The Peter Zeihan Podcast Series - The Impending Collapse of Venezuela || Peter Zeihan

Episode Date: June 12, 2024

After years of mismanagement and corruption, Venezuela may have finally reached its tipping point. Full Newsletter: https://mailchi.mp/zeihan/the-impending-collapse-of-venezuela

Everybody, Peter Zine here, coming to you from the south of France, near Cassey. Today we're going to talk about dreams, specifically the Birken dream that is Venezuela. Under 20 years of ridiculous mismanagement and theft by the governments of Hugo Chavez and now Nicholas Maduro, the state's broken. Basically, we've had two decades of the governing authorities literally stealing everything that wasn't stripped down, and then getting a wrench and getting a lot of the stuff that was stripped down. to the point that they simply didn't just confiscate materials, they stripped it of equipment and melted it down or selt up for parts,

and there's really nothing left. So the country that used to have the highest educational levels in Latin America, the country that used to have the highest standard of living and the most cultural achievement is now teetering on the verge of being a broken state, a failed state, and I don't think there's anything that can be done to stop it at this point. So the roughly one-third of the population that has out-migrated since the last six, seven years is just the beginning of the end of the dissolution of the state proper.

What's going on right now is that in calendar year 2022 and calendar year 2023, the Biden administration did a partial lifting of sanctions on the regime, basically saying that if you start working in the direction of free and fair elections, we will allow investment to come in to stabilize the energy sector and get some more oil out of the ground. We're going to trust your word for it. And then we will reassess when we get closer to elections in 2024. Well, that happened. And the U.S. Super Major Chevron moved in.

And oil production did take up. This is a country that used to produce like 4 million barrels a day. They had fallen under 800,000 as of 2021. They are now back up technically to something closer to a million. But in the last several weeks, it's been clear that, the government of Maduro has no intention of having real elections, and so the sanctions are steadily snapping back into place, and Chevron is basically throwing in the towel and packing up, and we've already seen output drop by about a quarter in just the last couple of months.

Now, there's a separate conversation to be had here about the Biden administration's energy policy towards everything. The short, short, short version is that when it comes to fossil field production, the Biden administration wants to stabilize and even increase volumes outside of America in order to keep American inflation under control, but does not want to expand and actually would rather restrict fossil field production within the United States in order to achieve the green transition. Now, there's a lot of things about that that are inconsistent. We're going to pick that apart at another time. Anyway, for Venezuela, that has mean for the last two years that Washington has turned a blind eye to abuses in order to keep the oil flowing. Well, now that it is very clear

that the country is not going to have elections, all of that is falling apart. And we're probably down to under three quarters of a million barrels of oil flowing out of Venezuela right now. Their domestic consumption is probably about 300,000 barrels per day, but all of those numbers are squishy. This isn't like a traditional oil field where you drill past the cap rock, you release the pressure and you get a gusher, or where you pump water into the formation to generate pressure, and then the water laced with oil comes up and you separate the two. It's not even like shale, where you go down and you frack a solid rock in order to free tiny little pockets of patrol. This stuff is sludge. At room temperature, even in the tropics, it is solid, and you have to mix it with a lighter distillate if you are going to put into a pipeline.

Traditionally, until several years ago, they would bring in naphtha from the United States for that. More recently, because that hasn't been available, they've been bringing in kerosene from Iran. And so these imports of hydrocarbons oftentimes get mixed up with production and export numbers. So the 700,000 production, the 300,000 consumption, those are probably actually inflated, and the numbers are probably 100,000 or 200,000 lower. Now, what this means is without Chevron, this thing is all going to go to hell. Most of the skilled labor that made up Peta Vesa, that's the state oil company in Venezuela, fled. In fact, there was an attempted coup against Chavez back in the early 2000s.

And so the really high-end stuff, the stuff that was part of the outcome of Venezuela being, such a successful state left a long time ago. And in bits and pieces ever since the middle management and the secondary skill set is left. And now there's really nothing left, especially after the famine of four or five years ago. So the ability of Petavasa to maintain any oil output is negligible. And without Chevron or someone like it, it's all going to fall apart. People like to talk about the Chinese, the Russians, the Iranians coming in, but they don't have any experience in this sort of oil patch. So we are probably going to see a collapse of what's left of the put this year and early in the next year, and almost certainly barring a significant change in

policy with the United States. We're going to see Venezuela fall into the errors of being an oil importer within a year, maybe a year and a half. It sounds bad, it is bad, but actually already is bad, because one of the many, many, many, many, many mistakes that Chavez Maduro made is they hated the United States so much, and their spending was so crazy that they started pre-selling their oil specifically to China and to a lesser degree to Russia. So, you know, we'll take X number of billions of dollars from you now and we will pay you back with raw crude in the years to come. Well, what that means is that the Venezuelans are already not getting money from the oil that they produce. It all just goes to pay off their bills. And so the

effort on the part of the Maduro government simply to keep the crude flowing is non-existent. and so we are going to see this collapse. And as that happens, the ability of getting even a modicum of foreign currency to pay for the 80% of their food that they now import because they destroy their agricultural sector is on deck. So the famines of the past, the dislocations of the past, the migrations of the past, these have all just been the appetizer course. And over the next very few years,

we're going to see the full collapse of Venezuelan society.