I’m working with Venezuela to kill its inflation. Trump’s secret oil deal with Delcy Rodriguez is illegitimate — and unhelpful

President Trump and Interim President Delcy Rodriguez recently inked a secret oil agreement with Venezuela. This clandestine deal was shrouded in secrecy, with no public discourse or oversight. Consequently, it's deemed illegitimate and potentially unlawful. The news of this arrangement took many by surprise, including the Special Adviser to Venezuelan Congressman Antonio Ecarri on Economic, Monetary, and Energy Affairs.

The deal's illegitimacy and illegality stem from the absence of public debate and the duress in which it was signed.

The backbone of Venezuela's economy is its state-owned oil giant, PDVSA. This entity commands an overwhelming 95% share of the country's foreign exchange earnings. However, PDVSA has been plagued by mismanagement and operational inefficiencies. Under President Hugo Chavez's leadership, PDVSA's production peaked in the late 90s. Yet, this surge reversed after Chavez's socialist policies took hold, leading to a stagnation and eventual decline in oil output. Post-Chavez's presidency, PDVSA's fortunes continued to deteriorate.

PDVSA's physical capital, crucial for oil production, has been depleted at an alarming rate, far beyond what depreciation and amortization warrants. This, coupled with a dwindling human capital, has severely hampered the company's operational efficiency. The company's reduced output is not due to dwindling reserves but rather the rapid depletion rate.

This depletion rate – the speed at which PDVSA's reserves are being consumed – is crucial in determining the economic value of its reserves. With a depletion rate of 0.124% annually, PDVSA's reserves would take an impractically long 558 years to halve. For perspective, Exxon's depletion rate of 9% annually implies its reserves would be halved in just 7.4 years.

Given these facts, the author argues that Venezuela should kill inflation by abandoning the bolivar, replacing it with the U.S dollar. This move would inject positive confidence and stimulate the economy. Following this, the author recommends the privatization of PDVSA to boost production and alleviate the country's economic woes.