Image Credit: China and Venezuela image via Shutterstock
As we head into 2015, one trend at least is carrying over from 2014 – plummeting oil prices. And with the falling price of oil, major producers are falling into economic recessions. One of the hardest-hit countries, Venezuela, is a longtime partner of China and now is looking to Beijing for an economic lifeline.
Venezuela, one of the founding members of OPEC, is heavily reliant on oil production. According to OPEC, oil revenues make up around 95 percent of Venezuela’s export revenues. More generally, oil and gas account for roughly a quarter of Venezuela’s GDP. Given the outsized role oil plays in its economy, Venezuela needs a global oil price of $117.50 a barrel to account for government expenses in 2015, according to Deutsche Bank. As of January 6, Brent crude oil was trading at under $53 dollars a barrel – a five and a half year low. Barclay’s expects Venezuela to announce a major currency devaluation and possibly slash government spending to avert the worst of the crisis – but still predicts the country’s economy will shrink by 6.2 percent in 2015.
The drop in oil prices came amidst broader economic turmoil for Venezuela, including rapid inflation, declining production, and shortages in imported goods. With Venezuela on the cusp of economic collapse, including the possibility of government default, President Nicolas Maduro set off for what he called “an international tour … a very important tour to take on new projects, given the circumstances of falling income that our country faces.” Unsurprisingly, Maduro’s trip will include a visit to his country’s top economic partner: China.
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