Why Trump Fails to Grasp the Difficulties in Restoring Venezuela’s Oil Industry

U.S. Moves to Take Control of Venezuelan Oil Exports

Earlier this week, U.S. President Donald Trump revealed that Venezuela’s interim government plans to transfer up to 50 million barrels of oil to the United States. He later stated that his administration would oversee Venezuela’s oil sales for an indefinite period. Trump criticized the current state of Venezuela’s oil industry, highlighting its underperformance. “Their output is a fraction of what it could be,” he remarked, adding, “Major U.S. oil corporations will invest billions to overhaul and repair Venezuela’s deteriorating oil infrastructure.” The administration has indicated that profits from these oil sales will be held in U.S.-controlled accounts and released to Caracas at Washington’s discretion.

Trump’s strategy appears focused on maximizing Venezuelan oil shipments to the U.S., but the broader objective is to strengthen American influence in global energy markets, rather than simply appropriating Venezuela’s resources.

Venezuela’s Oil: Opportunity and Challenge

On the surface, Venezuelan oil presents an attractive deal, despite previous U.S. policies that sought to undermine the sector. Now, the approach has shifted. Venezuela’s crude is relatively inexpensive, partly because of its thick, heavy quality that demands extensive refining, and also because many American refineries are specifically designed to process this type of oil. With an estimated 300 billion barrels of proven reserves—about 15–18% of the world’s total—Venezuela holds the largest reserves globally. However, much of this oil is extra-heavy and costly to extract, and experts warn that only a fraction can be profitably produced without substantial investment and technological upgrades. While Venezuela once produced over 3.5 million barrels per day in the 1970s, current output is less than a third of that. Revitalizing the sector will require years of effort, significant capital, and robust legal guarantees.

Related: India Considers Venezuelan Oil Amid Rising Russian Uncertainty

Massive Investments Needed for Recovery

Venezuela’s easily accessible oil reserves are limited. According to Rystad Energy, a Norwegian consultancy, only 300,000 to 350,000 barrels per day can be quickly restored with minimal investment from the current 800,000 to 1 million barrels per day. Boosting production beyond 1.4 million barrels per day would require sustained, large-scale funding. Rystad estimates that maintaining output at 1.1 million barrels per day over the next 15 years would cost $53 billion, while increasing production to over 3 million barrels per day could demand as much as $183 billion—comparable to the annual capital expenditure for all North American land-based oil projects.

Infrastructure in Crisis

Satellite intelligence firm Kayrros describes Venezuela’s energy infrastructure as being in a state of collapse after decades of neglect, underinvestment, and equipment cannibalization. Many storage tanks at the Bajo Grande and Puerto Miranda terminals are unusable due to corrosion and poor maintenance. Kayrros estimates that about one-third of Venezuela’s storage capacity is offline, reflecting both inoperative tanks and declining refinery and production rates. The major Amuay and Cardón refineries are operating at less than 20% of their capacity, effectively serving as storage facilities rather than active refineries.

Venezuela’s pipeline system is similarly neglected. A leaked 2021 PDVSA document revealed that the country’s pipelines have not been upgraded in half a century, with the national oil company estimating it would cost $58 billion to restore them. More recent assessments put the figure at over $100 billion. Venezuela’s operational pipeline network spans 2,139 miles (about 3,442 kilometers), whereas the UAE, which produces around 3.2 million barrels per day, has approximately 9,000 kilometers of pipelines.

Nationalization and Its Aftermath

The decline of Venezuela’s oil industry accelerated after the government under Hugo Chávez nationalized the assets and infrastructure of ExxonMobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) in 2007. This move followed the companies’ refusal to accept new terms granting PDVSA, the state oil company, a majority stake in their projects. The nationalization, enacted through a presidential decree and a revised Hydrocarbons Law, saw PDVSA take control of the Orinoco Belt projects on May 1, 2007. Chávez’s “21st-century socialism” aimed to reclaim control over oil wealth and redirect profits to social programs, requiring foreign firms to cede at least 60% ownership in heavy oil ventures to PDVSA.

Most international oil companies, such as Chevron (NYSE:CVX), BP Plc (NYSE:BP), TotalEnergies (NYSE:TTE), and Equinor, agreed to the new terms and stayed on as minority partners. However, ExxonMobil and ConocoPhillips rejected the arrangement, viewing it as unlawful expropriation without fair compensation, and withdrew from Venezuela by late 2007.

Their exit triggered lengthy legal disputes in international arbitration courts. Both companies were awarded billions in compensation for their seized assets, but Venezuela has only paid a fraction of what is owed, hindered by economic crisis and U.S. sanctions. The loss of investment, expertise, and operational capacity from these expropriations has contributed to a steep and ongoing decline in Venezuela’s oil output.

By Alex Kimani for Oilprice.com

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