The U.S. government intends to maintain control over Venezuelan oil sales for the foreseeable future, a move signaling a continued hard line against the Maduro regime.
“We need to have that leverage and that control over oil sales to drive the changes that simply need to happen in Venezuela,” Energy Secretary Chris Wright said Wednesday.
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The announcement followed a dramatic turn of events over the weekend, with U.S. forces detaining Venezuelan leader Nicolas Maduro on Saturday. Subsequently, the Trump administration unveiled a deal allowing Venezuela to sell 30 to 50 million barrels of sanctioned oil to the United States.
This action is coupled with demands for Venezuelan officials to grant access to U.S. oil companies, or face the prospect of further military intervention.
Executives from major oil corporations, including ExxonMobil, ConocoPhillips, and Chevron, are scheduled to meet with the president on Friday to discuss potential investments in Venezuela.
Can the United States Sustain Control of Venezuelan Oil Sales?
The U.S. federal government possesses the capacity to exert control, issue demands, and redirect oil resources as it sees fit. “The U.S. federal government can absolutely step in, make demands, capture what they want and redirect those barrels accordingly. I don’t know of anything that would significantly interfere with the federal government if that’s what they’ve decided to do,” stated Jeff Krimmel, founder of Krimmel Strategy Group, an energy consulting firm based in Houston, Texas.
Quick fact: Venezuela holds the world’s largest proven oil reserves, yet currently accounts for only 1% of global oil production.
However, geopolitical realities present obstacles. The United States wields less global influence than it did two decades ago, during the 2003 invasion of Iraq. Today, emerging superpowers could impede the process in ways that were not possible then.
“When we went to Iraq, we were living in a unipolar moment as the world’s only great power. That era is over. China is now a great power, and most experts consider it an equal competitor. That means it has ways to damage the U.S. economy and push back militarily, including through proxy conflicts, if it chooses to oppose such actions,” explained Anthony Orlando, a professor of finance and law at California State Polytechnic University in Pomona.
China currently imports approximately 4% of its oil from Venezuela, making it the largest buyer of Venezuelan crude.
“The question is whether they want to draw a line with the United States and say, ‘You can’t do that, because if we allow it, you’re going to keep pushing further,’” Orlando said.
“If you’re a minor power like Venezuela, and not China or Russia, you’re a country vulnerable to U.S. intervention. That creates an incentive to align more closely with China or Russia to prevent that from happening, and that’s not a good outcome for the United States,” Orlando continued.
In the immediate aftermath of Maduro’s detention, members of the Trump administration also revisited discussions about asserting control over Greenland.
Echoes of Iraq?
The U.S. intervention in Venezuela has drawn comparisons to its involvement in Iraq, which began under the Bush administration in 2003. At that time, Iraq possessed the world’s second-largest oil reserves, totaling 112 billion barrels.
However, Iraqi oil production was initially limited, at 1.5 million barrels per day (bpd) before the invasion, increasing to 4.5 million bpd by 2018.
While the Iraqi government retained ownership of its oil resources, U.S. companies, including ExxonMobil and BP, were frequently awarded no-bid contracts for operations, with the majority of sales directed to Asian and European markets.
In 2021, then-Iraqi President Barham Salih alleged that approximately $150 billion had been illicitly removed from Iraq through corrupt dealings following the 2003 U.S.-led invasion.
Unlike the Bush administration’s initial framing of the Iraq intervention, the Trump administration has been explicit about the role of oil in its actions regarding Venezuela.
“The difference between Iraq and this is this [Bush] It didn’t hold any oil. We’re going to keep the oil,” Trump said in a conversation with MS Now host Joe Scarborough.
In contrast, in 2002, prior to the American invasion of Iraq, then-Defense Secretary Donald Rumsfeld asserted that the operation for post-war reconstruction “had literally nothing to do with oil.”
“When the Bush administration went into Iraq, they said it wasn’t about that, even though there was concrete evidence that it was a factor. This time it’s more explicit, so it’s clear that it will impact oil markets.” [But] one lesson of the war in Iraq is that it is easier said than done,” Orlando, the professor, added.
What’s in it for Oil Companies?
Analysts suggest that investments in Venezuela may not necessarily yield substantial benefits for oil companies, citing growing economic uncertainty, the need for extensive infrastructure upgrades, and the fact that major companies like ExxonMobil and Chevron already have established capital expenditure plans for the coming decade.
“O [the companies] they will have to take on more debt or issue more equity to raise the necessary capital, or they will have to divert capital expenditures from other regions to Venezuela. In both scenarios, I expect a substantial reaction from shareholders,” Krimmel, the energy consultant, explained.
Boosting production will also necessitate significant infrastructure improvements. Venezuelan oil is dense, making extraction more challenging and costly compared to oil from Iraq or the United States.
Venezuelan oil is frequently blended with lighter grades from the United States, similar in density to Canadian oil, which, despite existing tensions between Ottawa and Washington, originates from a U.S. ally with more advanced extraction infrastructure.
“I don’t think Canada is going to be very happy about any of this,” Orlando said.
Chevron, currently the sole American company operating in Venezuela, is reportedly seeking permission from Washington to broaden its operating license within the country, following restrictions imposed last year, according to Reuters on Thursday, citing anonymous sources.
The United States’ role in the energy sector, particularly oil and gas, has expanded in recent years due to the advent of fracking technology, establishing the U.S. as the world’s largest oil producer. However, recent reductions in alternative energy funding and increasing energy demands from the artificial intelligence industry have prompted Republicans to intensify efforts to expand the oil and gas sector.
“There is a surplus supply of oil. Even if we were in a supply deficit right now, military action in Venezuela would not quickly unlock new barrels. So even if we were trying to solve a short-term supply deficit, which, to be clear, we don’t have, Venezuela would not be an answer because it would take too long and it would be too expensive to increase production,” Krimmel added.
Despite holding the world’s largest oil reserves, Venezuela currently accounts for only 1% of global oil production.
Chevron remains the only American company currently operating in Venezuela. ExxonMobil and ConocoPhillips previously operated in Venezuela before Hugo Chavez nationalized the oil sector in 2007, leading to declining production due to years of underinvestment and poorly maintained facilities. In the 1990s, Venezuela produced around 3.5 million barrels per day, a figure that has since decreased to an average of 1.1 million barrels per day last year due to limited investment.
“Venezuela’s infrastructure has deteriorated under both the Chavez and Maduro regimes. While they extract oil, returning to production levels of 10 or 20 years ago would require significant investment,” Orlando said.
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