The battle over Venezuela's oil is more complicated than Trump makes it sound
Rights — di Luigi Mastrodonato
Donald Trump has launched a major investment plan to seize Venezuela's oil. But industry companies are not convinced
The battle over Venezuela's oil is more complicated than Trump makes it sound
Donald Trump has launched a major investment plan to seize Venezuela's oil. But industry companies are not convinced
The battle over oil in Venezuela is more complicated than one might have imagined. In early January, the United States launched a military strike on the country and captured President Nicolás Maduro, who was replaced by his deputy Delcy Rodríguez. Donald Trump immediately announced that the United States would take control of Venezuela's extraordinarily rich oil reserves, and also convened the leading international companies to draw up an exploitation plan. But the situation is more complex than it appears.
Decades of nationalisation, diaspora and sanctions in Venezuela have severely weakened the oil sector, and getting the machinery back up to full capacity requires substantial investment and a great deal of time. This, combined with the country's political instability, may discourage oil companies from committing to the Venezuelan venture. Added to this is the energy transition, with forecasts pointing to a decline in oil demand after the global peak expected around 2030.
The US blitz in Venezuela
On 3 January, the United States carried out a military strike in Venezuela that ended with the capture of President Nicolás Maduro. The capital Caracas was hit by a series of air raids, carried out in parallel with a ground operation by US special forces, and during the operation at least a hundred people were killed. Maduro was deported to the United States along with his wife, where both will stand trial on charges of links to drug trafficking.
This is the deepest open-source investigative dive I've seen so far on the U.S. commando raid in Venezuela, presenting a new and most likely capture location for Maduro: 10.4436, -66.9184.
The US operation had been in the air for quite some time. For months the Trump administration had been accusing Maduro, without providing credible evidence, of interfering in US politics and of being part of a drug cartel whose very existence is unclear. From the summer onwards, the United States began bombing Venezuelan vessels accused of transporting narcotics, with a toll of 22 ships struck and 87 deaths, in attacks described as particularly brutal. At a certain point Washington mobilised naval vessels and other Navy assets, dispatching them off the Venezuelan coast. Then, in December, it seized several oil tankers accused of carrying Venezuelan oil abroad in circumvention of international sanctions. First came the Skipper, a vessel with a gross tonnage of 320,000 tonnes, then five more tankers were seized. Finally, the Washington administration imposed sanctions on further tankers and on some of those close to the Maduro regime.
The race for oil
With the capture of Nicolás Maduro, power passed into the hands of his deputy Delcy Rodríguez. Who showed from the outset a clear willingness to engage in dialogue with the United States. And gave a positive response on one of the country's most pressing issues: that of political prisoners. In a move presented as a "unilateral gesture of peace", parliamentary speaker Jorge Rodríguez announced the release of hundreds of people held for political reasons. Among them were the Italians Alberto Trentini, Mario Burlò, Luigi Gasperin and Biagio Pilieri.
While the dialogue between President Trump and President Rodríguez on Venezuela's future political scenarios is progressing in a surprisingly positive manner, the real contest concerning the country today is that of oil. The country holds the world's largest oil reserves, more than 300 billion barrels, corresponding to roughly one fifth of global production. In the 1990s the Venezuelan oil industry was living through its golden age, producing 3.5 million barrels of crude per day. Then things changed, and amid scant investment, increasingly obsolete infrastructure, a shortage of skilled workers due to the country's significant emigration, and an ever more suffocating economic crisis also driven by heavy international sanctions, oil production collapsed.
In recent times Venezuela has dropped below one thousand barrels of oil produced per day, less than 1 per cent of global output. Immediately after the capture of Maduro, US President Donald Trump announced that Washington would take over Venezuelan oil sites to dramatically increase production and drive down the US oil price to 50 dollars a barrel. He also announced the imminent arrival in the United States of something in the order of 30–50 million barrels. But his plan is proving more difficult than anticipated.
A call for investment
Venezuelan oil is unlike any other. It is particularly dense and viscous, owing to the fact that it is composed of heavier, structurally more complex molecules. It is also rich in sulphur. These two characteristics complicate its processing: on the one hand, additional steps are required to dilute it compared with a lighter crude such as that found in the American subsoil; on the other, sulphur removal processes are needed that are both particularly costly and harmful to the environment.
In general, then, producing fuel and feedstock for the chemical industry from Venezuelan oil requires specialised infrastructure, longer lead times and higher costs. In reality, the United States is equipped to handle this type of crude, since in the last century, when business with Venezuela was thriving, several refineries were built specifically for processing heavy oil. This, however, does not solve the problems of extracting oil from Venezuela's subsoil, which stem from the infrastructure and labour shortfalls.
WATCH: US President Trump called on leading oil companies to invest $100 billion in Venezuela, aiming to rebuild its oil industry after the ouster of President Nicolas Maduro reut.rs/4bseSm7
The global consultancy firm Rystad Energy has estimated that the total spending needed to bring Venezuela's production back up to 2 million barrels per day could reach 183 billion dollars and could take until 2040. Part of that would need to come from the Venezuelan state, but the rest requires investment from international private companies. And that is where further problems are emerging.
An obstacle course
On 9 January, President Donald Trump met at the White House with executives from around twenty of these companies to encourage them to invest in the country. Among those present was Chevron, the only American company in the sector to have continued operating in Venezuela in recent years, as well as Italy's Eni. What emerged was a general sense of uncertainty and reluctance to invest in the country, driven both by the country's chronic political instability and by the low profitability of such investments at a time when the cost of oil is very low.
Donald Trump wants Venezuela's oil. But getting it out of the ground could take years and at least $100bn in investment, as The Economist's commodities editor, @MatthieuFavas, explains. Find out why oil companies will be wary of getting involved in the president's plan:
On top of this comes the question of the energy transition. The International Energy Agency (IEA) projects that global oil demand could peak around 2030 and then begin to decline under the pressure of climate mobilisation and the uptake of electric vehicles and other sustainable practices, above all driven by China and India. Given that investment in Venezuelan oil is a venture with long-term profit horizons, the risk for companies in the sector is far from negligible. And even if the plan were to succeed, the fall in oil prices resulting from a massive surge in Venezuelan production would end up hitting the very American drillers who, according to estimates, would need per-barrel prices well above the 50 dollars envisaged by Trump in order to achieve a profitable return on their investments. He wants to bring down costs for consumers and give a boost to American industry through falling fuel costs. But he must contend with the profound transformations, and the instability, of the global landscape in the near future.