image source, AFP via Getty Images
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- Author, Shanaz Musafer
- Author title, Business reporter
Venezuelan leader Nicolás Maduro says the growing US pressure on his country is due to one thing: Washington wants to seize the South American country’s huge oil reserves.
This week the U.S. military seized a tanker that appeared to be carrying Venezuelan oil in violation of U.S. sanctions and threatened action against other vessels.
The measure came after a series of military attacks on Venezuelan ships, which the US says are drug trafficking vessels.
President Donald Trump has called on Maduro to resign from office and accused him of sending drugs and murderers to the United States.
So is Venezuela’s oil really what Trump wants? And would it really be worth it?
How much oil does Venezuela have?
With an estimated 303 billion barrels, Venezuela has the largest proven oil reserves in the world.
But the amount of oil that the country currently produces is tiny in comparison. Production has fallen sharply since the early 2000s, when former President Hugo Chávez and later the Maduro government tightened control over state oil company Petróleos de Venezuela (PDVSA), leading to an exodus of more experienced personnel.
Although some Western oil companies, including U.S.-based Chevron, remain active in the country, their activities have been significantly scaled back as the U.S. has expanded sanctions and set oil export targets to limit Maduro’s access to a key economic resource.
Sanctions first imposed by the US in 2015 during President Barack Obama’s administration over alleged human rights abuses have left the country virtually cut off from needed investment and spare parts.
“The real challenge they have faced is their infrastructure,” said Callum McPherson, head of commodities at Investec.
Venezuela produced about 860,000 barrels per day in November, according to the International Energy Agency’s latest oil market report. That’s barely a third of what it was 10 years ago and accounts for less than 1% of global oil consumption.
Trump wants Venezuela’s oil?
In the US, some have defended the intervention in Venezuela and pointed to the opportunities for US companies to revive the oil industry.
“Venezuela will be a feast for American oil companies,” Republican Congresswoman María Elvira Salazar of Florida said in a recent interview on Fox Business.
“American companies can come in and fix all pipelines, oil platforms and everything related to oil and its derivatives,” he said.
Trump seems receptive to these arguments.
His campaign slogan was “drill, drill” and he generally advocated expanding oil production, which he linked to lower prices for Americans.
But when it comes to Venezuela, the White House has expressed concern about the drug trade and what it sees as Maduro’s illegitimacy.
Asked Thursday whether the U.S. campaign in the region was focused on drugs or oil, White House press secretary Karoline Leavitt said the administration was focused on “a lot of things.”
The official defined curbing the flow of illegal drugs into the United States as her top priority.
Clayton Siegle, senior energy security researcher at the Center for Strategic and International Studies think tank, said he takes such statements “largely at face value.”
He noted the long-standing interest of key players such as Secretary of State Marco Rubio in the region.
“I just haven’t seen any evidence that oil is at the heart of their ambitions,” he said.
What interests does the USA have in Venezuela?
That doesn’t mean American companies aren’t interested.
Currently, Chevron is the only U.S. oil producer still operating in Venezuela, having received an operating license in 2022 under former President Joe Biden despite U.S. sanctions.
The Trump administration extended another exemption to the company this year, even as it revoked exemptions for other companies such as Spain’s Repsol to stem the flow of money to the Maduro regime.
Today, Chevron is responsible for about a fifth of Venezuela’s oil production.
Analysts say Chevron is among the companies that would best benefit if the U.S. begins raising its hurdles in dealing with Venezuela.
American refineries, particularly those on the Gulf Coast, are also hungry for the type of “extra heavy” crude that Venezuela produces, which tends to be cheaper to process and therefore more profitable.
“U.S. refiners on the Gulf Coast have been troubled in recent years by Venezuela under sanctions and reducing production because of the reduced availability of heavy crude oil,” said Matt Smith, an oil analyst at Kpler.
“Even if they weren’t involved in the production, they would be interested in buying it,” he added.
image source, Michael Robinson Chavez/The Washington Post via Getty Images
What are the challenges?
While any expansion of Venezuela’s oil exports could help drive down prices in the U.S., analysts say it would take time because current production is too limited to have a significant impact.
And restoring Venezuela’s oil industry to its former glory would be an arduous task.
Better management and some modest investments could help increase oil production in Venezuela to about 2 million barrels a day over the next two years, according to a recent report from Wood Mackenzie.
But analysts warned that it would take tens of billions of dollars and possibly a decade to ramp up production more significantly.
They also pointed out that companies could be deterred by possible complications, such as their membership in the Organization of the Petroleum Exporting Countries (OPEC).
image source, AFP via Getty Images
Another risk is the outlook for oil demand as it becomes less important as an energy source, said David Oxley, chief climate and commodities economist at Capital Economics.
“Oil demand will not collapse, but it will no longer grow as before. We think it is moderate and will start to decline in the late 2030s,” he predicted.
“Anyone investing in the Venezuelan oil sector would have to ask themselves: Is it worth it?” he admitted.
Even if Maduro were bold or the U.S. barriers were lifted, it was unclear, Oxley said, how willing companies would be to invest the time and money necessary to revive Venezuelan oil.
“Huge investments would be needed in the oil sector. Certainly billions,” he said.
“Drilling, drilling, drilling is fine, but private companies will only do it if it is profitable,” he concluded.
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