On the evening of June 24, Venezuela experienced a destructive “doublet”: two devastating quakes struck less than a minute apart, their epicenters in towns less than two hundred miles west of Caracas. The earthquakes were some of the most powerful in more than 125 years.
As of July 8, the death toll stands at 3,811, and the number injured at 16,740. That number is expected to rise. US Geological Survey modeling in the days following the earthquakes indicated there was a 44 percent probability of the total number of casualties exceeding ten thousand. La Guaira, a city just north of Caracas and home to Venezuela’s main port and international airport, absorbed the worst of it. Videos show entire blocks leveled. NASA satellite radar estimates that approximately 69,400 buildings were damaged or destroyed across the affected region.
The economic toll is still coming into focus. A preliminary assessment by the United Nations Office for Disaster Risk Reduction puts losses from direct physical damage to buildings and infrastructure at approximately $37 billion, although that figure does not include economic consequences such as interruptions to economic activities and supply chains, emergency response costs, and costs associated with structural retrofitting and reconstruction.
This issue of the Economic Pulse of the Americas examines what the earthquakes mean for Venezuela’s economy and the country’s prospects for recovery after more than two decades of mismanagement.
The earthquake followed years of decline
What makes Venezuela’s situation so dire is the economic collapse that preceded this disaster. As an earlier article in this series uncovered, Venezuela under Hugo Chávez and Nicolás Maduro suffered one of the most dramatic collapses in gross domestic product per capita in modern history, erasing decades of economic progress. At pre-earthquake growth rates, it would have taken Venezuela nearly half a century to reach the average income level of the rest of the region. That collapse has also gutted Venezuela’s physical capital stock, including its electrical grids, water treatment facilities, public education, multi-modal transportation networks, and oil extraction machinery—the essential infrastructure that underpins any economy. Without this physical capital stock, hospitals don’t have the power they need to run, water systems fail without maintenance, and buildings lack the reinforcement to withstand a shock like these earthquakes.
This is not the first time this region has faced devastation. In 1999, torrential rains in La Guaira (then known as Vargas state) triggered landslides and debris flows that killed thousands and destroyed large parts of the coast. In the decades since, underinvestment, the nationalization of key industries, and chronic neglect have held back the region’s and country’s infrastructure.
When a country’s capital stock wears down faster than it is replaced or upgraded, its ability to advance economic activity collapses and assets become more vulnerable to damage. The decline that took place well before this summer’s earthquakes has left critical infrastructure, industry, and even residential buildings badly deteriorated, compounding the destruction the quakes caused.
In constant terms, the value of Venezuela’s capital stock in 2023 was nearly the same as it was in 1999, when Chávez came to power. In contrast, the ratio for the entire region grew by over 50 percent. Additionally, before the earthquakes, the value of physical capital available for the average Venezuelan was the lowest in the entire region.
For a more specific illustration of the pre-earthquake deterioration of the country’s infrastructure, look to the construction elements cement, iron, and steel. The decline in Venezuela’s capital stock closely follows the collapse of its production of these materials, which today stands at historic lows. Cement imports failed to make up for this drop in production, evidence that demand for cement has weakened in a mismanaged economy. Given there is a lack of quality indicators showing the state of Venezuela’s infrastructure, this data on construction materials helps show the physical effects of the economic crisis on investment. Every ton of cement the country failed to produce, and every bar of steel it stopped smelting, marked a forgone opportunity to repair or reinforce roads and buildings, leaving them vulnerable to collapse.
The preexisting deterioration is precisely why the earthquakes’ economic impact will extend far beyond the physical damage itself. The earthquakes did not create Venezuela’s economic crisis. They transformed an already dire situation into a catastrophe. Before June 24, Venezuela was already facing one of the most complex economic reconstruction challenges in the modern era. In a single evening, the earthquakes pushed the solutions to that challenge further out of reach.
The earthquakes also disrupt the central narrative of Venezuela’s potential recovery: a large-scale push for investment in oil, gas, and electricity.
Early reports indicate that oil infrastructure has been spared the worst of the damage. But analysts at Columbia University’s Center on Global Energy Policy estimated that adding up to one million barrels per day (to the 120,000 Venezuela was producing at the time of Maduro’s capture in January) would require more than ten billion dollars in investment over two to three years. Reaching the output levels Venezuela sustained in the early 2010s, around 2.5 million barrels per day, would require eighty to ninety billion dollars over six to seven years. Other projections of the cost are even higher. The Council on Foreign Relations has estimated that raising production beyond 1.5 million barrels per day, which would require developing new fields entirely, could cost $100 billion over ten years.
The electricity sector is equally underfunded and equally essential. Generation capacity fell to less than 40 percent of what was installed, as chronic lack of maintenance and fuel shortages cripple both thermal plants and the hydroelectric facilities the country depends on. The transmission network has been deteriorating across the board, and grid infrastructure has not seen meaningful investment in decades.
Power is a prerequisite for Venezuela’s heavy crude production. Electricity plays a role at every stage of the process, from the pump systems that lift oil out of the ground to the upgrading facilities that convert it into something exportable. Without a functioning grid, the oil investments that were supposed to anchor Venezuela’s economic recovery will not come to fruition. Experts have estimated the cost of restoring the power sector to acceptable performance at thirteen billion dollars in the first three years. That estimate was made before the earthquake.
Other factors are even harder to quantify. Up to 6.76 million people could be affected in some way by the earthquake, according to initial estimates by the International Organization for Migration, including up to two million people in Caracas alone. At least 17,900 people are now homeless, according to authorities, although the real number is likely higher. Given the lack of available housing, there’s a strong possibility the country sees another wave of migration out of the country, given the scale of devastation, and the economic impact that has on recovery is difficult to determine. A larger outflow of working-age Venezuelans would make the recovery challenge even harder by shrinking the labor force needed to rebuild.
The earthquake also raises challenges around financing. The oil and power sector investment case was built primarily around private capital and bilateral partners willing to accept Venezuela’s political risk in exchange for long-term returns. Disaster reconstruction, on the other hand, is typically dominated by grants, multilateral lending, and humanitarian financing. Whether funds that would normally go toward oil and gas instead go to earthquake recovery efforts, or whether the humanitarian crisis unlocks multilateral financing that was previously unavailable, will shape how quickly both tracks can move.
The scale of the disaster may also test Washington’s sanctions posture. Over one hundred economists, noting the scale of the humanitarian catastrophe, have asked the US to lift sanctions on Venezuela to ease the impact of the earthquakes. The economists called for relief from “broad economic sanctions on Venezuela, including any that may impact the Banco Central de Venezuela (BCV), government institutions, Petróleos de Venezuela, S.A. (PDVSA), public financial institutions, the oil and mining sectors, banking, transportation, shipping, telecommunications, travel, and all related activities.”
It’s unlikely the US would lift such a broad set of sanctions, but the earthquakes could accelerate conversations in Washington around granting US companies targeted licensing for carrying out reconstruction-related activities in Venezuela, particularly involving construction materials and heavy equipment, even as the broader sanctions architecture remains a subject of political negotiation.
For interim leader Delcy Rodríguez, international donors, and multilateral lenders, the first priority should be disaster response and housing reconstruction. Greater Caracas, which includes La Guaira, is the most densely populated area in the country. Rebuilding homes and reestablishing basic services is a political and humanitarian necessity that must come before everything else.
Colombia’s response to its own 1999 earthquake, which struck the coffee region and destroyed more than 100,000 buildings across twenty-eight municipalities, offers a useful model. The government created the Reconstruction Fund for the Coffee Region, which channeled multilateral financing, such as loans from the Inter-American Development Bank, through a decentralized structure that worked directly with municipalities and civil-society groups rather than through a single central bureaucracy. The World Bank and international experts have cited it as a credible, fast-moving model for post-disaster reconstruction. A similar structure, with the United States partnering alongside the Inter-American Development Bank, World Bank, and other multilateral lenders, could offer a template for financing and coordinating Venezuela’s recovery.
This article is part of “Economic Pulse of the Americas,” a series of explainers about the overlooked economic and trade trends in Latin America and the Caribbean, written by the Atlantic Council’s Adrienne Arsht Latin America Center. To get notified about future editions and other related work on the region, sign up here.