Few economic collapses in modern history have been as dramatic, prolonged, and devastating as Venezuela’s. Once the wealthiest country in Latin America, endowed with the world’s largest proven oil reserves, Venezuela has endured a humanitarian and economic catastrophe more commonly associated with war zones. Inflation erased savings, food and medicine vanished from shelves, millions fled the country, and output collapsed on a scale unseen outside armed conflict.
Yet the dominant explanation offered in much of the international debate is strikingly simple: Venezuela failed because of U.S. sanctions. This narrative is politically convenient, emotionally appealing, and profoundly misleading. Venezuela is not primarily a victim of sanctions. It is a victim of systematic, long-running policy failure rooted in state control, institutional destruction, and the rejection of basic market principles.
How Venezuela Went from One of the Richest to One of the Poorest
In the mid-twentieth century, Venezuela was not a symbol of failure but a regional outlier of prosperity. It was one of the wealthiest countries in the world, ranking fourth in GDP per capita, with a labor force whose productivity rivaled that of the United States. This performance rested on vast resource wealth paired with an open, investment-friendly economy that attracted foreign capital and fostered private enterprise. Venezuela’s prospects were so strong that hundreds of thousands of Europeans—especially Italians, Spaniards, and Portuguese—migrated there in search of work.
That foundation began to erode when politics increasingly replaced markets as the organizing principle of economic life. The decisive shift came in 1976, when President Carlos Andrés Pérez nationalized the oil industry and created Petróleos de Venezuela (PDVSA). From then on, the state became the gatekeeper of the country’s economic bloodstream, and political competition revolved less around growth and more around capturing and distributing oil rents.
When oil prices fell in the 1980s, Venezuela’s vulnerabilities were laid bare. Boom-era spending collided with weaker revenues, and debt and inflation rose, eroding confidence in the economy. The country drifted toward a more politicized, less diversified petrostate, increasingly dependent on oil cycles rather than productivity-driven growth.
By the time Hugo Chávez came to power in 1998, Venezuela was already bearing the costs of rent dependence—but it was not beyond repair. The country still possessed immense resource wealth, an intact private sector, and a genuine opportunity for reform-driven stabilization. That opportunity was lost as a historic oil boom unfolded after 2000, flooding the state with cash and making denial cheap and fiscal discipline unnecessary.
The oil windfall gave Chávez unprecedented resources to consolidate power at home and project influence abroad, funding social programs that temporarily reduced poverty and expanded access to basic services. But the model rested on spending rather than building: it rewarded redistribution over wealth creation, suppressed incentives to invest and innovate, and concentrated economic power without credible checks.
This framework put the state on a collision course with the private economy. Chávez treated profit as a moral failing and private enterprise as a political threat, unleashing expropriations and nationalizations across nearly every sector and imposing price controls that crushed production and created chronic shortages. The impact was severe: Venezuela had about 12,700 private companies when Chávez took power; today, only around 3,800 manufacturing firms remain—many of them surviving not through competition or productivity, but through state subsidies and political protection.
The Sanctions Timeline—and Why the Collapse Came First
By the time Chávez died, Venezuela was already showing clear signs of strain: shortages of basic goods, high inflation, and rising crime. Nicolás Maduro did not reverse course; he intensified it. When oil prices fell in 2014, the shock hit an economy already in bad shape—dependent on oil, burdened by regulation, and lacking virtuous institutions. The response followed a familiar interventionist script: tighter price and exchange controls, collapsing imports, and deficits financed by money creation, turning the central bank into a fiscal lifeline.
The results were catastrophic. Venezuela suffered one of the worst peacetime economic collapses ever recorded. Real GDP fell by roughly 75% between 2013 and 2021, while hyperinflation exploded—exceeding 130,000%—and poverty surged. The economic breakdown also triggered one of the largest displacement crises in the world, with around 7.7–8 million Venezuelans forced to flee the country. Such figures are typically associated with countries devastated by war, civil conflict, or state collapse, not nations at peace.
All of this unfolded before the United States imposed any meaningful economic sanctions. Early U.S. measures targeted individuals for corruption, human rights abuses, and anti-democratic actions; they did not constitute an economic blockade and did not halt oil exports or sever Venezuela from global trade. The first material financial restrictions came in August 2017, limiting access to U.S. capital markets, while sanctions on PDVSA followed in January 2019—after the economy had already entered a historic free fall.
Venezuela’s collapse resulted from domestic policy, not foreign pressure. Sanctions did not cause price controls, expropriations, or nationalizations; these were choices made at home, replacing markets with political allocation and prioritizing short-term redistribution over long-term growth. Prosperity will return only with the restoration of economic freedom, secure property rights, and market discipline—because development rests on functioning markets and strong institutions, not state decree or oil rents.
Photo by aboodi vesakaran
