi Arabia and Venezuela exist in totally separate worlds. One is a desert-covered Arab nation, dominated by Sunni Islam and a conservative absolute monarchy. The other is a tropical Latin American country framed by a constitutional republic and an extremely leftist government.  Saudi Arabia has undergone intense development, while access to mere food in Saudi Arabia has become rare. Saudi Arabia has a heavy hand in the divisive Middle Eastern war climate, being officially involved in three foreign conflicts in the last five years, while Venezuela last foreign conflict was World War II.

The nations are like day and night, except for one large factor: oil. Both Saudi Arabia and Venezuela are massive exporters of oil. Venezuela and Saudi Arabia rank first and second in having the largest proven petroleum reserves, and both rank in the top ten for daily crude oil exports. Saudi nationals and Venezuelan premiers mingle in the Organization of the Petroleum Exporting Countries (OPEC), the premier intergovernmental organization for coordinating petroleum regulation and pricing. The biggest commonality between the two, however, is the fact that a steady decline in oil prices over the past few years has

Again, however, the differences reemerges. While Venezuela has remained relatively ineffectual in its dealings with their economy, Saudi Arabia has proposed, implemented, and witnessed relative success in their economic solutions to the lowered oil prices. This policy focuses on increasing non-oil exports, building up state funds, and privatizing the Saudi Arabian oil giant, Saudi Aramco. For Venezuela, who also has a nationalized oil company, Petróleos de Venezuela, S.A. (PDVSA), this plan would work well, as it would allow for the money being amassed by the government under the PDVSA to be moved to a more effectual place, as its current usage, in establishing welfare systems, has been a relative bust.  Similarly, the diversification of a Venezuelan economy would prevent large chaos after future oil-price drops, as it would lean the country away from their dangerous one export policy.

Saudi Arabia offers the perfect framework to deal with the lowering of oil prices. However, there is a blatant irony here. While Saudi Arabia may be presenting a solution, they are also the problem. That is, oil prices are low because of Saudi Arabia. Saudi Arabia, in economic terms, is known as a swing producer. A swing producer is a member of an oligoploy who is able to rapidly increase and decrease the commodity supply of an item at minimal additional internal cost. To put this into context, Saudi Arabia has such an abundance of oil that it can raise or drop prices as it pleases based solely on its own exports. Applying this, it is evident that Saudi Arabia has made a concerted effort to increase exports, letting oil prices plummet as so much Arabian oil has become made available.

Now many have to wonder why Saudi Arabia would tank prices for an industry they lead. The answer: shrewd politics. Saudi Arabia, with $700 billion in deep pocket reserves, believes that they can weather the storm of lowered prices whilst hoping that their competitors can’t. These competitors are primarily the United States and Iran, both who are nations that have had conflictual relationships with Saudi Arabia in the past. Recently, the United States has increased efforts in fracking, an expensive manner in which shale oil is produced. This fracking boom has cut significantly into Saudi Arabia’s swing producer status, but as fracking is a more expensive method of producing oil, Saudi leaders hope that the drop in prices will render the American industry useless. More significantly, Saudi Arabia has dropped prices of oil to harm Iran, which has been using significant portions of their own oil empire to fund foreign regimes adverse to Saudi Arabia, such as the Syrian al-Assad presidency or Shia regiments in Yemen. However, as Saudi Arabia has targeted Iran and the United States, they have had a resounding impact in Venezuela.

Venezuela’s options are limited. They can adopt Saudi Arabia’s overall plan, reevaluate their policies, or look towards a more diversified economy. Where Venezuela really needs to go to bat, however, is in OPEC. For many OPEC members, such as Nigeria, Iraq, and Gabon, the drop in oil prices has also constituted a significant hardship, and if Venezuela can appeal to Saudi Arabia, communal support would be plentiful. Saudi Arabia may not have intended to hurt Venezuela, but they have, and it it is up to Venezuela to fix it.

Edited by Benjamin Aloi