The Trump administration has managed, in its proposed oil “accord” with Venezuela, to combine its love for state crony capitalism with a yearning for 19th-century imperialism. It is the capstone of U.S. President Donald Trump’s Weltanshauung.
The oil agreement announced over the weekend between the United States and Venezuela is, from Washington’s point of view, meant to be the payoff for the January military operation and change of leaders (if not regime change) in Caracas. Trump proposed at the time to take Venezuela’s oil, as he had previously rued the United States’ failure to take Iraq’s oil. This is his effort to do so. And it has confused people across many continents.
The Trump administration has managed, in its proposed oil “accord” with Venezuela, to combine its love for state crony capitalism with a yearning for 19th-century imperialism. It is the capstone of U.S. President Donald Trump’s Weltanshauung.
The oil agreement announced over the weekend between the United States and Venezuela is, from Washington’s point of view, meant to be the payoff for the January military operation and change of leaders (if not regime change) in Caracas. Trump proposed at the time to take Venezuela’s oil, as he had previously rued the United States’ failure to take Iraq’s oil. This is his effort to do so. And it has confused people across many continents.
As announced by the White House, the deal would give the United States “control” over some 65 billion barrels of Venezuela’s oil, with an eye to securing even more oil for feedstock for U.S. refineries, lowering U.S. fuel prices, and refilling the near-empty Strategic Petroleum Reserve that Trump and his predecessor drained.
The Trump administration chose as its vehicle for this maneuver the second-largest operator in Venezuela, a Barbados-based company known as North American Blue Energy Partners (NABEP). That company is run by Venezuelan businessman Alejandro Betancourt, a friend of the regimes in both Caracas and Washington who has faced investigations in Venezuela, Spain, and Switzerland on suspicion of corruption and money-laundering offenses. (NABEP’s legal counsel maintains that Betancourt “has never been charged with a crime in any jurisdiction.”)
Yet despite the Trump administration’s grand pronouncement that this agreement represents “the biggest oil deal in world history,” the reality is that it won’t begin to affect gasoline prices this year or next; will do nothing to assuage voter concern ahead of midterms; and is not a solution to the emptying salt caverns in Louisiana and Texas, where U.S. strategic oil reserves are kept.
It also won’t likely ever come close to fruition—since about 1976, no agreement with a foreign oil company has lasted a full term of a Venezuelan president, let alone that of the concession—and the dividends it pays, if any, will be exceedingly modest, risky, and costly.
The problems with this deal are many. One can start with the legality. The regime of interim Venezuelan President Delcy Rodríguez—the legatee of the country’s authoritarian former president, Nicolás Maduro—is, according to Trump, “highly respected.” What she is not is the legitimate head of a legitimate Venezuelan government. That raises questions about the longevity of any of these agreements, as a future Venezuelan government could, and probably will, abrogate many of the terms. That is exactly the sort of thing that chills long-term, multibillion-dollar investments.
“There is an original sin, which is believing in keeping Delcy Rodríguez, who you yourself undermined. You got yourself into a pickle,” said Pedro Burelli, referring to Trump. Burelli is a former board member of the Venezuelan state-owned oil company Petróleos de Venezuela (PDVSA) and a critic of both the current Venezuelan regime and the pending deal.
Then there are the technical issues of legality. While the Trump administration says that the deal’s oil concessions are for 100 years, that is an impossibility under Venezuelan law, which limits such concessions to 25 years. There is also the niggling point about the “ownership” of Venezuela’s underground mineral riches, which Trump claimed now belong to the United States. Even Rodríguez had to come out late Sunday and reiterate that Venezuela’s subsoil minerals belong irrevocably to Venezuela.
The concession for a big chunk of Venezuelan oil was also not put out to tender, as was the case in the past, even under former leaders Hugo Chávez and Maduro.
“What bothers me is, why don’t they do a competitive auction?” asked Francisco Rodriguez, an expert on Venezuela’s economy at the University of Denver’s School of International Studies.
Additionally, under Venezuelan law, state companies (meaning, in most cases, PDVSA) must have a controlling stake in any exploration and production projects. There is not a legal avenue for U.S. or other foreign oil-industry investment to bigfoot on production there.
“This looks like [Boris] Yeltsin-era oil politics. How can you go from a thug running [Venezuela] to being a controlling shareholder of what Trump says is the second-biggest state oil company in the world? That is how out of control this shit is,” Burelli said.
Beyond all that, there are the technical and operational challenges. The accord opens up 17 blocks to drilling by private companies in some fashion. The bigger half are in the tar-sands heavy Orinoco fields, and the rest are in the relatively accessible Maracaibo lighter oil fields. Both require lots of money. Some will require starting from scratch (called a “greenfield” project) and some, such as those in Maracaibo (referred to as a “brownfield”), will simply require a good capital injection. That matters both for the grade of oil that comes out of the ground as well as the amount of investment that needs to go into it.
Venezuela also likely does not have 65 billion barrels of easily recoverable oil that the United States can stake claim to. That number is predicated on a recovery rate—what you can physically suck out of an oil field—that is wildly optimistic. During the early years of the Venezuelan dictatorship, under Chávez, Venezuela mandated that recovery rates for its oil fields would be 20 percent of everything underground. In reality, those fields have a recovery rate of between 6 percent and 8 percent, so a more realistic reserve estimate is around 20 billion barrels.
Either way, getting out what oil there is will require cash. Delcy Rodríguez herself spoke of the need for at least $100 billion in investment, a number that the Trump administration has embraced, simply to get Venezuela’s oil production from 1.1 million barrels a day presently to 1.5 million barrels a day in the future. There was a time, after Maduro’s capture, when hopefuls spoke of $100 billion being needed to return Venezuela to 4 million barrels a day of output—the level that it was at before socialism and sanctions crippled the industry. Expectations have lowered and cost projections have risen since then.
“How do I see the deal as it is? The 100 years are off the table, owning the reserves are off the table, and this idea of ‘control’ is off the table. This is banana republic stuff,” said Luis Pachecho, a former Venezuelan oil executive who is now at Rice University’s Baker Center. “Marines don’t produce oil. It’s a political discourse.”
Since the U.S. intervention in January, Trump has tried to coax U.S. oil majors to once again invest big money into Venezuela, a place that tends every few years to expropriate assets, change the rules, or imprison executives. Most companies refused then and continue to refuse now—except for one big one (Chevron) and one small one, which is now getting a boost.
“Oil majors decided not to invest in those conditions, and Trump said, ‘Then I will. Or I’ll look for someone to do so who is a friend of ours,’” Pacheco said.
