The new pricing scheme rolled out by the Maduro government last week can be read in several ways. What is clear is that the move marks a policy of belt-tightening as the country’s oil industry enters a new, uncertain era.
The coming days will see a transition, which aims to be gradual and controlled, from the lowest gasoline prices in the world to “dollarized” ones.
Turmoil in the industry
The new model is premised on a dual pricing scheme corresponding to separate distribution systems. The first one applies to 1200 gas stations that will provide drivers with a fixed quota of 120 liters of gas per month at a highly subsidized price: the 120 liters cost only US $3. The second one covers 200 stations authorized to sell unlimited amounts of gasoline at $0.50 per liter.
The laughable subsidized price, which Maduro said is temporary, leads one to think that it will accentuate existing problems of corruption and smuggling. But the novelty of the parallel, formally dollarized market suggests that it will de facto become the main form of gasoline distribution.
The increase and dollarization of gasoline will surely have an impact on prices, commerce, and the economy as a whole. But it’s also true that it establishes clear rules that could not only stabilize gasoline supply but economic transactions in general.
A few years ago, several states, especially those bordering Colombia, began to suffer severe gasoline shortages caused by smuggling across the border. Residents were forced to wait in line for hours and even days in order to fill their tanks. The shortages became increasingly generalized across the country as Washington ramped up its oil sanctions. The queues reached Caracas just when the COVID-19 quarantine began in March, following the departure of Russian energy giant Rosneft under US pressure.
The Trump administration tightened the blockade to the point that Venezuela was forced to import gasoline from Iran – a brazen act of defiance which translated to a partial political victory for Maduro following the successful arrival of the tankers.
With the vessels safely docked, this past week saw the reopening of gas stations, but it remains unclear whether the imported gasoline will be enough to stabilize the market or if Venezuelan refineries can be brought back online in the near future. In both cases, Iran is playing a key role.
Venezuela’s refineries have been slowly paralyzed as Venezuelan state oil company PDVSA descended into a spiraling crisis that has left the country dependent on imported gasoline. And an economy exclusively dependent on oil has become impoverished but increasingly diversified, with new income coming from gold and remittances, as well as the oil still being exported.
PDVSA has suffered a plethora of different problems. On the one hand, internal disputes have led to the jailing of two presidents named by Maduro and the exiling of a third. A fourth president was replaced at the beginning of this year. Moreover, the volatility in international oil prices and the rise of fracking slashed PDVSA’s revenues to historic lows.
Washington has proceeded to target or threaten oil tankers, private companies, and the governments of other countries with the objective of tightening the siege on the Maduro government. The sanctions have weakened PDVSA, its capabilities dwindling.
After each and every blow, oil production has fallen. According to OPEC data, Venezuela produces little more a half-million barrels of oil per day when in 2012 it produced almost three million. Raising production back to previous levels now looks like a fantasy.
This situation has forced Maduro to cross what was previously a red line, especially for Chavismo: substantial increases in the domestic price of gasoline and its dollarization.
Crossing the Rubicon
What is in any other country a straightforward and logical decision, in Venezuela marks a milestone. Until now, no president had dared to raise the price of gasoline given the long shadow of the 1989 Caracazo uprising, in which then President Carlos Andres Perez’s decision to raise the price of gasoline to international levels, among other neoliberal reforms, set off the largest wave of protests in the country’s history, paving the way for the emergence of Chavez and Chavismo. Now in 2020, it is not only an increase, but dollarization, publicly enacted for the first time by a Venezuelan president.
The camp in which the gasoline increase and dollarization is most earnestly debated is Chavismo. The opposition, where support for neoliberalism is hegemonic, always endorsed raising prices to international levels. For this reason, it was Chavismo that emerged to defend subsidized prices corresponding to a petroleum producing country. Thirty years later, things have changed. Venezuela is not exactly the oil producing powerhouse it once was. Chavismo has come to understand that it must take measures to reign in the lavish subsidy which mainly finances the personal vehicles of the middle and upper classes.
For its part, the opposition’s upper middle class base largely backs dollarization and should not feel aggrieved, preferring instead to take the opportunity to ridicule Chavismo’s internal debate.
Therefore, the discontent will be most intensely concentrated in the majorities that supported the rise of Chavismo rather than among opposition ranks, which are more concerned with filling their gas tanks than anything else. Moreover, the weakness of the opposition parties and leadership render them unable to seize the moment to spearhead coordinated nationwide protests. The US threats against the Iranian tankers and Guaido’s public call for them to be intercepted were a major blow to the opposition, which has long insisted that sanctions only target government officials.
Although it is unlikely that the opposition can successfully organize protests, it is more probable that demonstrations could materialize in areas that have not received gasoline. But the possibility of a 1989-style revolt does not depend on the price hike or dollarization but supply – and not of gasoline but rather of diesel and cooking gas, which directly impact the popular sectors. Public transport and freight trucking rely on diesel, so ensuring supply is the main challenge faced by the government, which has opted to maintain a near 100 percent subsidy for a minimum of ninety days.
The current increase will chiefly impact motorcyclists, artisanal fisherpeople, and those who still have personal vehicles in popular areas. But these groups have already been purchasing much more expensive gasoline on the black market (where it costs between $2 and $3 per liter) as well as spare parts and motor oil, also priced in dollars, so this is not a radical change. Moreover, the privately operated public transit that has survived these years of crisis has managed it only by maintaining access to dollars.
In short, the impact of the gasoline price increase on consumer prices remains to be seen, but the first to be affected are not the popular sectors but the middle and upper classes that own cars.
The fear is that the measure will be a catalyst for considerable price hikes and dollarization of other public services, which remain almost completely subsidized by the state.
Coronavirus and “new normality”
The fuel shortages hit the Venezuelan capital in March at almost the same moment that the first cases of coronavirus were detected in Venezuela. The quarantine measures were thus not extremely difficult to enforce as most of the public transport was already paralized.
And just as the Iranian fuel tankers docked, Venezuela and the world began to move towards a “new normality” or easing the confinement measures. As such, the quarantine lasted the necessary amount of time so that, amid the shortages, social unrest did not increase exponentially.
The danger is that now, after many countries have surpassed their “peak” of contagion, is when the coronavirus is becoming a real threat to Venezuela. The initial cases in March, which resulted in ten deaths, could be easily controlled. But now Venezuelans have begun to arrive in their thousands from countries that are the epicenter of the pandemic in the region, including Brazil, Peru, Ecuador, and Colombia.
While the government has put in place a policy of quarantine for its returning nationals, many more cases are appearing and several more people have died. The numbers remain very low compared to the rest of the countries in the region – just over 2000 confirmed cases and 20 deaths – but they nevertheless indicate that the pandemic is an imminent threat.
With gasoline distribution beginning to stabilize, the government has moved to relax some of the quarantine measures and people attempt to reestablish some semblance of normality in their lives. Another challenge coming down the pike is how to reopen the country while receiving a significant influx of people coming from the epicenters of the virus.
Therefore, if the government prioritizes health over the economy, it faces a major balancing act ahead: to intelligently ease the quarantine, allowing the economy to breathe in the majority of the country that is not in danger, while adjusting the screws in vulnerable areas. In this way, it must prove that the quarantine was a rational response to the pandemic and not a gimmick to hide the fuel crisis.
The views expressed in this article are the author's own and do not necessarily reflect those of the Venezuelanalysis editorial staff.