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Oil Economy Report Essay

Venezuela oil reserves are among the top ten in the world. Oil export contributes to 80% of her export and contribute one third of her GDP. Much of the oil from Venezuela is exported to US. The government in this country owns 60% shares in the oil production projects in the country. It was in 2006 President Hugo Chavez announced nationalization of oil fields which were previously run by foreign companies. However this economy has been experiencing some political instability (e. g.

2002 failed military coup) and strike in state owned oil company PDVSA (Petroleos de Venezuela, S. A. ) However rising of oil prices has helped this economy to recover. This economy registered a growth rate of 8. 4% in 2007. Venezuela has increased her social spending which has greatly reduced unemployment and poverty. On the other hand inflation has increased to more than one digit. Income inequality has also increased. Financial crisis and drop in oil prices did not spare the oil sector in this economy. PDVSA lost a $5 billion line of credit.

The country is rated poorly as far as transparency in spending the oil money is concerned. This country also supports many Caribbean countries by offering oil

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at preferential price. Her military spending has also been relatively high. The country produces approximately 2. 4 million barrels per day. Venezuela is third-largest South America market. She is a close trading partner of Brazil, Argentina, Colombia, Bolivia, Ecuador, and Cuba. The current oil trading policy is directed to diversifying her oil clients to reduce dependence on US market.

Sudden loss of Venezuela oil from world market may consequently increase oil prices and slow US economic growth. Explanation Venezuela enhancing her socialism approaches to the economy. The government spending has been increasing. The oil production sector is greatly run by the government. Recently more employment has been created but inflation rate has accompanied this. This is explained by Phillips curve Increase in employment leads to increase in inflation rate as shown by the graph above.

Sudden loss in Venezuela oil in world market may lead to increase in oil prices. This may be attributed to forces of supply and demand in the oil market as shown below The graph above explains the effect of loss in Venezuela oil in the oil market. This will shift supply curve from sx to si and increase the oil prices from P to T. Consequently this will increase cost of production in economies that rely heavily on oil as form of energy and this may slow down economic growth in the affected economies.

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