Over the past eighteen months, we’ve witnessed a historical collapse in oil prices driven by a tremendous increase in supply and lackluster global demand. The implications of such a dramatic fall in oil prices are wide ranging. Here in the U.S., we’ve seen many small oil companies fall into bankruptcy, but it’s the largest oil producing countries that have been most impacted by the decline in oil revenue. Saudi Arabia ran a budget deficit of 16% of GDP in 2015 and has even considered publicly listing state-owned Saudi Armaco, the world’s largest oil producing company. The Saudi’s are feeling the negative impacts of an undiversified economy and are now trying to correct their problem. This is similar to an investor diversifying away from a company’s stock after it loses half of its value. Of course, we know that to reap the benefits of diversification you must address the issue beforehand, not after.
Nowhere is the effect of betting an economy’s future in one commodity being felt more than in Venezuela. The impact of this concentration is best summarized by this paragraph out of the CIA’s World Factbook, “Venezuela remains highly dependent on oil revenues, which account for almost all export earnings and nearly half of the government’s revenue. The country ended 2015 with an estimated 10% contraction in its GDP, 275% inflation, widespread shortages of consumer goods, and declining central bank international reserves. The IMF forecasts that the GDP will shrink another 8% in 2016 and inflation may reach 720%.”
Today’s recommended article focuses on the more personal side of the story and dives into the devastating effects that hyperinflation is having on the citizens of Venezuela. In a month-long public diary, Fabiola Zerpa chronicles her journey to try and feed her family of four as the economy falls further into a state of disarray. Though empty grocery stores and empty pharmacies might be her daily struggle, the real concern is the rise of violence in an already violent nation.