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This Alliance Could Mark A New Era For Oil

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Oil Crisis Prompts Venezuela To Hike Fuel Price, Devalue Currency

For the first time in 20 years, Venezuela has raised gas prices, and fears persist that the move could lead to dangerous riots.

Venezuela’s President Nicolas Maduro on Wednesday raised gasoline prices from $0.01 per liter to $0.95 per liter, and at the same time devalued the national current from 6.3 to 10 bolivars per dollar in an attempt at triage as the country grapples with the mounting pressures of low oil prices.

Though still the cheapest place in the world to buy gas at the pump—coming at even with the price hike at about $0.11 per gallon—for Venezuelans, it’s an increase of over 6,000%.  

The move comes days after the price of Venezuela’s oil dropped to $24 per barrel.

Related: Saudi Arabia’s Credit Rating Cut Two Levels

Venezuela’s budget is 96% dependent on oil revenues, but its status as the world’s major oil producer cannot save it now. 

There are fears that the 6,000% increase in gas prices in a country where gas is taken for granted as almost free will lead to riots similar to those that turned deadly in 1989.

Adding to the fears that protests will follow are soaring inflation and shortages of basic consumer goods, which will be exacerbated by the devaluation, which will likely force the government to raise prices on food staples.

Related: Storage Problems Could Cause A Rout In Oil Prices

The situation is critical. On Thursday, the Central Bank of Venezuela released figures showing that the country’s fourth quarter inflation amounted to 34.6%, down from the previous quarter, which was at 38.9%, but putting annual inflation at almost 181%.  

According to Bloomberg, the devaluation will give the state oil company more bolivars for each dollar of oil revenue, thus easing the pressure on coffers, along with the pressure on coffers that will be removed by reducing what the government spends on gas subsidies.

By James Burgess of Oilprice.com

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  • tony on February 18 2016 said:
    The problem with socialism is that you eventually run out of other people's money
    - Margaret Thatcher

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