22 February 2014, 13:03

US fracking a deep-laid reason for Venezuela riots

US fracking a deep-laid reason for Venezuela riots

Anti-government protests have flared up in some parts of Venezuela, and President Nicolas Maduro has sent troops to the state of Tachira. The protesters’ demands are varied from economic to social. But all experts agree that the reasons behind the riots are mostly economic, and that brings us to the issue of oil production as Venezuela’s main income item.

The US used to be one of Venezuela’s biggest customers for heavy crude oil. But in the past five years, the US has become one of the world’s biggest energy producers that led to changes in the balance of power on the global oil market. In particular, the sharp rise in US own oil production from fracking has helped meet US demand for heavy crude oil, and as a consequence, Venezuelan oil exports to the US dropped to their lowest level since 1985.

In addition, the prospect of cheaper oil imports from Canada – either via the long-awaited Keystone pipeline or by rail shipments – threatens to further reduce the US need in Venezuelan oil.

All of this forced Maduro to resort to desperate measures in order to prop up his country’s economy. In December, he began weakening the exchange rate for the country’s currency on oil transactions trying to support its per-barrel revenue. He also proposed reducing the government’s subsidy of gasoline prices, on which it spends about $12.5 billion annually and which is the reason why Venezuelans enjoy some of the world’s cheapest gasoline - 5 cents a gallon.

But devaluing the currency and raising gasoline prices only added to inflation, which is already at about 54 percent. That, in turn, led to food shortages and unemployment, which flared up mass protests.

Nationalization of oil industry in Venezuela, like in many other Latin American countries, also contributes to economic crisis as it resulted in oil revenues being diverted for social programs and brought about reduction of investments in production technology. Therefore national oil companies are facing declining production. For example, in December, Petroleos de Venezuela’s production fell to an average of 2.45 million barrels a day compared to 2.9 million barrels during the same period a year before.

All that shows that the rise of US oil production that has occurred thanks to implementing hydraulic fracturing techniques served as a deep-laid reason for the riots in Venezuela.

Voice of Russia, Forbes

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