Rufus faces losing his entire $9 billion fortune in Venezuelan bonds. Poor Rufus - going from a multi-billionaire to a prison cadre in El Reno prison.
The collapse of global oil prices is putting particularly severe pressure on Venezuela, with unpredictable but serious economic and political consequences. The price of Venezuela’s oil has fallen from $97 per barrel to less than $40 in the past year. For a country that imports over 70 percent of all consumer goods (including food) and depends on oil exports for over 95 percent of its foreign exchange, the effects on Venezuelans’ well-being are severe. Gross domestic product contracted by 3 percent in 2014 and inflation exceeded 60 percent. Reports from Venezuela indicate longer lines at markets, shortages across a wider spectrum of goods and occasional outbursts of looting at supermarkets. These problems are even worse in the regions most distant from the national capital, Caracas.
In the absence of new loans from new sources, Venezuela’s government is rapidly running out of resources. The breakeven price of oil to balance Venezuela’s government budget is reported to be $117.50, and even President Maduro has placed it at $100. A Wall Street investment bank recently calculated that, even under extremely generous assumptions about revenues and one-time sales of government assets such as CITGO, Venezuela would still be short $7 to 8 billion in foreign exchange in 2015. Moody’s rating agency has recently lowered Venezuela’s credit rating to levels typically seen in countries on the verge of bankruptcy, and the credit default swap market is pricing the probability of Venezuela’s default on its international bond obligations as near 100 percent in the coming year. This lack of creditworthiness will have the effect of cutting Venezuela off from international capital markets that it might have used to secure loans to weather the storm caused by lower oil prices. Venezuela is worst placed among the large oil producers to address the consequences of the current drop in oil prices. It has among the lowest foreign exchange reserves of large international oil exporters, having consumed rather than saved the income it derived from oil during the commodity boom of the past decade.
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The alternative is that the Maduro administration will eventually be forced to default on Venezuela’s international debt obligations. A default would cut off Venezuela from international credit markets, but that is nearly the case under present circumstances anyway due to Venezuela’s low creditworthiness. If it defaults, Venezuela might continue to make good on its oil shipments to pay for its loans from China, if only to keep at least one potential source for emergency financing available.
