Venezuela may be the first sovereign producer to unequivocally fail.
That assessment of Venezuela came from Helima Croft, who is global head of commodity strategy at RBC Capital Markets.
The #global oil market is mired in excess inventory and low expectations. Venezuela is the most tangible of wildcards.
Furthermore, things are building to a head. This is partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.
Venezuelan bonds have not looked rock-solid for a few years. And this week they crashed.
Meanwhile embattled President Nicola Maduro renewed calls to rewrite the country’s constitution. If successful, he would effectively disenfranchise the millions of Venezuelans who oppose him. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.
Whether Maduro will, and what those sanctions might be, are the big unknowns here. Nevertheless, there is an awful confluence of factors that could quite easily push this toward a debacle by the end of the year.
Venezuela’s economy is in free-fall. By the end of this year, it will have shrunk by 32 percent compared to where it was at the end of 2013.