Apparently the U.S. intervention in Venezuela to stop drug trafficking, despite the arrest and arraignment of Venezuelan President Nicolás Maduro on narco-trafficking charges, really was all about the oil.
U.S. President Donald Trump mentioned oil more than two dozen times in his Saturday press conference, and said that the United States would now “run” Venezuela to extract its mineral riches in order to compensate U.S. firms for losses incurred in prior expropriations in the 1970s and 2000s. He told reporters over the weekend on Air Force One that he had consulted with U.S. oil companies—though not Congress—before and after the strikes on Venezuela.
And Secretary of State and acting National Security Advisor Marco Rubio said on Sunday that the U.S. blockade on Venezuelan oil exports will remain in place until changes are made to enable more U.S. and other international investment in Venezuela’s decrepit oil sector. Rubio added that “we’re pretty certain that there will be dramatic interest from Western companies.”
What’s harder to understand is Trump’s insistence on seizing Venezuela’s oil riches at a time when the United States is already the world’s biggest oil producer, the global oil market is well-supplied and prices are low, demand for crude is slowing and may peak by the end of the decade, and any large-scale investment in Venezuela’s petroleum sector requires a stable and predictable political future for Venezuela that is nowhere in sight.
On paper, Venezuela is attractive when it comes to oil, with the world’s largest proven reserves of over 300 billion barrels, a bit more than Saudi Arabia. But years of mismanagement, lack of expertise and investment, and political meddling have crippled the sector, and Venezuela now produces a little over 800,000 barrels of oil a day, a far cry from the halcyon days of the 1970s, when it produced 3.5 million barrels a day. (The United States currently produces around 14 million barrels a day.)
But that does not mean that U.S. companies are champing at the bit to dive back in and invest tens of billions of dollars, as Trump said they would, to rebuild Venezuela’s oil sector.
There have been no expressions of interest from big U.S. oil firms about returning to Venezuela and investing billions more there, though Chevron, the only U.S. firm active there, continues its operations. (Some smaller private investors are raising funds with an eye to taking a hand in Venezuelan oil projects.)
The first problem is that the scale, scope, and duration of rebuilding Venezuela’s dilapidated oil industry requires stability, security, and a new contractual framework as preconditions. Those conditions are absent in the wake of Maduro’s ouster, and it is not clear when that kind of long-term political stability and predictability may be on offer, especially since the Trump administration has opted to work with the chavista regime while deliberately sidelining the opposition group that won the 2024 election in a landslide.
Second, the state of Venezuela’s oil infrastructure, especially the super-heavy oil fields that are the crown jewel of the country’s resources, means that a capital injection of about $10 billion over several years would be needed just to get Venezuela back to producing the 1.5 million or so barrels a day that it did before U.S. sanctions ramped up.
Third, to restore the country’s production to anywhere close to its glory days would require a mammoth capital investment of up to or more than $100 billion over as long as a decade. If all goes well, Venezuela could produce 2.5 million barrels a day—almost half as much as Texas alone does today.
Fourth, while Venezuela’s oil geology is proven, and its reserves are ample, it is not easy-to-extract oil, nor is it cheap to produce, which is a consideration when oil prices have languished around $60 a barrel and are expected to for the next few years. The mother lode in the Orinoco Basin is super-heavy crude and requires intensive processing to produce, including the import of diluents to turn sludge into something closer to a liquid. Additionally, most of Venezuela’s skilled oil professionals have fled the country over the past decade-plus, meaning that an injection of human capital in addition to financial capital would be needed.
The rate of production decline at Venezuela’s fields is also much higher than those of other big producers, meaning big capital investments would be needed just to run in place. (Though accelerating decline rates at oil fields all over the world are now the norm, meaning there is some justification for restoring Venezuela’s past production to compensate for declines in other countries in years to come.)
Fifth, and perhaps top of mind for the U.S. companies Trump expects to foot the bill for Venezuela’s transformation, capital discipline is the watchword.
After a spending spree a decade ago spooked Wall Street and destroyed shareholder value, oil companies big and small focused on restraining capital expenditures to maximize value for investors, not to maximize the number of new wells. That’s true globally: Capital expenditure on upstream oil dipped last year to levels last seen before the COVID-19 pandemic, and this year also looks bleak.
ConocoPhillips, a U.S. major that left Venezuela after the 2007 expropriations, is a good example: Its capital-expenditure plan through the rest of the decade calls for restraint, with most of its modest budget targeted at the safe and proven U.S. oil patch, and the rest at safe and stable countries such as Norway and Australia. Even ExxonMobil, another of those that fled Venezuela, has spent its tens of billions in oil development money lately in a very predictable, very promising market, Guyana, where production (and investment) continues to soar.
Finally, unlike Trump, the global oil market is not clamoring for more supplies—not in the near future, and perhaps not in the next five years, either. There is already a glut that has pushed down oil prices to dangerously low levels from the point of view of U.S. oil producers. The prospect of a further slowing in demand for oil, especially in developed economies, makes the notion of a $100 billion-plus bet on Venezuela a bit of a risky proposition.
But to the extent that moderate regime change and an easing of U.S. sanctions restore a bit of Venezuelan oil capacity, not to mention the future prospect of much bigger outflows from there, that would be unwelcome news for the very U.S. energy producers that are meant to provide the “energy dominance” that Trump keeps preaching. Most U.S. shale oil producers get nervous when crude prices are below $60 a barrel, and they are in the mid-$50s already.
But, as the Trump administration made clear in its new National Security Strategy, the driving force in Washington these days is now “Americas First.”