|Fig. 1: Veneuzuela. (Source: Wikimedia Commons)|
Venezuela's economic struggles has given the country complications given its position as the owner of the world's largest oil reserves and one of the top five suppliers of crude oil and products to the United States. (See Fig. 1 for the Venezuelan flag.) After substantial economic growth in the mid-2000's, and as high and rising global oil prices fueled the domestic economy, Venezuela now faces a decline in growth. High inflation plays a role in this as well with hard currency shortages curbing production across all sectors and import restrictions fueling scarcity. 
Oil proceeds supply the majority of Venezuela's government revenue, meaning that the country's recent decline in output has added to Venezuela's fiscal deficit. Given constant output and oil prices, a weaker exchange rate is crucial to support the fiscal accounts as it increases the local-currency value of foreign earnings. 
Venezuela remains as the fourth largest source of United State's oil imports. The country accounts for 8 percent of the total in 2013, only falling slightly behind Mexico. Over the long term, the United States faces two main sources of vulnerability relating to this problem. First, the United State's tight oil boom helped to reduce light-sweet crude imports significantly, leaving Venezuela's heavier-sour crude oil as a much larger share of the total imports. Refiners have begun to utilize the Saudi Arabian and Canadian crude oil as alternatives to Venezuelan crude oil to a certain extent, but the two are not identical replacements. 
© Clark Yarbrough. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
 "How Venezuela's Economic and Political Distress Impact the Oil Sector," P.X. Kelley Center For Energy Security, 4 Jun 14.