This article studies the evolution of Venezuelan economic institutions before the emergence of oil exploitation in 1920. We argue that, by 1920, Venezuela had developed a highly centralised state and a professionalised military. These two institutions ensured that growing oil revenues would strengthen the state structure and protected Venezuela from the resource‐conflict trap into which many oil‐abundant countries have fallen. We also argue that the failure to develop institutions that could mediate between sectoral demands and the state, the subordination of property rights to political imperatives and the political dominance of the commercial‐financial elite conditioned the nation‘s response to the post‐1920 influx of oil revenues.