Oil in Venezuela Research Paper Example | Topics and Well Written Essays - 2750 words

Oil in Venezuela - Research Paper Example Despite the knowledge of oil for ages the, the first oil wells were not drilled up until 1910s. According to McBeth (2005) asserts that when Juan .V. Gomez took the reigns of power in 1908, he granted several concessions to explore, produce and refine oil. Most of these concessions were actually given to his closest allies, and they in turn passed them over to foreign oil companies that could develop them. From 1914 to 1917, more oil fields were discovered across the nation. By the end of 1918, petroleum had appeared for the very first time in Venezuelan export’s statistics at 21,194 metric tonnes (Martinez, 1979). After 20 years, Venezuela became the largest oil exporter in the whole world and second largest oil producer after the United States of America. This led to an influx of foreign investors. By 1929, with the nation being the second largest oil producer in the world. Currently, Venezuela is the fifth largest oil exporting nation in the world, with the largest reserves of both conventional oil in the western hemisphere and non-conventional oil. This fact is very immense importance to the understanding of Venezuela because it has shaped the country’s political, economical, cultural, and historical scenes (Wilpart, 2003). Venezuela has 77.2 billion barrels of proven conventional oil reserves, the largest in any state in the Western Hemisphere. Approximately 267 barr els of this might be producible at current prices utilising the current technology. Venezuela was the first country to make a move towards the establishment of the Oil Producing and Exporting Countries (OPEC). It approached Saudi Arabia, Kuwait, Iran, Gabon, and Libya in 1949, but OPEC was not set up until 1960. This was when the United States forced import quotas on the Persian and Venezuelan Gulf oil so as to support the Canadian and Mexican oil industries (Martinez, 1979). In 1973, OPEC wielded its first power with the 1973 oil embargo against Western Europe and the United States. Discussion Economy In Venezuela, there was dramatic development of the oil industry, and the oil sector commenced to dominate all other economic sectors in the country. On the other hand, agricultural production began to decline slowly. Agriculture accounted for about one third of the economic production in 1920. According to Yergin (1999) argues that this sudden change increases attention on oil and ne glecting the agricultural sector causing the Venezuelan economy to suffer from a phenomenon referred by economists as the â€Å"Dutch disease†. The occurrence of this disease is manifested when a commodity brings substantial increase in income in one sector, resulting in strengthening of the currency which in turn harms exports of the other manufacturing sectors. This increased sectoral income has caused a distorted growth in services and other non-tradables, which can not be imported whilst discouraging the production of tradables, which are actually imported. The reason for this disparity is that, greater income dramatically raises the demand for imports because the domestic market production can not meet the production quickly enough. This raises the demand for services of which the domestic market has to supply because the services can not be easily imported as the tradables. When one looks at the extent to which there has been increased oil production and income, which w as followed by a corresponding steady decrease in agricultural production, one can clearly observe the symptoms of Dutch disease in the Venezuelan economy. This resulted in a delay in industrialization. The other Dutch disease symptoms are evident in the constant