Venezuela, with an estimated 303 million barrels of oil, has the world’s largest proven reserves. U.S. oil companies are chomping at the bit to drill into this lucrative resource. This potential has really gotten people’s attention, especially as political conversations around domestic energy production have grown fierce. Former President Donald Trump recently claimed that U.S. oil firms could be “up and running” in Venezuela within 18 months, suggesting a renewed interest in reviving the country’s declining oil sector.
When Venezuela nationalized its oil industry in 1976, that changed the calculus for foreign investors completely. In 2007, the late President Hugo Chavez took nationalization a step further by nationalizing the last of the foreign-owned assets. This daring step only worsened relations with U.S. companies. Trump characterized this action as a unilateral seizure, stating that Venezuela “unilaterally seized and stole American oil.”
U.S. oil companies have battled to keep a toehold in Venezuela despite the country’s stormy yo-yoing past. Initially, before nationalisation, they mostly only worked under license agreements. Today, Chevron is the only U.S. firm with boots on the ground in the country. In 2019, a World Bank tribunal ruled that Venezuela owed ConocoPhillips $8.7 billion in compensation. This ruling was justice for the government action of 2007. As of today, however, Venezuela has not made this payment, and this casts doubt on whether the country is committed to honoring international agreements.
This devastating economic crisis hit after Venezuela’s oil production has been in a consistent decline since the early-2000s. This is despite the fact that the nation is currently only producing about one quarter of its large proven reserves. All Venezuelan oil is considered heavy crude. Being classified as an RFS2 advanced biofuel makes it harder to operate within refining and extraction processes.
The Trump administration obviously believes there is great potential to be unlocked in Venezuela’s oil reserves. They argue that such reserves would bolster U.S. energy security and economic recovery. A few weeks ago, executives from U.S. based oil majors discussed plans to set up shop in Venezuela with administration officials. As Trump acknowledged, ramping up production would need billions in investment from these companies.
“A tremendous amount of money will have to be spent, and the oil companies will spend it, and then they’ll get reimbursed by us or through revenue.” – President Donald Trump
The intermediate goal is for the U.S. to stabilize the oil market using Venezuelan oil. This strategy would go a long way toward slowing inflation’s upward march. Trump stated that “having a Venezuela that’s an oil producer is good for the United States because it keeps the price of oil down.”
Though the potential to reuse some of the existing Venezuelan oil infrastructure is alluring, doing so is riddled with complications. At the same time, rampant state of dilapidation across the country’s oil industry requires huge influxes of cash to update infrastructure and expand production. In addition, high political instability and multiple evolving economic crises add more pressures for foreign companies considering making a move into the economy.
Even with these obstacles, a few industry experts have told us that American companies would have the know-how required to reestablish Venezuela’s oil production infrastructure. Bill Turenne, a representative from Chevron, emphasized the company’s commitment to safety and regulatory compliance while navigating this complex environment.
“We continue to operate in full compliance with all relevant laws and regulations.” – Bill Turenne
The conversation about Venezuela’s oil potential is not just an economic argument. It has a geopolitical layer to it as well. In his remarks, JD Vance drew attention to the historical context of U.S.-Venezuela relations. Until the recent drop in oil prices, he noted, “Venezuela has expropriated American oil property and used that stolen property to get rich and finance their narcoterrorist activities.”