During the global commodity supercycle, oil prices exceeded $100 per barrel. The resulting influx of petrodollars created an illusion of prosperity that masked a systematic destruction of the domestic private sector. The government embarked on a sweeping wave of nationalisations -- agricultural land, manufacturing plants, and logistics networks all passed from private hands to state control. Stripped of private capital and technical expertise, these industries collapsed.

The economy contracted a severe case of Dutch Disease: the overvalued exchange rate made it cheaper to import everything using oil dollars than to produce anything domestically. The non-oil economy did not merely slow -- it effectively ceased to exist as a competitive productive force. Venezuela became entirely dependent on a single volatile commodity, leaving it structurally defenceless when that commodity's price fell.

To prevent capital flight, the government introduced strict currency controls in 2003 under the CADIVI system. This created a dual exchange rate -- an artificial official rate at which connected insiders could purchase US dollars from the state, and a black market rate reflecting actual dollar scarcity. The arbitrage opportunity this created was extraordinary in scale.

Well-connected individuals with access to the official rate would purchase dollars cheaply, ostensibly to import essential goods, then immediately sell those dollars on the parallel market at markups of several hundred per cent. The mechanism was not a fringe activity. It was industrial-scale looting of state foreign exchange reserves, conducted through the official import system. Genuine importers -- businesses attempting to purchase real goods -- could not access dollars at any rate. The first waves of consumer shortages predated international sanctions by years.

Venezuela sits on the largest proven oil reserves on the planet. Heavy crude extraction requires enormous, continuous capital expenditure -- rig maintenance, pipeline investment, technical expertise at every level of the operation. Following a 2002 to 2003 industry strike, the government fired approximately 18,000 PDVSA employees, gutting the technical and managerial knowledge base that had operated the fields for decades.

The financial gutting followed the human one. Rather than reinvesting oil revenues into production capacity, PDVSA profits were diverted directly into government social programmes and off-budget spending funds. By the time oil prices crashed in 2014, PDVSA was already cannibalising itself. Production fell from a peak of approximately 3 million barrels per day in 2013 to under 400,000 barrels per day by 2020 -- an 87 per cent collapse in output from an asset that was supposed to be the permanent foundation of national income.

When global crude prices collapsed in 2014, the three preceding structural failures converged simultaneously. The state had no functioning domestic economy to absorb the fiscal shock. Its foreign exchange reserves had been drained through currency arbitrage. Its primary revenue source, PDVSA, was already in structural decline. Facing fiscal deficits it could not close through taxation, borrowing, or oil revenue, the Central Bank of Venezuela did what governments with no other options do: it printed money.

GDP contracted by 17 per cent in 2016 and 16 per cent in 2017. Rather than adjusting economic policy, the government expanded the money supply by 20 to 30 per cent per month to fund an unchanged level of expenditure. Prices rose 50 per cent per month by November 2017 -- the formal start of hyperinflation. By 2018, annual inflation peaked at approximately 130,000 per cent. The currency lost 99.99 per cent of its value. Savings accumulated over lifetimes were wiped out in months. 7.7 million Venezuelans left the country in what became one of the largest displacement crises in the Western Hemisphere.

By late 2017 Venezuela effectively defaulted on its sovereign debt, locking it out of global capital markets. The default was not a strategic choice -- it was the arithmetic consequence of having no dollars left. In 2019, the United States imposed comprehensive sanctions on PDVSA, cutting Venezuela off from the US financial system and its primary market. The remaining crude had to be sold at heavy discounts to buyers in Asia willing to transact outside the dollar system.

By 2019, facing total collapse, the government implicitly surrendered to market reality. Price controls were abandoned. The US dollar was permitted to circulate freely -- de facto dollarisation. This stopped the hyperinflationary bleeding. It also bifurcated the nation into two distinct economies: a dollar economy accessible to those with connections or remittances, and a bolívar economy in which the majority of the population continued to face poverty, shortages, and depreciation. GDP reached its floor of $42.8 billion in 2020. Recovery began in 2022 but remains partial. In 2026, GDP stands at approximately $80 billion -- still 78 per cent below the 2012 peak.