The Trump administration’s deal with a private
oil company to increase oil production in the South American country could take
many years to come to fruition.
·
Huge
oil reserves:
Venezuela has more than 300
billion barrels of proven oil reserves,
potentially the world's largest, although experts question whether all of these
reserves can be economically recovered.
·
U.S.
objective: The
Trump administration aims to revive Venezuelan oil production and announced an
agreement involving the Venezuelan government, the U.S. and private oil company
North
American Blue Energy Partners (NABEP).
·
U.S.
stake: Under
the deal, the U.S. government would have the right to acquire a 35% equity stake in NABEP.
·
Oil
purchase rights: The
U.S. would have the right to purchase 20%
of NABEP's production at production cost, while retaining the right to purchase
the remaining 80%.
·
Scale
of the deal: Trump
said the agreement would give the U.S. “majority control” over 65 billion barrels of Venezuelan oil, roughly one-fifth of the country's
reserves.
·
Investment
commitment: NABEP
plans to invest around $100
billion to
increase Venezuelan oil production.
·
Revenue
for Venezuela: The
Venezuelan government estimates the deal could generate approximately $200 billion in additional tax revenue.
·
Production
challenge: NABEP
currently produces about 200,000
barrels per day (bpd).
Increasing production to more
than 1 million bpd could
take many years.
·
Current
production:
Venezuela produced around 1.12
million bpd in July, far
below the more
than 3 million bpd it
produced during periods in the 1970s and 1990s.
·
Why
production collapsed:
Venezuela's oil industry has been weakened by poor infrastructure, corruption,
political instability and U.S. sanctions, which restricted access to international
financing and markets.
·
Heavy
crude:
Venezuelan crude is thick
and highly viscous,
requiring specialised refining equipment. However, many U.S. refineries are
designed to process this type of heavy crude.
·
U.S.-Venezuela
oil relationship: The
U.S. was historically a major buyer of Venezuelan oil, but purchases fell
sharply after the Trump administration imposed tougher sanctions in 2019. Shipments resumed in 2023 but remain
well below historical levels.
·
China's
role: In
recent years, China
has been the main destination
for Venezuelan crude.
·
Private-sector
history:
Venezuela opened parts of its oil industry to foreign investment in the 1990s,
but Hugo Chávez subsequently increased state control. Several major oil
companies, including ConocoPhillips
and Exxon Mobil, left
after refusing to accept reduced ownership stakes.
·
Chevron
remains important: Chevron accounts for roughly one-quarter
of Venezuela's oil production
and is reportedly in advanced talks to expand operations.
The agreement is unlikely to have an immediate impact on
global oil prices, gasoline or diesel prices, because restoring Venezuela's ageing
infrastructure and raising production substantially will require years and major investment.
Key
takeaway: The
deal represents an unusually direct attempt by the Trump administration to
secure U.S. influence over Venezuela's enormous oil resources, but Venezuela's production constraints mean
the agreement is primarily a long-term supply strategy rather than an immediate
solution to oil-market pressures.
Venezuela
has possibly the largest oil reserves in the world — though it hasn’t produced much
in recent years. The Trump administration hopes to change that.
President
Trump announced on Friday that the United States had entered an agreement with Venezuela
and a private oil company to “secure majority control” of 65 billion barrels of
the country’s oil, or about a fifth of its reserves.
The
deal is highly unusual because the U.S. government generally leaves oil exploration
to private companies and does not take stakes in those businesses. It is also an
ambitious project that is likely to take years to bear fruit given Venezuela’s dilapidated
infrastructure, widespread corruption and unstable politics.
Here’s
what you need to know about Venezuelan oil.
Venezuela
has a lot of oil.
Venezuela
sits on more than 300 billion barrels of “proven oil reserves” — or oil that could
be extracted at a profit — according to Oil & Gas Journal, which compiles data
submitted by governments around the world.
By
comparison, the United States, the world’s top oil producer, had 81 billion barrels
of crude oil reserves last year, according to the journal.
Many
experts say the Venezuelan reserve figures are overly optimistic because they are
based on unrealistic assumptions about how much oil could be profitably recovered.
Still,
most people in the industry agree that Venezuela is sitting on a lot of oil.
The
Venezuelan government has owned the country’s oil reserves since the oil industry
was nationalized in the 1970s. But the state-owned company, Petróleos de Venezuela,
or PDVSA, has been unable to exploit those resources, said Miguel R. Tinker Salas,
a professor of Latin American history at Pomona College.
“You
had rampant corruption to the point where workers were taking equipment and selling
it on the surplus market because they weren’t getting paid,” he said. “And then
you had U.S. sanctions — and you can’t underestimate the role that U.S. actions
played, because Venezuela could not get any credit on the world market.”
In
the 1970s and ’90s, Venezuela was producing over three million barrels of oil a
day. In July, according to estimates by the International Energy Agency, it produced
1.12 million barrels a day.
America’s
relationship with Venezuelan oil has always been complicated.
The
United States used to buy most of Venezuela’s oil, but that stopped in 2019 after
the first Trump administration imposed more stringent sanctions on the country.
Shipments
to the United States resumed in 2023 and increased after U.S. forces captured Nicolás
Maduro, the country’s leader, in January. But volumes have remained low by historical
standards.
Most
of Venezuela’s crude in recent years has flowed to China.
Venezuelan
oil is different from what’s found in the United States — it’s thicker and more
viscous. This kind of “heavy” crude needs more energy and equipment to be refined,
but many U.S. refineries are designed to process it.
Venezuela
has seesawed between welcoming private oil companies and asserting state control
over the industry. In the 1990s, the country opened itself to foreign investment.
But
in 2007, Hugo Chávez, then the Venezuelan president, demanded that oil companies
reduce their stakes in the country’s projects, without compensation. Companies like
Chevron reached new agreements with the government, but others, like ConocoPhillips
and Exxon Mobil, rejected the deals and left Venezuela. They have spent years trying
to get the country to repay them for their seized assets, with little success.
The
companies that stayed have made a bet that doing business in Venezuela, while difficult
and costly, will eventually pay off.
Chevron
is now in advanced talks to expand its operations in Venezuela. The company accounts
for roughly a quarter of Venezuela’s production.
What
does the new Trump deal mean for Venezuela and oil prices?
Under
the deal announced by the Trump administration, the United States would have the
right to acquire a 35 percent equity stake in the country’s second-largest private
oil company, North American Blue Energy Partners.
And
the U.S. government will have the right to buy 20 percent of oil produced at facilities
operated by NABEP at the cost of producing that oil. The United States will also
have the right to buy the remaining 80 percent of the oil.
Venezuela’s
government has said the deal would increase tax revenue by around $200 billion.
NABEP said it planned to invest $100 billion to increase oil production.
But
many Venezuelans are skeptical and have expressed concerns
about the deal.
NABEP
currently produces around 200,000 barrels of oil a day. Boosting that to more than
one million per day could take many years. As a result, the deal is unlikely to
have any immediate impact on the price of oil or fuels like gasoline and diesel.