President Trump announced a deal for the US to take control of 65 billion barrels of Venezuelan oil reserves, which Venezuela's interim President Delcy Rodriguez stated would involve developing 17 fields and over $100 billion in investment, potentially generating $200 billion in tax revenue for Venezuela. Despite this, experts widely doubt the deal's viability due to numerous challenges. Venezuela's oil is largely heavy, tar-like crude in undeveloped areas like the Orinoco Oil Belt, requiring substantial capital for extraction, pipelines, and processing to make it less viscous. Energy consultancy Wood Mackenzie estimates a breakeven price of $80 per barrel for new fields, making it unattractive at current market prices.
The logistical and infrastructure issues are significant. Venezuela's oil production is currently around 1 million to 1.2 million barrels per day, down from a peak of 3.5 million bpd in the late 1990s. Reaching peak production levels could require $180 billion in investment by 2040, according to Rystad Energy. Current infrastructure is in disrepair, with export terminals facing issues like 30-day waiting periods for tankers due to aging facilities and power outages. Furthermore, the US Strategic Petroleum Reserve cannot store Venezuela's heavy crude in its current facilities, contrary to Trump's suggestions that it could be used to replenish the reserve.
Legal and political uncertainties plague the deal. Venezuela has a history of nationalizing oil assets, raising concerns about long-term stability for investors. The proposed structure, involving the Pentagon taking a 35% stake in a company run by Venezuelan businessman Alejandro Betancourt and securing rights for 20% of production at cost using "penny warrants," is legally questionable and controversial. Analysts also highlight the political risk, noting that a change in US administration could lead to the deal's reevaluation or termination, and a future Venezuelan government might similarly tear up the agreement. Chevron is currently the only major US oil company active in Venezuela, with plans to increase production significantly, but others like ExxonMobil remain hesitant, deeming the country "uninvestable."
Financial analysts anticipate little immediate impact on crude oil prices or US gasoline prices, emphasizing that any substantial production gains from Venezuela would take years to materialize. The Orinoco Belt fields, in particular, lack existing infrastructure and could take five to seven years to deliver increased production. Bob McNally, president of Rapidan Energy, noted that while Venezuelan oil could provide much-needed long-term supplies, it would not be a major factor for pump prices in the near term. The deal is seen by some as potentially "colonial cronyism" due to its structure and the historical context of Venezuelan oil deals.
