The President of the United States, Donald Trump, has just announced, in his words, “the largest oil deal in history” between his country and Venezuela. But what exactly does it consist of? Who benefits from this pact?
The facts
First, the numbers. The agreement establishes U.S. control over more than 65 billion barrels of Venezuelan oil reserves, through a partnership between the Caracas government and U.S. private companies.
There are 17 oil wells. More than 20% of Venezuela’s total reserves. The owners of the project are the U.S. Government and private operators, with the U.S. side holding 55%. The concession duration is said to be 100 years, although this is not yet confirmed.
The declared objective is to relaunch an already very deteriorated oil industry, increase production, and bring more crude oil to U.S. refineries, thus helping to reduce gasoline prices in the United States.
The plan — at least as presented — should mobilize nearly $100 billion in private investments to rebuild and modernize the Venezuelan oil sector.
According to sources from the Trump administration, the operation will not incur costs for U.S. taxpayers and will generate thousands of jobs in Venezuela, while in the U.S. this oil would be sold practically at cost price. A move with clear political significance, as North American consumers have been facing a surge in fuel prices at the pump for weeks, due to tensions in the energy market caused by the war with Iran. Globally, fuel prices in the U.S. have experienced a sustained increase of approximately 37% to 40% since the outbreak of the conflict.
For Venezuela, it would be an opportunity to relaunch its industry, create jobs, and collect more than $200 billion in taxes.
The U.S. oil power
It is important to understand what this operation means for the United States. Currently, the country is already the world’s largest oil producer, with nearly 13 million barrels per day, partly thanks to fracking. After gaining control over Venezuela’s oil resources, its power expands even further.
The consortium that will manage the South American country’s reserves will be the entity controlling the second largest holding of oil reserves in the world, after Saudi Aramco.
Moreover, the United States currently has around 46 billion barrels of proven crude oil reserves. Added to the 65 billion barrels covered by this agreement, the U.S. would control approximately 111 billion barrels of oil. This would mean holding about 7.1% of all proven oil reserves worldwide. In this way, the United States would be practically aligned with the United Arab Emirates, which has 113 billion barrels of proven crude oil reserves, and would surpass Kuwait.
The final icing on the cake is that, under this new political and institutional framework, Venezuela could even cease to be part of the OPEC cartel, leave the alliance, and detach itself from the quota regime. With this operation, the United States would realize the old Monroe expansionist doctrine, assuming energy leadership of the American continent, from Alaska to the Caribbean.
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Is all that glitters gold?
After years of Chavismo and economic collapse, the Venezuelan oil industry is very deteriorated. Colossal investments are needed. Is it worth it?
In July, the country barely produced 1.16 million barrels per day. Another unknown is that Venezuelan crude is “dirty” with impurities, making its extraction costly. The 65 billion barrels announced this weekend represent only a part of Venezuela’s immense reserves: the country has a total of around 303 billion barrels, the largest oil reserves in the world, especially in the Orinoco belt. But as geologists repeat, having proven reserves does not mean they are commercially exploitable reserves.
“Above all, a credible roadmap toward lasting political stability is needed to convince major oil companies to invest tens of billions, particularly to build costly upgrading units necessary to process Venezuelan ultra-heavy crude,” said Clay Seigle, a non-resident senior fellow at the Center for Strategic and International Studies to Bloomberg. Chevron and Exxon are the two U.S. energy giants expected to open their wallets.
Legal doubts
Here we enter the slipperiest terrain. Venezuela’s Constitution is clear. Article 12 states that “hydrocarbon deposits are public domain assets, inalienable and imprescriptible; they belong to the Republic and cannot be ceded or transferred in ownership,” while Article 13 “prohibits ceding, transferring, or leasing national territory to foreign powers.”
The legal loophole is narrow. According to a reform of the National Hydrocarbons Law (approved this year), “primary activities may be carried out through: (1) state companies, (2) mixed companies with state majority (>50%), or (3) private companies domiciled in Venezuela operating under contract with a state company or its subsidiary.” In this case, leasing of oil areas in the sense of transferring ownership of the resource is not contemplated; what is negotiated is operational access and participation in production, not ownership of the crude underground. But the line, as seen, is very thin.
Political doubts
Finally, the current institutional situation in Venezuela must be kept in mind, which is in limbo after the removal (for some, kidnapping) of dictator Nicolás Maduro following the U.S. blitz. Delcy Rodríguez now represents the country. But is she legitimized to negotiate on behalf of her country?
Opposition voices believe not and argue that there have still been no elections in the South American country to confirm the new regime.
Venezuelan economist Ricardo Hausmann, from Harvard University, summed it up this way: “The U.S. chose to push for an asset seizure, an unconstitutional agreement with an illegitimate and oppressive government, instead of using U.S. leadership to first restore constitutional rule of law and democracy, and then deal with a legitimate government that could make credible long-term commitments, in due course. This announced agreement will not hold.”
The dark intermediary
To add more controversy, we must talk about a controversial figure who, as has been learned, is one of the intermediaries of the operation and is Venezuelan financier Alejandro Betancourt. He leads the country’s main private oil operator after the exit of sanctioned U.S. competitors and partners.
He has been at the center of several international investigations for alleged financial crimes, although he faces no conviction or formal charges in the United States. In Spain, the National Court (under Judge Santiago Pedraz) is investigating him along with other businessmen for alleged money laundering and tax crimes after receiving information from the Zurich Prosecutor’s Office. Betancourt was even temporarily detained in the United Kingdom at the request of Switzerland and Spain, but the precautionary measures were later lifted. And now, he is one of the protagonists.
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