Since the ignominious act of the kidnapping of Nicolás Maduro, Venezuela’s president, and his wife on 3rd January 2026 by US forces, Venezuela, a major oil producer, is in the news. In my view, no serious understanding of any such historical incident can be developed without comprehending the political economy of oil and associated supply chains. This article is an attempt at an analysis, in the given context, of the Chavismo revolution (the term popularly used for the political movement launched by Maduro’s predecessor, Hugo Chávez).
Early History
Venezuela’s first oil well was drilled in 1912. Dutch and British companies were awarded generous contracts just before World War I, followed by the entry of Standard Oil (later Exxon) from the USA into the country. By 1928, Venezuela was globally second in oil production after the USA.
Without Venezuelan oil, the outcome of World War II could have been very different. Hitler only had Romanian oil, which could fulfil hardly 30% of his war needs. For the rest, he had to rely on synthetic oil extracted from coal. It was this perennial shortage on his side, and its abundance and available strategic manoeuvrability on the other, which played a crucial role in his defeat. In 1939, 40% of Britain’s total oil imports were of Venezuelan origin, and this had risen to around 80% by 1942.
In October 1945, a coalition of military officers and civilian political leaders overthrew the incumbent dictatorship under the leadership of a politician named Rómulo Betancourt. At that time, US companies were controlling ~70% of Venezuelan oil production, and Shell the rest.
Rómulo introduced a constitution based on secular and social democratic principles and supervised the first free and fair elections in Venezuela, which resulted in the election of a fiction writer, Rómulo Gallegos, to the presidency. He took charge in February 1948; however, only a few days after introducing a law mandating that the multinational companies share the oil profits with the government on a 50:50 basis, he was toppled through a coup. Rómulo bounced back 11 years later and assumed the presidency through elections, thereby starting an era of democratic politics in Venezuela. Later, asserting its petro-nationalism in 1976, the government nationalised the petroleum industry.
Chavismo Revolution
On 4th February 1992, leading a small group of junior army officers, Lieutenant Colonel Hugo Chávez attempted a coup, which failed. However, that brought him a lot of popularity, which compelled the government to release him after two years. Chávez founded a left-wing party (MVR) and was elected president in December 1998, taking the oath on 2nd February 1999. Around 60% of Venezuelans were then below the poverty line.
The introduction of wide-ranging national democratic reforms in November 2001 by Chávez mobilised all the vested interests against him. This included Fedecámaras, the Venezuelan federation of commerce, and CTV, the so-called workers’ union whose leadership was a pawn in the hands of reactionary forces. In April 2002, large factions of the army also joined them, asking Chávez to resign, which he refused. Still, the head of Fedecámaras was sworn in as president. He was immediately recognised by the US. However, due to public pressure, Chávez had to be reinstated within two days.
The following few paragraphs are an attempt to describe the reasons for the above response to the reform agenda of Chávez, and especially his Organic Law of Hydrocarbons—the dominant bone of contention in the conflict.
Until Chávez entered the scene, privatisation of PDVSA itself was under serious consideration, and its leadership was fully aligned with the intent. Later events proved that its management was always hand in glove with the multinationals
In the 1990s, pushed by the IMF, the Venezuelan oil industry was substantially privatised while maintaining the semblance of public sector ownership through the oil national, i.e., PDVSA. In fact, even when the oil industry was first nationalised in 1976, the multinationals were retained through the award of technical assistance and lucrative oil supply contracts by the new owners.
Thus, though apparently PDVSA was in command, the multinationals still had far-reaching interests and clout, which the reforms of Chávez could erode. Also, until Chávez entered the scene, privatisation of PDVSA itself was under serious consideration, and its leadership was fully aligned with the intent. Later events proved that its management was always hand in glove with the multinationals.
As to the gist of the above Organic Hydrocarbon Law and its context, they can be summarised as follows:
- During the mid-1990s, PDVSA had adopted a policy known as the Apertura Petrolera (oil opening) to mobilise foreign investment in capital-intensive projects. As a result, four large projects were started in the Orinoco Oil Belt of heavy oil. However, the law mandated that the projects be transformed into joint ventures with PDVSA having a working interest (WI) of 60% in each of them. Its implementation later in 2007 brought the government into major commercial disputes amounting to more than 13 billion USD with the US oil giants ExxonMobil and ConocoPhillips.
- From 1976 to 1992, PDVSA on average contributed 71% of its income to the state in taxes and royalties while retaining the rest to cover its costs. However, since 1993, that contribution had come down to 36% only. This was primarily due to a change in its accounting methods, presumably on the intervention of the IMF, in 1993, whereby costs and losses outside Venezuela could be adjusted against the revenues and profits within Venezuela. Earlier, transactions within Venezuela were ring-fenced. Since PDVSA’s tax rate within Venezuela was about twice, i.e., 67.7% versus 34% in the USA, the company started transferring costs and losses incurred abroad, particularly in the USA, which consequently reduced the tax payouts to the government.
Also, in 1989, PDVSA had entered into field development agreements of marginal oil fields (a term used for fields having relatively tighter economics). These fields produced about 500,000 BPD of oil in 2000 (by 2005, production had risen to ~1.1 million BPD).
The agreements were deliberately structured as operating service agreements (OSAs) instead of development agreements to keep the income tax exposure to only 34% instead of the usual 67.7%. In addition, for some such projects, PDVSA had negotiated a 1% royalty, down from the customary 16.67%. For example, for the four projects mentioned in point 1 above, for the first ten years, it was kept at 1%. It was also observed that some fields which could otherwise qualify as conventional fields were contractually deliberately placed in the above category, probably to qualify them for the associated commercial benefits.
To address the above anomalies, the new law of 2001 raised the mandatory royalty to 33% of the sale price of the oil, while reducing the income tax from 67.6% to 50%.
Also, within a few months of taking charge, with his concerted efforts as an OPEC member, Chávez was able to achieve an increase in crude oil price by around 90%. Thus, he was a potent threat to many forces that wanted to keep OPEC neutralised.
In view of the above factors, it was obvious that for many, Chávez was too lethal a spectre to be allowed to exist. Therefore, on 2nd December 2002, CTV and Fedecámaras again called a “national strike” to force Chávez to resign. The strike, during which oil production remained curtailed to hardly 5% of the pre-strike level for ~62 days, is popularly known as the “bosses’ strike” because of the proactive role played by PDVSA’s management in the sabotage. This was the fourth such attempt since Chávez had introduced his Organic Law of Hydrocarbons.
Chávez was followed as president by the former foreign minister Nicolás Maduro. Within less than two years of his assumption of office, oil prices had eroded by ~70%, which, due to the given nature of the fragile economic model they were following, was sufficient to put the economy in a downward spiral
What should suffice to expose the reality of these strikes and the role of PDVSA’s management in them is the fact that in 1997, a company known as Informatics, Business, and Technology (INTESA) was formed regarding IT services for PDVSA. It was a joint venture of PDVSA with 40% equity and another private firm named Science Applications International Corporation (SAIC) with 60%.
During the oil lockout of December 2002, INTESA openly supported the strike and, by hijacking control of the critical operational control systems associated with oil storage, logistics, and process plants, ensured that they remained dysfunctional. Later investigations revealed that SAIC was a US-based company having, among other members of its executive, ex-US military intelligence officials and directors of the CIA.
His conclusive success in breaking the above strike definitely granted Chávez a categorical primacy over his opponents. It is worth mentioning, though, that achieving effective and large-scale implementation of the Organic Law of Hydrocarbons of 2001 still proved quite daunting and took at least four to five years due to various legal, regulatory, and commercial hitches. Still, looking from hindsight, his overall performance seems nothing less than that of a maverick, especially when he was diagnosed with cancer in 2011 and succumbed to it on 5th March 2013.
For example, we observe a steady growth in GDP from 2003 till at least 2010, when it was touching almost 400 billion USD, i.e., more than four times the growth versus ~84 billion USD in 2003, along with a similar increase in average per capita GDP from 3,229 USD to 13,646 USD in the same period. As to the post-2010 period, it appears that the shrinkage in balance of payments due to higher imports and inefficient fiscal management had already started impacting the economy.
On poverty reduction, his achievement was phenomenal because multiple references indicate a reduction in poverty from ~60% in 2002 to almost 30% by 2012, and extreme poverty to 8–9%. However, out of export earnings of 80.6 billion USD for the year 2014, less than 4% comprised income from sources other than petroleum. The income in 1998 was in the range of 20%, and above 10% even till 2006.
This says a lot about his challenges regarding economic diversification, which normally comes in handy, together with efficient fiscal management, in ensuring socioeconomic stability in lean periods. Thus, it was obvious that the economy he created, though pro-egalitarian, was riding on the buoyancy of oil prices only.
Chávez was followed as president by the former foreign minister Nicolás Maduro. Within less than two years of his assumption of office, oil prices had eroded by ~70%, which, due to the given nature of the fragile economic model they were following, was sufficient to put the economy in a downward spiral. The slide was so rapid that by 2016, inflation hovered around 800%, when even the US sanctions of 2017 were yet to be imposed. By 2017, per capita GDP stood at 3,791 USD, which had already slid from 13,646 USD in 2013 after peaking in 2010.
Avoidable Mistakes
The analysis would not be complete without identifying mistakes that Chávez and his team could have avoided. They are as follows:
- Firing around 18,000 employees from PDVSA, i.e., around half of the staff, after defeating the December 2002 strike for allegedly supporting the strike, should have been avoided, especially when most of them comprised highly skilled engineers, geoscientists, and business leaders. Their expertise would have helped to sail through the later crisis of low oil prices.
- What one notices immediately is the utter lack of economic diversification. Even in the hydrocarbon industry, they remained totally dependent upon oil exports, despite the huge gas reserves of more than 200 TCF and their LNG potential. Neither any significant augmentation of the refining capacity was undertaken in terms of volume or product array. As a result, at least 70% of their petroleum export mix always comprised crude oil only, leaving limited commercial choices.
- We observe wanton import-dependent consumerism since the start, which affected them badly when the lean period started in 2014. Thus, while the value of annual imports was around 20 billion USD in 1998, since 2004 it continuously risen from 21 billion USD, and by 2012 it was 85 billion USD.
- Based on the above, it is obvious that the Chavismo revolution had inherent weaknesses since its inception, which played a major role in its collapse. To learn from the episode, we need to perceive it in this context too.
As to the US intervention, of course, that is purely and unabashedly to establish its access over Venezuela’s vast reserves of oil and harness them for its imperialist objectives with impunity, as and when required. The sweeping amendments in Venezuela’s hydrocarbon law allowing for wide-scale privatisation in the oil industry, ratified by the current “acting president” Diecy Rodríguez on 30th January 2026, are a categorical step in that direction. They could obviously not have been achieved with Maduro in office.