Venezuela has the world’s largest proven oil reserves. Its size holds great promise, but its oil production has dramatically tanked over the past decade. Under the leadership of Nicolas Maduro, the country has experienced significant economic decline, government repression, and a massive migratory exodus. This rapid decline, exacerbated by corruption and US sanctions, raises questions about the future of Venezuela’s oil industry and its ability to rebound.
Currently, Venezuela’s oil production has dropped to under one million barrels per day (bpd), substantially lower than its previous output. The United States has criticized the Venezuelan government’s supposed complicity in the drug trafficking that inundates its borders. Fentanyl, specifically, has gotten a lot of recent attention as a scary boogyman. Yet according to available data, the majority of cocaine entering the US is from Pacific routes—not Caribbean ones.
The Impact of Sanctions and Economic Mismanagement
The US imposed economic sanctions on Venezuela largely based on accusations of drug trafficking and human rights abuses. These sanctions are designed to isolate the country and have severely crippled the country’s oil industry. It previously flourished with foreign capital and know-how, particularly from American firms. As time passed, most of these companies left Venezuela after suffering expropriations from the government as well as increasing regulation.
Paul Hasselbrink, a senior energy analyst at GlobalData, highlighted the extent of the decline:
“Venezuela currently only produces about a third of what they had ten years ago, before the collapse of oil prices.”
That challenge is complicated further by the heavy and deeper underground oil that defines Venezuela’s reserves. This heavier type of oil is considerably more difficult to extract and transport than the lighter crude located in other states. Therefore, even if political conditions were to somehow improve, recreating the oil industry would take massive investment and years of work. Indeed, estimates suggest that it will take over $100 billion to restore Venezuela’s oil production capabilities. This goal might take a few years to reach.
Political Turmoil and International Relations
Nicolas Maduro’s presidency is under siege from such dictatorship charges, and with good reason. This campaign has strained relations with most countries, particularly with the United States. Now, the US government is significantly tightening the screws on Venezuela’s oil industry. It is examining the country’s reported complicity in drug trafficking. Senator Marco Rubio stated:
“We don’t need Venezuela’s oil. We have plenty of oil in the United States. What we’re not going to allow is for the oil industry in Venezuela to be controlled by adversaries of the United States… This is the Western hemisphere, this is where we live.”
This representation is illustrative of a deeply ingrained US official attitude. That’s because they don’t just view Venezuela in strictly economic terms. They understand that it is the most important geopolitical issue. For months, observers have speculated about the prospect of direct military intervention. Even the most extravagant oppositional imaginations would consider something as extreme as a US-led bombing campaign on South America’s third-largest city improbable.
Former President Donald Trump expressed skepticism about the potential for Maduro’s political successor to garner respect:
“I think it would be very tough for her to be the leader… She’s a very nice woman, but she doesn’t have the respect.”
Limited Pathways for Recovery
Even with these formidable obstacles looming over the sector, some specialists argue that there are few glimmers of hope for reproduction in the Venezuelan oil industry. The only realistic avenue through which production boosts seem possible is through Chevron’s special license to operate in the country. Hasselbrink further explained that this exception was mostly utilized as a bargaining chip in order to ensure transparency for a majority of Venezuela’s oil exports.
The only reasonable path through which U.S.-Venezuelan production can ramp up is through Chevron’s current permit in Venezuela, he explained. “That was used mostly as leverage and as a way to provide transparency to some of the oil exports that were coming out of Venezuela.”
Without major political reform and international commitment to self-determination, recovery looks less likely. For companies that used to invest heavily in Venezuela’s oil sector, it’s time to reconsider how much you want to invest today. This world is characterized by disruption and drastic change.