Higher oil prices won't save Venezuela. Venezuela was one of the richest countries in South America - when oil was $18 a barrel. The price of oil is not what's wrong with Venezuela.
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... Now that crude prices are rising again, the political and economic pressures are easing on oil exporters as revenues, in most cases, begin to surge. But there is one glaring exception, one country that relies on oil exports for essentially all its export revenue and whose economy is continuing its downward spiral despite the sharp rise in oil prices: Venezuela.
The simplest way to gauge the impact of oil price fluctuations on the economy and the potential effect on policy is to look at an exporter’s fiscal break-even price. The break-even price is the level at which oil prices need to sell in order to allow an exporter to meet government spending and produce a balanced budget. When crude prices fall below break-even, budget deficits start to balloon, eroding reserves and threatening economic stability. Depending on the availability of other exports and the size of reserves, large gaps between break-even and market prices can force a government to cut spending, raise taxes and borrow heavily. It can squeeze an economy well beyond the oil industry.
The most dramatic response to the drop in global oil prices came in Saudi Arabia, where an ambitious and daring crown prince, Mohammed bin Salman, launched revolutionary reforms with an eye toward, among other things, reducing the country’s overreliance on oil. While the success of many of his reform plans remains unclear, the crown prince’s efforts to lower Saudi Arabia’s break-even price has been little short of spectacular. Before prices fell, Saudi Arabia’s break-even price was $105.70 per barrel. The government has since slashed expenditures by about one-fifth, cutting subsidies and other expenses, and raising taxes. The break-even level now stands at $74.40, and a recent study by a Japanese bank predicts it will reach $55 a barrel by 2021, giving the kingdom ample room to finance Crown Prince Mohammed’s goal of diversifying the economy.
Other Gulf states have also moved to narrow the gap, introducing a value-added tax, lowering subsidy payments and promoting new industries. Now, with oil prices climbing, these petroleum producers are set to reap a sharp rise in revenues against a lowered level of national expenditures.
The contrast with Venezuela could not be starker. Despite the rise in prices, Venezuela, holder of the world’s largest known oil reserves, is seeing its oil income continue to plummet, along with the rest of its economy.
