Oil Is Discovered in Venezuela Summary

  • Last updated on November 10, 2022

Discovery of a large oil field near Lake Maracaibo in Venezuela altered the world energy market and eventually changed the nature of Venezuela’s economy, propelling Venezuela into a leading position among oil-producing and -exporting states.

Summary of Event

By any measurement, Venezuela has been an oil-producing area for a long time. Spanish explorers returned to Europe in precolonial days with tales of its oil being used by primitive tribes. Significant foreign exploration and development ventures, however, did not begin there until after World War I, when Western security needs arising from the conversion of fleets to oil, growing consumer needs for oil, and fears of shortages in the market produced a sharp, general increase in exploratory efforts abroad. By 1918, several sources of oil had been identified, and Venezuela was already exporting limited amounts of the substance. Still, as late as the early 1920’s, the richness of the nation’s oil resources was in dispute, and oil exploration in Venezuela did not appear to be particularly promising. The discovery of oil at Lake Maracaibo in 1922 changed that picture abruptly. By the end of the decade, oil had become Venezuela’s principal export, and Venezuela had become the world’s largest exporter of oil and a major voice in the world’s oil business, a role it would retain for the next half century. Oil discoveries;Venezuela Venezuela, oil industry [kw]Oil Is Discovered in Venezuela (Dec. 14, 1922) [kw]Oil Is Discovered in Venezuela (Dec. 14, 1922) [kw]Venezuela, Oil Is Discovered in (Dec. 14, 1922) Oil discoveries;Venezuela Venezuela, oil industry [g]Latin America;Dec. 14, 1922: Oil Is Discovered in Venezuela[05650] [g]Venezuela;Dec. 14, 1922: Oil Is Discovered in Venezuela[05650] [c]Trade and commerce;Dec. 14, 1922: Oil Is Discovered in Venezuela[05650] [c]Energy;Dec. 14, 1922: Oil Is Discovered in Venezuela[05650] [c]Natural resources;Dec. 14, 1922: Oil Is Discovered in Venezuela[05650] Betancourt, Rómulo Gómez, Juan Vincente Pérez Alfonzo, Juan Pablo Pratt, Wallace E. Reynolds, George B.

Petroleum exploration and development ventures in Latin America initially concentrated on Mexico. Had the Mexican government not become politically unreliable by declaring in its 1917 constitution that the mineral resources of Mexico belonged to the Mexican people rather than those who developed them, exploratory interest in Venezuela would probably have come about much later. As a result of the Mexican Revolution, however, Venezuela appeared to be a particularly promising haven for the foreign capital rapidly fleeing the petroleum business in Mexico. Perversely, although typically for Latin America, Venezuela’s primary appeal had its source in the nation’s repressive regime, which was more stable than other, less repressive governments.

Venezuela’s supreme dictator, General Juan Vincente Gómez, coveted the wealth that oil operations in Venezuela could bring him. To lure foreign investment, Gómez was willing to accept a series of administrative arrangements that proferred grantees of petroleum concessions in his country a high level of stability in enjoying those concessions. Several foreign companies responded to the incentives.

From the outset, the most important of these companies was the Royal Dutch/Shell Corporation. Royal Dutch/Shell Corporation[Royal Dutch Shell Corporation] Its initial geological tests were encouraging, and it began exploratory drilling in the Lake Maracaibo area as early as 1913. By the time World War I had ended, it had been joined there by Standard Oil of New Jersey, the industry leader in the Latin American market. For all, however, the exploratory conditions were difficult. Jungles had to be breached; disease, contaminated water, and poisonous snakes all posed problems; and many of the more promising areas were under water rather than on land. Nevertheless, at the insistence of George Reynolds, its local manager and a man with a major reputation in the field, Royal Dutch/Shell persevered with its operations in the La Rosa area of the Lake Maracaibo basin. On December 14, 1922, a major gusher rewarded this tenacity. Venezuela’s petroleum industry was off and running, much of it based on fixed drilling platforms located on the lake itself. Additional companies applied for concessions, and the drilling ventures quickly multiplied. By 1929, Venezuela was producing more oil than any country in the world except the United States, drawing half of its revenue and three-fourths of its export earnings from oil.

The global depression of 1929-1933 caused a collapse in the demand for oil. At approximately the same time, major finds in Oklahoma and Texas combined with improvements in the efficiency of petroleum refining to curtail America’s import needs. For the Venezuelan petroleum industry, these developments proved to be extraordinarily costly. Of all the countries then exporting oil, Venezuela was the hardest hit during the depression. Its rate of unemployment soared, as nearly half the nation’s oil workers had to be dismissed. Government income was sliced by two-thirds between 1929 and 1932, as the price of oil dropped from $1.05 to $0.24 per barrel.

Full and rapid recovery from this collapse was unlikely. Venezuela had been sending more than half of its total production to the United States throughout the 1920’s, but in 1932 the United States enacted a tariff system in order to protect its domestic industry. The system drastically dampened U.S. demand for imported oil and, as a result, Venezuela was forced to reorient its industry to a broader, world market. It would eventually manage this feat so successfully that by the eve of World War II, it would be supplying 40 percent of British petroleum needs. However, the prolonged adjustment process left a growing number of nationalists in Venezuela with a profound—and soon to be important—distrust of outside consumers, particularly those from the United States.

Significance

The discovery of substantial petroleum reserves in Venezuela ultimately had a significant impact on the development of relationships between the oil industry and host countries throughout the oil-producing world, as well as on the global evolution of the international petroleum industry and the social, economic, and political development of Venezuela in particular. General Gómez’s death in 1935 ignited considerable jockeying for influence among various factions in the country. Many of these, including the Accion Democrática party, were spurred by their recent memory of the unreliability of foreign oil buyers and what they saw as the scandalous failure of the petroleum wealth of their country to improve the standard of living of most Venezuelans. As these factions acquired political influence, Venezuela’s political agenda shifted dramatically away from that of the wealth- and power-hungry days of General Gómez.

The story of the impact of the oil industry on Venezuela lacks a tidy, happy ending, however. There is no doubt that the production of oil in Venezuela generated tremendous wealth and led to a general modernization of the country. On the other hand, evidence suggests that in modernizing the country, the petroleum industry also left Venezuela’s economy excessively dependent on oil. At crucial moments when its governments might have otherwise restructured and diversified Venezuela’s economy, the vast profits from the petroleum industry provided an alternative, a lubricant capable of keeping those governments going by the easier means of creating clients and purchasing the support necessary to remain in power. Oil discoveries;Venezuela Venezuela, oil industry

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Choucri, Nazli. Energy and Development in Latin America: Perspectives for Public Policy. Lexington, Mass.: Lexington Books, 1982. A comprehensive study of the relationship between energy and development in the oil-producing states of Latin America. The relationship between governments and the state petroleum companies is extensively discussed.
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    xlink:type="simple">Coronel, Gustavo. The Nationalization of the Venezuelan Oil Industry from Technocratic Success to Political Failure. Lexington, Mass.: Lexington Books, 1983. Basically a historical account of the development of the Venezuelan oil industry between 1878 and 1970 and of the declining power of the international oil cartel to control that industry.
  • citation-type="booksimple"

    xlink:type="simple">Ewell, Judith. Venezuela and the United States: From Monroe’s Hemisphere to Petroleum’s Empire. Athens: University of Georgia Press, 1996. History of U.S.-Venezuelan interactions from 1790 through the early 1990’s; provides both the background and the consequences of the discovery of oil in Venezuela. The fifth chapter, “Oil and the Democratic Caesar, 1912-1935,” covers Gómez and the oil industry directly.
  • citation-type="booksimple"

    xlink:type="simple">Gibb, George S., and E. H. Knowlton. The Resurgent Years, 1911-1927. Vol. 2 in History of Standard Oil. New York: Harper, 1956. For details on the history of the twentieth century’s largest and most important oil company, nothing surpasses the Business History Foundation series. This book, the second in the series, covers the period of the company’s emergence as the leader of the international oil industry.
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    xlink:type="simple">Klapp, Merrie Gilbert. The Sovereign Entrepreneur: Oil Policies in Advanced and Less Developed Capitalist Countries. Ithaca, N.Y.: Cornell University Press, 1987. A scholarly treatment of the conflict over time among host countries, multinational corporations, and domestic oil companies. Discusses policy options open to the states and oil companies in these conflicts.
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    xlink:type="simple">Lax, Howard L. States and Companies: Political Risks in the International Oil Industry. New York: Praeger, 1988. Lax focuses on the relationship between host countries and multinational corporations and on the tension resulting from the different goals of the two. Especially good in discussing the companies’ decreasing bargaining position over time.
  • citation-type="booksimple"

    xlink:type="simple">Philip, George D. E. Oil and Politics in Latin America: Nationalist Movements and State Companies. New York: Cambridge University Press, 1982. Good background reading on the development of the oil industry in the oil-producing states of Latin America from 1890 to the oil shocks of the 1970’s as well as on the industry’s impact on the politics of these states.
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    xlink:type="simple">Salazar-Carrillo, Jorge, and Bernadette West. Oil and Development in Venezuela During the Twentieth Century. Westport, Conn.: Praeger, 2004. A study of the effect of the petroleum industry on the government, politics, and economy of Venezuela in the twentieth century. Bibliographic references and index.
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    xlink:type="simple">Tugwell, Franklin. The Politics of Oil in Venezuela. Stanford, Calif.: Stanford University Press, 1975. Chronologically organized, Tugwell’s study of Venezuela’s relationship with the major multinational oil companies contains numerous insights on such topics as the distorting effect the petroleum industry can have on a developing country’s economy. The emphasis is on the 1958-1973 period.
  • citation-type="booksimple"

    xlink:type="simple">Willrich, Mason, et al. Energy and World Politics. New York: Free Press, 1975. Basic introductory reading for anyone working in the area of energy politics. Published after the first energy crisis, this volume provides an exceedingly solid and readable overview of energy and international politics.
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    xlink:type="simple">Wirth, John D., ed. Latin American Oil Companies and the Politics of Energy. Lincoln: University of Nebraska Press, 1985. An excellent analysis of the development of state oil companies in Latin America, with particular attention to events in the key states of Venezuela, Mexico, Brazil, and Argentina. The emphasis is on the formative years.
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    xlink:type="simple">Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon & Schuster, 1991. A massive study of the development of the international oil industry, with as much attention to the personalities and politics involved as to historical events. Several excellent sections on Venezuela’s role in the story.

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