Venezuela is sinking ever deeper into a political and economic calamity. Inflation is above 700 per cent and GDP is more than a third below 2013 levels. The country with the world’s largest proven oil reserves is now the world’s most indebted country – no other nation has a larger public external debt as a share of GDP or of exports. Living standards have truly collapsed.

Many factors have contributed to Venezuela’s current crisis including mismanagement of oil wealth by former president Hugo Chavez and the current leader, Nicolás Maduro, and criminality, lawlessness and the black market.

While all of these have undoubtedly had a part to play, the falling price of oil is the most significant factor. However the connection between this and an economic crisis in South America is not as obvious. What’s going on in Venezuela is the unintended consequence of Saudi Arabia’s policy of keeping oil prices deliberately low for political reasons.

The price of oil, as with any other commodity, is regulated through supply and demand. When there is an oil surplus, or a reduction in demand, the price will fall.

While all of these have undoubtedly had a part to play, the falling price of oil is the most significant factor. However the connection between this and an economic crisis in South America is not as obvious. What’s going on in Venezuela is the unintended consequence of Saudi Arabia’s policy of keeping oil prices deliberately low for political reasons.

The price of oil, as with any other commodity, is regulated through supply and demand. When there is an oil surplus, or a reduction in demand, the price will fall.