The Venezuelan government announced that the price of a liter of gas in Venezuela just went up – by 6,200%. Prior to the announcement a liter of gas cost 9.7 centavos. The new price is 6 bolivars per liter, according to Business Insider.
11 cents per gallon
In America, the new price equals 11 cents per gallon of gas, which to a country used to paying twenty times that seems ridiculously low. Venezuela’s low fuel prices are made possible by government subsidies. Those subsidies, however, relied on the price of oil hovering near $80 to $100 dollars per barrel on the open market.
Business Insider stated that the last time the price of fuel went up was in 1989, which in turn set off marches and public demonstrations across the country. Deceased President Hugo Chavez utilized the increases to propel himself into office.
currency devaluation
In addition to raising the price of fuel by over 6,000%, the government devaluated its currency by 37%, according to Business Insider. Translated into dollars, 10 bolivars now equal one US dollar, whereas prior to the devaluation 6.3 bolivars equaled one dollar.
Over at Bloomberg, Andrew Rosati and Pietro Pitts indicated the reasoning behind the devaluation: "The devaluation will ease the drain on government coffers by giving state oil company Petroleos de Venezuela SA more bolivars for each dollar of oil revenue, while higher gasoline prices will reduce expenditure on subsidies.”
Their analysis concluded saying, "At the same time, the devaluation will probably force the government to raise the cost of staple foods such as rice and bread that most of the country now depends on to eat.”
Inflation
In other words, not only is the price of fuel increasing, but the price of food will increase too.
It’s called inflation. The citizens of Venezuela will now have to pay more for everything. Business Insider reported that Venezuela’s inflation is projected to increase from its present 275% to 720% over the next year.
The devaluation is the result of Venezuela’s struggling economy, an economy dependent on the price of oil. As a member of OPEC, Venezuela’s economy has been rocked by plunging global oil prices.
Unless the price of oil doubles or triples the economic outlook for the country is dismal.
OPEC
As a whole, OPEC has focused on retaining market share rather than reducing production to pump up oil prices. However, OPEC may be vacillating. Rumors persist that many OPEC members fancy reducing production levels. OPEC’s dilemma is exacerbated by Iran’s oil output. Iran is ramping up production levels regardless of price.
Most analysts believe that Venezuela is teetering on the edge of economic collapse.
