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Venezuela's Decision To Import Oil Is The Perfect Example Of Just How Screwed The Country Is

Venezuela Oil
A pump jack is seen during sunset at Lagunillas field in the eastern coast of Lake Maracaibo, Venezuela. REUTERS/Jorge Silva

Despite being one of the largest oil producers in the world, Venezuela has started buying light crude oil from Algeria for the first timeBloomberg reports.

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Until recently, the Venezuelan government had been buying naphtha on open markets to treat its oil. That's because the extra heavy crude produced by Venezuela needs to be diluted before it can be exported. But a combination of falling oil prices (which makes the country’s major export less profitable) and devalued currency (which makes buying things abroad increasingly expensive) has created a conundrum.

Venezuela Inflation
Pantheon Macroeconomics

Naphtha is more expensive than buying light crude, which is mixed with the heavy crude to dilute it. Earlier in October, sources told Reuters that Venezuela was also importing light crude from Russia.

While the government holds an official exchange rate of 6.2 Venezuelan bolivars to the dollar, the bolivar is worth far less on the black market and the dollar is worth far more.

The chart above shows how Venezuelan inflation has exploded.

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The shortage of dollars in Venezuela to buy imports has also led to shortages of major goods like cooking oil and milk, leading to heavily-protested schemes like fingerprinting customers when they buy groceries to keep track of purchase.

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