Venezuela has been instructed to pay US oil company Exxon Mobil $1.6bn in compensation for the seizure of its assets.
Back in 2007, Venezuela's socialist government nationalised Exxon's Cerro Negro Project. Exxon Mobil said in a statement:
The decision confirms that the Venezuelan government failed to provide fair compensation for expropriated assets.
The ruling, which was made by the World Bank's International Centre for Settlement of Investment Disputes (ICSID), fell well below the $16.6bn Exxon had been aiming for.
Rafael Ramirez, Venezuela's foreign minister, was relatively pleased with the decision, calling it "reasonable" and arguing it was a victory for sovereignty against Exxon's "exaggerated claims".
The ICSID said on its website:
The Tribunal has found that the expropriation was conducted in accordance with due process, that it was not carried out contrary to undertakings given to the claimants in this respect and that the claimant have not established that the offers made by Venezuela were incompatible with the 'just' compensation requirement of (...) the Bilateral Investment Treaty,"
Venezuela has not yet indicated whether it will seek to nullify the decision or pay up. The loss of $1.6bn would be the latest blow to the Venezuelan economy which has been crippled by high inflation and poor growth.
Furthermore, the Venezuelan government is facing 20 similar cases from the World Bank and other foreign companies over the seizure of private assets.
Federico Barriga, Latin America analyst at The Economist Intelligence Unit, said:
Although the government has downplayed the Exxon Mobil ruling, it clearly creates additional fiscal strains at a time when oil prices are falling and the sovereign and PDVSA face large external debt repayments. Questions over Venezuela's capacity to pay have accentuated in recent months, given the dismal state of the economy and falling international reserves.
Venezuela has been running short of basic goods like toilet paper, soap and cooking oil for over a year. Strict currency controls, and a shortage of US dollars, have hammered consumers' ability to get imported goods.
Price controls have crippled the ability of producers to make profits and correctly identify market signals.
This week, Canadian think tank the Fraser Institute published its annual Economic Freedom of the World Index, where Venezuela came last.