Abstract

This paper considers the evidence on the effect of financial and oil sanctions in the 2017-19 period on Venezuelan oil production and broader socio-economic indicators. Using a panel of countries covering 95% of the word’s oil production, we show that Venezuela’s acceleration in the rate of decline in oil output after the imposition of financial sanctions in 2017 was more rapid than that of all other oil-producing economies in the world except for those undergoing armed conflict at the time. Using synthetic control methods, we estimate that financial sanctions were associated with a decline in production of 797tbd, which at today’s oil prices would represent USD 16.9bn a year in foregone oil revenues. We also show that the alternative hypothesis that the decline in oil production was a result of the oil industry’s militarization is inconsistent with longer-run patterns in the data. The facts that production rose or stabilized in Chinese and Russian joint ventures and that it fell in offshore subsidiaries that were sanctions-affected while rising in those that were sanctions-exempt lends further support to the hypothesis that sanctions drove the decline in oil production. However, we argue that while higher oil revenues in the absence of sanctions would have likely produced improvements in socio-economic indicators, it is incorrect to infer any effect of sanctions from the increase in mortality rates in 2018 given that increased oil prices offset the effect of lower oil output on that year’s revenues.

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