Venezuela – The Fall of an Oil Empire Explained

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A lot of times when things are going well, for instance, your marriage is good and you see somebody that’s going through a divorce, you think that’s never going to happen to me and my family. Or take another CEO or entrepreneur that is going through a bad time, but you are going through good times, you think, “It’ll never happen to us.” You can take that idea to a country level and say, “Look at the crisis that country is experiencing, but it’ll never happen to us because we’re rich and powerful. Then it’s too late and it happens to you, no matter the situation.

Listen, if you turn on your phone, social media, news, TV, whatever you turn on, Venezuela is going to be mentioned by somebody. It is a travesty on what’s going on in Venezuela. It is also very sensitive. So, I’m going to give two different perspectives. If you look at what’s going on in Venezuela, the average citizen, they say, has lost 24 pounds in 2017. It is estimated that 5 million have left Venezuela for other countries. Columbia apparently took in 1.1 million. Students are not going to school because there are no teachers and there is very little food. The minimum wage has gone from $3.50 to $7 a month. A cup of coffee that used to cost 450 Bolivars to buy now cost 2.5 million Bolivars. 5,000 journalists have been detained because they spoke up against Maduro.

Just recently, Richard Branson put on a big concert in Columbia right across the border. Two thousand people showed up at this concert. The same exact day, Maduro put a concert Venezuela and only a few hundred people showed up. On top of all of this, you have an opposition party trying to help Venezuelans.

I’m going to share what 10 things that you and I can learn from what’s taking place in Venezuela. I’m going to give you data about their oil reserves that are going to shock you. I first want to lay the groundwork for us with these numbers. Let’s start with oil reserve leaders around the world. The US is at the bottom with 39 billion barrels, then going up the list you have Libya with 48 billion barrels, Russia has 80 billion, the United Arab Emirates has 97 billion, Kuwait 101, Iraq 140, Iran 158, Canada 169, and Saudi Arabia, which is everyone thinks is the biggest in the world, right? Nope. Number one in the world is Venezuela. Are you ready for how much they have in reserve? 300 billion barrels.

How was it that the country with that much oil going through a mess like this? There are two numbers we must look at, one is oil prices and the other is inflation. Let’s first look at oil prices. What does oil costs per barrel, historically what has it done, and is there a trend or something that we ought to pay attention to between Chavez and Maduro?

Because when Chavez was president, people were happy. The people were getting a lot of free programs. Why is it not working under Maduro? It must be all of Maduro fault, right? Your look oil prices today, a barrel in 2019 give or take is $52.87 cents a barrel. The price has been trending up since 2015 but in 2014 it went from $93.17 to $48.72. Maduro got elected in 2014 and Chavez died in 2013. When Maduro first got elected, Venezuela was still kind of okay. The moment oil prices dropped more than 50% they can no longer fund all the public programs because their GDP paid for them.

Why did Chavez tie oil revenue to these programs? When Chavez got elected, oil prices $19.35 per barrel. During his reign, it went from $19.35 to $97 and they are number one in the world in oil reserves remember. So he could give all these three programs away while oil prices were going up, which means what? Venezuela’s economy is controlled by oil prices per barrel. They go up, everything works. It goes down, it is a catastrophe. So, what happened when oil prices went up? More free program housing, let’s take the land from the rich and let’s give it to the poor. Taxes maybe 71%, let’s give everything to everybody. When the oil prices went down, it became a whole different story.

So now what does this mean for inflation? In 2012, the world inflation rate was 4.07% and Venezuela had 21%. In 2018, the world inflation rate was 3.78% and Venezuela had over 2.6 million. The IMF predicts this year Venezuela’s inflation rate will crack 10 million. Venezuela is going through with hyperinflation. If the economy increases inflation by 50% a month consecutively, inflation eventually becomes hyperinflation. That means what cost a dollar on January 1, costs 130 twelve months later on December 31st. Let me give you some comparisons with other countries. The second worst inflation in the world is South Sudan at 117%. I was in Argentina a couple of months ago. They have a crisis, but their inflation is 47.6%. I want you to be paying attention to what’s going on in there, right?

It is an absolute crisis, but we all must pay attention to this because sometimes these things can come back and affect you in your own country so here are the 10 things you can learn from Venezuela’s crisis today.

• If your country solely relies on a natural resource and you don’t control the pricing, other factors around the world can dictate that price.

  • You could be wiped out when he goes from $93 to $48 the next year. 50% of the social programs are cut because, since Venezuela is socialist, they are funded by oil. Then you have to go into debt. Venezuela owes $110 billion because they had to borrow money to be able to fund all these social programs. There are some countries around the world that are solely reliant on a natural resource. You got to find other things to rely on especially since most prices are controlled by outside forces.

• When there is no food or no medicine, the nicest person in the world can commit a crime.

  • If you are not letting food in like Maduro is doing. You are burning trucks that are coming through the border to bring food and medicine. When all the money in the world can’t buy medicine or food, a parent will do anything to put food in their kid’s belly. Anyone is capable of crime when the economy tanks. It’s very important to keep the economy going. Crime goes through the roof if you don’t.

• If you can’t pay your own bill and you solely rely on somebody else to pay your own bill, eventually your ability to pay your own bill goes away.

  • Your muscles become so weak that, when you pull it there’s a crisis. That’s what was taking place in Venezuela. All of a sudden, we can’t pay for you anymore. What happens? People get angry and say, “I was relying on all this stuff. You are paying me for all this stuff.” They don’t know how to make money. What happens to countries like Venezuela, job creators leave because they see the economy turning and they know they are the only ones working. Never ever rely on somebody to pay your bills for the rest of your life.

• Free programs. How can we be the richest country in the world, and we don’t offer free health care and free college?

  • Just because America is rich doesn’t mean we have to give free programs the way to everybody. Be very careful with the word free, especially when politicians say it. Replace it with the real f word. Do you know which one I’m talking about? Every time you hear it and this program’s going to be free. You will pay for it eventually.

• Never give too much control to the government.

  • Listen, even if they are most noble, spiritual, whatever too much control is bad. Maduro appeared this way to Venezuelans then decided to change everything. He changed the constitution, took control of the military, the executive branch, judicial, legislative, everything. But what a nice guy. I liked him because he’s given me free programs. Never give the government too much control. We need balance. Obama gave birth to Trump, but Bush gave birth to Obama. No matter how noble the leader looks like at the top, still don’t give a hundred percent trust to the government. Very important for you to remember that.

• Americans are so afraid of socialism. Look how great it’s working in Venezuela.

  • Bernie is a great example. It seems like a noble guy. Seems like he wants to do the right thing. He seems a good guide, but his philosophies don’t work. When he says socialism works in Venezuela, he’s not telling you the whole story. It worked because oil prices went from $19 to $94. “It is working in Venezuela. Why not do it in America? Rich people have too much money. We should take the money and redistribute and give it to everybody else and that sounds noble.”

Look what happened with Amazon. Everybody said Amazon shouldn’t come to New York. Amazon was bringing $150,000 a year salary to 25,000 workers in New York. That is a good thing for New York. By the way, a lot of companies get a billion-dollar payout when moving to the city. But New York was going to make $20 billion over the next decade and a half. But they said, no, we don’t want you to come because why? Because due to competition, rent prices will go up. The governor of New York is saying, “What are you talking about? We have the most powerful company that wants to come to New York.” New York used to be at a number on a city in the world for the most fortune 500 company headquarters to be there. It is not going to be number one for too long because a lot of people are going to pay attention if this continues.

• Pay close attention to your taxes.

  • Go study taxes even though they are boring. One of the lines I’ve heard for years is there are two guarantees in life, death and taxes. Do your homework and study your taxes.

• The power of incentives countries creates matters.

  • If your country creates incentives for businesses, people flock to you. Venezuela did not create incentives for their people. The government said we’ll give you an income, we’ll give you food and the incentive went away. If America says, we’ll give you an incentive if you’d create jobs, then people take advantage of it. A lot of people say, ‘Why isn’t that company paying as much taxes as this other person?’ Because that company created hundreds of thousands of jobs in America and the government took some taxes away from that company’s burden. Those thousands of jobs are not just the incomes earned by those employees. Those jobs provide employees the ability to live and work in a community and money gets cycled back in including back to the government in taxes. Incentives drive all of this.

• Sometimes a crisis wakes up a nation.

  • One of the reasons why I feel for the people of Venezuela is because when you have so much power with oil when you are number one, you’re like the beautiful girl that every man wants to be with. It happened with Iran. In Iran, there’s a city called Abaddon where they found oil. The UK smelled opportunity and came in to offer their expertise. Iran agreed because they didn’t have the know-how. The partnership was not 50-50 and what resulted was the birth of a company called BP, British Petroleum. Britain took 84% and gave Iran 16%. It is almost like the protection rackets the mafia in New York ran. The UK thought they brought more to the deal and they took more. Iran was left with nothing even though it was their land.  So, I understand the fear in Venezuela when you hear that outside forces want to come in and help.

But there’s also the opposite side to it, a lot of Venezuelans when they can’t feed their family when you don’t have medicine, they’re willing to do anything at that moment to give back into survival mode. So I wouldn’t a hundred percent say no to outside intervention and I wouldn’t a hundred percent say yes to it.

• Who’s next? Who can this happen to next?

  • I know a lot of us are looking at it from the outside thinking, “Oh my gosh, I feel so bad for people in Venezuela. But it’ll never happen to my country.” It can happen to any empire. The moment you forget that incentives create hard work creates effort, creates movement, creates everybody paying the price and paying their own bills, that’s what a country can be reliant on for a long term. It’s the right values and principles. If you rely on something for free, it will fall apart. Entrepreneurs and people who are driven by incentives, don’t want to leave their homeland. I’m from Iran, believe me. No one wants to leave their homeland, but they will gladly leave their homeland. If you put them in that position, they will disappear because everybody thinks family first.

So as you’re watching this, you’re saying to yourself, okay, I got this. I want you to watch a video of the DNA of an Entrepreneur. This is a speech I gave when I lived in an RV and I went from La to Miami to Toronto to San Francisco and back in 30 days. I spoke to a few thousand people about the concept of the DNA of an entrepreneur.

If you are Venezuelan and you want to know the history of what happened with Iran, read the book or listen to the audiobook, All the Shah’s Men by Stephen Kinzer. That’ll take the history of what happened with Iran’s oil crisis. And if you want, today’s a pdf of the notes I talked about, text us at (747) 260-8461. If you’ve got any questions, comments, make sure you comment below. If you haven’t subscribed to the channel, click on the sub button.

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