“Dutch disease” is when a country rapidly increases its production of raw materials, causing other sectors of the economy to decline. Economies afflicted by “Dutch disease” are in perpetually fragile states because they are reliant on the continual production of raw materials, which may run out.

Wesleyan University

Governments have felt compelled to continue relying on oil for funds because of the popular programs that oil sales can fund, such as social programs. However, multiple issues can result from relying on a single industry to fund an entire government. For example, sudden changes in the price of oil can trigger economic downturns.

Consequences of Venezuela’s Historical Dependence on Oil

Venezuelan, A., & Ausman, J. (2019). The devastating Venezuelan crisis. Surgical Neurology International, 10, 1-6.

"The Devastating Venezuelan Crisis"

A rentier state gets all or most of its national revenue from foreign actors paying rent, such as by paying for oil. Rentier states receive little of their revenue from their citizens through taxation. Venezuela is a rentier state that relies on oil exports.

Rentier state

Dutch disease

Venezuela nationalized oil production in 1975 by creating the PDVSA to act as a holding company for oil companies operating in the country. Because the government now had such close contact with the oil industry, corruption became rampant. Politicians were incentivized to keep Venezuela dependent on oil because they were getting rich off of the industry. Consequently, even when oil prices fell and the government could not pay for their programs, politicians engaged in irresponsible economic practices (such as international borrowing and currency devaluation) rather than diversifying the economy.

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