Venezuela's Oil Economy Feels the Burn in 2009 as Debt Deepens

According to Reuters, President Hugo Chavez reported Saturday that Venezuela's debt will nearly triple this year as the South American country seeks to reduce its budget to counteract lower oil revenues.

The OPEC nation is experiencing financial hardship as a result of volatile prices, with the average price of Venezuela's oil less than half its 2009 level, the report said. The country's oil has settled to about $40.75 a barrel, significantly lower than the $60-to-$70-a-barrel needed for this year's state budget, according to Dow Jones Newswires.

Last Thursday, Dow Jones also noted that Venezuela's state-run oil firm, PDVSA, was seeking as much as $4 billion as part of its revised investment strategy to curb costs.

"We're evaluating financing of $3 billion to $4 billion this year, but it will all depend on what happens with oil prices," Eulogio Del Pino, PdVSA's vice president for production and exploration, told Dow Jones Newswires. "We're looking at financing options from China and Japan."

Despite weighing alternative financing options amid lower oil prices in an ongoing struggle to deflate its increasing debt, Venezuela still plans to invest close to last year's level, $12 billion in 2009, without scaling back on social programs.

Venezuela's Marriage to Oil

The profits that Venezuela saw from a dramatic spike in oil prices during the 1970s led to massive infrastructure projects blossoming throughout the country. However, the sharp drop in oil prices during the 1980s sparked a long-term decline for oil-dependent Venezuela.

Chavez took office in 1999, when the price per barrel was a mere $10. Within his presidency, crude mushroomed to more than $147 a barrel, helping Chavez fund a plethora of social programs, which he intends to keep funding regardless of crude's new price set at around $50 a barrel.

Barreling in Oil by the Billions

Last week, Venezuela announced that its additional oil reserves secured a spot for the small country as the second largest holder of proven crude oil reserves, following Saudi Arabia, its number one contender. According to a report by Dow Jones Newswires, Venezuela confirmed that at the end of 2008, it added 20.958 billion barrels of crude to the country's national reserves, which has increased Venezuela's proven oil reserves to a total of 172.323 billion barrels.