Why a Crisis in Oil-Rich Venezuela Could Send Shock Waves to Texas

The close relationship between the oil industries in Venezuela and Texas means a burgeoning crisis there may affect the Texas economy.

By Alain StephensJune 1, 2016 10:21 am| ,

The store shelves are bare. Food riots are growing. Patients are dying at hospitals because supplies are exhausted. Major airlines are discontinuing service to this country, and yet it is home to the largest reserve of underground oil in the world.

Venezuela, just to the south, may not be top of the news but what happens there next is important to us here in Texas.

Chris Tomlinson, a business columnist for the Houston Chronicle, says the fact that the country with the most oil in the world is struggling, and that it provides 10 percent of imports to the U.S., should raise alarms with American businesses. Venezuela oil, because it’s thicker than other oil, blends well with Texas oil.

“For our refineries to operate, we need heavy Venezuelan oil,” he says. “Because of the crisis, they don’t have enough money to pay Texas companies to help extract that oil. That’s leading to a reduction in their output, and that’s worsening the economic crisis there.”

Crass as it sounds, in some ways the economic crisis in Venezuela would be good for Texas oil industry. “A collapse in Venezuela would basically take all of the excess oil on the market,” he says. “That means $50 oil would be a thing of the past.”

Going back to $100 a barrel for oil would be a boon for Houston-area businesses, but it’d hurt the rest of the U.S. economy and send ripples even into the world economy.

“Unfortunately,” he says, “those higher oil prices would have a really negative impact on the world economy and the rest of the U.S. economy.”

Other than the economic collapse, the biggest humanitarian crisis in the hemisphere is already happening. Thirty million people in Venezuela are without access to food and medicine, in part because the country relies on imports for just about everything.

“Right now the government is prioritizing making its bond payments, making payments to its debtors,” he says, “and not buying the things that its people need. So, we’re on our way to having a major humanitarian crisis there.”

Post prepared by Hannah McBride.