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KolumbieGrowth slows amid eroding oil price and higher inflation
In 2024, Venezuela’s economy experienced a modest rebound, driven primarily by a gradual recovery in oil revenues following the temporary easing of US sanctions and sustained global demand for hydrocarbons. The extension by the US of licences awarded to Chevron and a select group of US oilfield service providers enabled limited reinvestment in upstream operations and the partial reactivation of idle oil infrastructure. However, output remained far below historical levels (856,000 barrels per day far below the peak of 2,955,000 b/d reached in 2022), as structural bottlenecks – most notably PDVSA’s operational and financial weaknesses, years of chronic underinvestment and mismanagement, and decaying infrastructure –continued to constrain capacity. Inflation, while slowing, remained high, and domestic consumption stayed sluggish due to persistently low real wages, currency fragility, and weak confidence in the bolivar. The electoral process in July, widely seen as lacking transparency, deepened political uncertainty and led to international condemnation, culminating in the reinstatement of key US sanctions that curtailed foreign participation in the oil sector and reversed much of the momentum gained earlier in the year.
Looking ahead into 2025, growth is expected to slow, reflecting the fading effect of the temporary sanctions relief that supported oil investment, production, and exports activity in 2024. While oil production may continue to rise moderately, the sector’s momentum will weaken as operational constraints, underinvestment, lower global prices and uncertainty around licence renewals limit expansion. The cautious stance of international firms – amid increasing political risk and unclear signals from the new US administration – has further dampened prospects for new capital inflows. Domestic demand will remain subdued under the ongoing dual restriction of declining real wages and persistent inflation, and compounded by reduced fiscal headroom following pre-electoral spending in 2024 and the monetisation of the public deficit through local bank financing. The government’s decision to allow the currency to depreciate again to preserve foreign reserves will add to inflationary pressure. At the same time, heightened political instability and institutional opacity will continue to deter private investment, while sustained emigration underscores the erosion of human capital and limits the potential for a broader-based recovery.
External balance holds, but fiscal fragilities persist
The current account remained in surplus in 2024, supported by increased oil exports revenues following temporary sanctions relief, and by resilient remittance inflows from the large Venezuelan diaspora. These external inflows were sufficient to offset a durably elevated import bill, largely composed of oil equipment and inputs required to sustain production. Foreign direct investment was extremely weak owing to the political instability (almost 1.0% of GDP in 2024), opaque regulations, and persistent concerns over contract enforcement and expropriation risks. In 2025, the current account is expected to remain in surplus, albeit with narrower margins on back of sanctions, lower global oil prices, and the possible non-renewal of US licences and the application of 25% secondary tariffs on US imports from countries that buy Venezuelan oil. Capital inflows are unlikely to strengthen significantly, which will keep the pressure on foreign exchange reserves (around USD 10 billion in January 2025, i.e., a quarter of the peak reached before the 2013 crisis) and which have already been depleted by sustained central bank interventions to manage exchange rate volatility.
Moreover, the budget balance continued to show a deficit in 2024, albeit slightly narrower than in 2023, as improved oil revenues (around 48% of the total budget in 2024) helped to offset persistent fiscal pressures. The temporary easing of sanctions allowed hydrocarbon-related revenues to rise modestly, but the tax base remains structurally weak due to widespread informality and limited non-oil revenue generation. In the run-up to the 2024 presidential election, the government increased public spending to bolster household incomes, particularly through higher public wages and pensions. Looking further ahead into 2025, the fiscal outlook remains fragile. Oil revenues will continue to be diverted to meet immediate government obligations or repay oil-backed loans, thereby limiting PDVSA’s reinvestment capacity. These revenues will be eroded by lower prices, and possibly by the non-renewal of US licenses, and secondary tariffs. Meanwhile, the government’s access to external financing remains severely restricted, and the debt overhang – exacerbated by arbitration claims against PDVSA and other state entities – will remain unresolved without a comprehensive restructuring framework. Consequently, the financing has to be domestic, and primarily consists of drawing from foreign exchange reserves and financing from local banks.
Maduro consolidates power amid contested election and rising geopolitical tensions
The July 2024 presidential election further exacerbated Venezuela’s political crisis. The National Electoral Council declared Nicolás Maduro of the United Socialist Party of Venezuela (PSUV) the winner for a third consecutive term, attributing 51.2% of the vote to him. Opposition candidate Edmundo González, representing the Democratic Unity Roundtable (MUD), was officially credited with 44.2% of the vote. Exit polls and partial tallies accessed by the opposition, however, indicated that González had secured a significant lead. Protests erupted across the country in response, resulting in multiple deaths and hundreds of arrests, while the military reaffirmed its loyalty to Maduro. In January 2025, despite opposition calls for González to assume office and with the symbolic backing from the Biden administration, Maduro was inaugurated without disruption. The legislative elections to be held in May 2025 will not bring any change to the balance of power, irrespective of the opposition’s involvement. The opposition remains fragmented and is weakened by internal disorganisation, repression, and the exile or silencing of key figures. Although Marco Rubio’s appointment as Secretary of State under President Trump suggests a harder political stance, the new administration has shown little inclination to revisit failed regime-change strategies. Instead, it appears to be pursuing a transactional approach, using selective pressure such as threatening to revoke oil licences and possibly applying secondary tariffs to countries buying Venezuelan oil to extract concessions, particularly on deportations. In addition to the million undocumented Venezuelans living in the US, there are now 600,000 more who are no longer protected following the cancellation of their Temporary Protected Status. Even their partial deportation would carry significant financial and political risks for the regime. Notwithstanding, the likelihood of any meaningful political change remains low, while the risk of renewed repression and tighter sanctions adds to Venezuela’s already precarious environment.
Venezuela’s international relations remain tense and are shaped by sanctions, unresolved territorial disputes, including border disputes with Guyana and Colombia, and the fallout from its contested 2024 presidential election. The longstanding conflict with Guyana over the Essequibo region has escalated, with recent border clashes and maritime incidents involving Venezuelan patrols and ExxonMobil operations. While a full-scale offensive appears unlikely, these acts of intimidation serve a dual purpose: feed nationalist sentiment domestically and provide leverage in negotiations with the US. Following Maduro’s re-election, several Latin American governments distanced themselves from or broke diplomatic ties with the country, while the EU and the US criticised the election’s lack of transparency. However, reactions have remained largely symbolic. The return of Donald Trump to the presidency adds to the complexity: although his administration has signalled a tougher political stand and has imposed tariffs on Venezuelan oil, its underlying approach remains transactional, focused on migration and oil flows rather than a regime change. The extension of certain oil licences and a cautious engagement with PDVSA operators suggest a desire to preserve leverage without provoking escalation. At the same time, Venezuela’s closer alignment with Russia, Iran, and China underscores its increasing isolation from Western diplomatic and financial channels, a trend that is likely to persist as long as its governance remains authoritarian and confrontational.
