Published by Economist Intelligence Unit

Event

The foreign minister, Rafael Ramírez, is on an official visit to Algeria, Qatar, Iran and Russia to discuss falling oil prices.

Analysis

Mr Ramírez is currently in Algeria—from where Venezuela has been buying light crude to dilute its extra heavy crude—and will continue to Qatar, Iran and Russia in order to discuss oil production and prices ahead of a November 27th meeting of the Organisation of the Petroleum Exporting Countries (OPEC). Algeria, Iran and Qatar are OPEC members; Russia is not a member but has considerable influence within the industry.

With international oil prices hovering around US$80/barrel (b)—the equivalent of US$75/b for Venezuelan crude—Venezuela is under severe pressure and has already called for an emergency OPEC meeting, although this request has gone unanswered. Mr Ramírez lost his positions as oil minister, head of Petróleos de Venezuela (PDVSA, the state oil company) and vice-president for the economy when he was reassigned to head the Ministry of Foreign Affairs in September. He continues to be the country's highest representative to OPEC. Like the former president, Hugo Chávez (1999-2013), Mr Ramírez will lobby OPEC for higher oil prices. However, OPEC members—led by Saudi Arabia—are not expected to yield as they continue their push to undercut shale producers.

This leaves Venezuela, which has the world's largest oil reserves and is heavily dependent on the crude price, at risk of a sharp drop in oil earnings next year. Around 95% of government revenue comes from oil sales. Venezuela's break-even point may be well over US$100/b, and the country is likely to see major complications should the price stay at US$80/b for an extended period. Each US$1/b decline in price translates roughly to a US$700m loss in fiscal revenue over the year. The country's foreign reserves are currently at their lowest level in more than a decade, at just US$19.6bn (less than three months of import cover) on November 11th; this is a decline of over 30% since January 2013. Furthermore, while export earnings are down owing to the low oil price, the government's inability to provide foreign exchange is dampening import spending, resulting in shortages of basic goods. This, together with consumer price inflation hovering above 60%, has hurt the popularity of the president, Nicolás Maduro.

Impact on the forecast

We do not foresee a major change in OPEC policy as a result of Venezuela's lobbying efforts. As a result, we have made no adjustments to our forecasts at this time.