Thanks for asking. Let's start with the basics:
African saying: When elephants fight the grass gets trampled. At the OPEC meeting Saudi Arabia and its Sunni allies carried the day.
Nicholas Maduro is a bus driver and you can expect bus driver wisdom from him.
Oil prices are set at the margin but that is not the price at which the bulk of oil is sold. Spot is the speculators' price. Most real buyers and sellers have hedged their trades. Notice that the Fox article correctly talks about average selling price.
The Daily Caller article is a political commentator doing his job, speculating on worst case scenarios.
The power play: The purpose of cartels is to exert control, in the case of OPEC to control oil prices. The power to do so comes from the capacity to flood the market. For decades the Saudi's had that power specially with full OPEC backing. Iran is an OPEC member but Russia is not. For all practical purposes, while an important player, Russia is not and has not been a key player. That role belonged to OPEC and within OPEC to Saudi Arabia. I use the past tense because fracking upset the equilibrium.
On a side note: I have been advocating American energy independence for years and when fracking came online I predicted both the recovery of the American economy and a lessening of the power of the oil exporters (without predicting any details). When everyone was predicting the demise of the US dollar, my position was that if the dollar failed the whole world would plunge into chaos (for a while). I also commented that trying to replace the dollar as the world's reserve currency would have dire consequences. Saddam Hussein wanted to sell oil in euros, he ended, soon after, hung. Coincidence? Maybe.
The current situation, as I see it, is that Saudi Arabia and its Sunni OPEC allies are trying to give US frackers a "good sweating" to use a Rockefeller phrase. It is important to note that while the Arab oil producers are monarchies the US producers operate in a free market where collusion is illegal. It's not equal combat, the Arabs stand as a block, the Americans as a swarm. the outcome will be interesting! In any case, Russia and Venezuela are bit players of little consequence despite their large output. Should the Arabs win, the situation goes back to the previous state. Should the Arab "good sweating" fail, it will be the US frackers, turn to give the Arabs a "good sweating." That could break OPEC's power. I'm not making any predictions except to say that in price wars the "arms suppliers" and the consumers are the beneficiaries. Economists will worry about deflation but it is good deflation.
The question was about Venezuela. First,
during Chavismo Venezuela has not received the full price for its oil. The discounts and special deals with Cuba and PetroCaribe to buy international votes is well known. What special concessions the Chinese got is less well known. Chavismo has a slogan: "Venezuela es de todos" referring to the oligarchy. In truth now "Venezuela es de los nica, de los cubanos y de todos los amigos del chavismo."Second,
at the current black market exchange rate it costs 3 US cents to fill the tank of my Toyota Corolla, tip included. Some Chavista factions wanted to raise the price of gas as part of the crisis management. Maduro nixed it. He is a bus driver, not an economist.Third,
from Black Friday, February 18, 1983, to Maduro, the bolivar/dollar exchange rate increase by 30 to 35% annually. Over the past 5 or 6 months it doubled! Inflation is presumably running at 70%.A Short Note On My Hyperinflated Arepa Index
Two weeks ago, as I left Caracas on Nov. 22nd. to be precise, I wrote about the cost of a breakfast which I found expensive for Venezuelans, which included cheese arepas. As I returned to Caracas two short weeks later, I went to have a single cheese arepa at the same place. Imagine my surprise when I found that the Bs. 120 cheese arepa of fifteen days ago, now costs Bs. 156.
That is a 30% increase in two weeks. A year ago I would eat two for Bs. 120.
Thus, I will keep reporting on the hyperinflated arepa in the future.
BTW, they are still delicious…http://devilsexcrement.com/2014/12/07/a-short-note-on-my-hyperinflated-arepa-index/Fourth,
in Chavista ideology, small farmers are good while industrialists (capitalists) are bad. This has consequences. Fresh fruit and farm produce including fresh eggs are abundantly available but packaged good are not, specially price controlled ones. While rice is price controlled and nowhere to be seen but you can buy parboiled or flavored varieties at several times the controlled price. Pasta you can generally find both price controlled and market priced varieties. Price controlled cleaning products are scarce and there are no "fancy" ones. But you can buy them from scalpers (black market) at four times the controlled price.
All sorts of things appear and disappear: toilette paper, car batteries, roasted coffee, medicines, spare parts as price controls and dollar availability cause scarcity and crisis management by Maduro temporarily solves the problems.Fifth,
The above is what you can see on the street. What happens inside Chavismo and the balance of powers in government I'm not privy to. But you get some glances: A drug dealer is named ambassador or something to Aruba, the US tries to get him but the Dutch let him go home.Netherlands Says Venezuelan Detained in Aruba Has Immunityhttp://interamericansecuritywatch.com/netherlands-says-venezuelan-detained-in-aruba-has-immunity/
Then Hugo Carvajal is rumored dead, the government denies it:http://noticiasvenezuela.org/2014/09/alcaldesa-de-cedeno-desmiente-muerte-de-hugo-carvajal/
Since then Carvajal has dropped out of the news. On to the next crisis.
Cuba and North Korea are just two example that show that economic collapse does not mean the government must fall, that depends on the ruthlessness of the government. I have often said that Venezuela is a democracy by the consent of the military. The military is entrenched in Venezuela and they are given free rain to run drugs or any other money making scheme or scam. That was partly the basis of Hugo's hold on power.
Venezuela has a serious cash flow problem which will be made worse by the falling oil prices. Maduro's envoy to China begging for more loans was sent packing. In fact, the Chinese are pissed off that Venezuela is giving other loans preference over the Chinese debt. Venezuela started selling PetroCaribe bonds to Goldman Sachs at half par value. But with a bus driver in charge, who can tell what foolishness will follow?
Beer is back! Hurrah!