• Why Has Venezuela Ended Its Fuel Subsidy?

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Why Has Venezuela Ended Its Fuel Subsidy?

Jul 02 2020

In a bid to address nationwide fuel shortages, Venezuela oil minister Tareck El Aissami has announced the country will end fuel subsidies when motorists have reached a 120-litre per month cap. After this figure has been exceeded, drivers will be charged the equivalent of .4p per litre.

The new fuel distribution system is designed to counter the severe fuel shortage currently faced by the South American nation, which has been hit hard by the economic crisis triggered by the COVD-19 pandemic.

Oil production plummets to 77-year low

In June, Venezuelan oil production plummeted to the lowest levels seen in 77 years. Imports have also suffered in the face of US sanctions designed to expel socialist President Nicolás Maduro. Now, President Nicolás Maduro is attempting to address the fuel shortages by putting an end to the subsidies and forcing citizens to pay for their fuel.

Until now, Venezuelans have been accustomed to filling up their tanks for free at stations operated by state-owned oil company, PDVSA. Payment is usually made in the form of small tips to pump workers. Under the new regulations, Venezuelans will pay .4p for every litre over the 120-litre monthly limit.

Sanctions cripple crude market

Despite being home to the largest oil reserves in the world, energy analysts say crude exports fell by almost 50% in June thanks to sanctions introduced by the Trump administration. Usually, crude exports represent around 95% of Venezuela’s foreign currency injections. Oil tanks throughout the nation are almost full, forcing producers to shut down operations in the face of US sanctions.

Accusing Maduro of tyranny, the Trump administration banned American citizens and businesses from all interactions with the Venezuelan President. "These sanctions come a day after the Maduro government held elections for a National Constituent Assembly that aspires illegitimately to usurp the constitutional role of the democratically elected National Assembly, rewrite the constitution, and impose an authoritarian regime on the people of Venezuela," reads a press release issued by the US Department of the Treasury.

“Without oil money life gets a lot harder for Maduro,” says Diego Moya-Ocampos, a political-risk consultant for London–based global information provider, IHS Markit. “He will have to rely more on gold mining and illegal activities such as drug trafficking to pay for his security apparatus.”

From US sanctions to Brexit, politics play a major role in shaping the energy landscape. ‘ATEX and IECEx Covid-19 and Brexit’ explores how Brexit will affect trade within Europe, as well as the impact of other global events like the COVID-19 pandemic. 


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