Why Lifting Sanctions Alone Can't Restore Venezuela's Oil Sector

Venezuela’s Oil Industry: Can It Recover?

Following the most recent political upheaval in Venezuela, there has been renewed debate about whether the nation’s oil sector can bounce back. Although Venezuela officially possesses the world’s largest oil reserves, its current output is only a shadow of its former self.

The pace at which Venezuela might restore its oil production is closely tied to the fate of international sanctions. Yet, the industry’s troubles began long before sanctions were imposed, and lifting them alone won’t resolve years of decline—though it could provide a short-term boost.

Two Main Drivers of Decline

Venezuela’s oil sector has suffered from two major setbacks. The first is long-term structural damage that started years ago and will take significant time to fix. The second is the more recent impact of sanctions, which rapidly curtailed output. Recognizing the distinction between these factors is crucial for understanding the country’s prospects, especially since sanctions are likely to shape Venezuela’s oil outlook in the near future.

The Roots of Structural Decline

The downward spiral began with the 2007 expropriations, when the Venezuelan government forced foreign oil companies into minority roles and seized their assets after firms like ConocoPhillips and ExxonMobil refused new terms.

The Orinoco Belt, one of the world’s most technically challenging heavy oil regions, requires advanced technology, consistent supplies of diluent, and multi-billion-dollar facilities to process the crude. When international partners withdrew, they took with them crucial investment, expertise, and management systems.

Although Venezuela’s state oil company PDVSA inherited the assets, it lacked the necessary skills and resources. Maintenance standards dropped, equipment broke down, and experienced workers departed. Production was already falling well before sanctions were introduced, as shown in industry data.

The sharpest production drops after 2015 were due to PDVSA’s internal collapse, which was characterized by political interference, poor management, the loss of technical staff, and failing infrastructure.

Repairing this deep-seated damage is a long-term project. Even with political stability, restoring infrastructure and rebuilding a skilled workforce will take years.

The Impact of Sanctions

The second blow came in January 2019, when the U.S. imposed direct sanctions on PDVSA. Earlier measures had targeted individuals and had little effect on output, but the 2019 sanctions were far more disruptive.

These restrictions severed Venezuela from its largest oil buyer, limited payment channels, blocked imports of essential diluents, and complicated shipping and insurance. As a result, significant volumes of heavy oil were stranded almost immediately.

Without diluent, crude oil could not be transported. The loss of U.S. refiners meant Venezuela lost its primary market. Joint ventures struggled to function without reliable payment systems.

By the end of 2025, U.S. sanctions and shipping bans had crippled Venezuela’s oil exports. Reuters reported that tanker traffic nearly stopped after U.S. interventions, and Vortexa data showed a 36% drop in exports in December alone.

However, the effects of sanctions could be reversed more quickly than structural damage. Oil wells closed for commercial reasons could be restarted, joint ventures could resume, and diluent supplies could be restored. While this wouldn’t return Venezuela to its historical highs, it could result in a noticeable short-term increase in output.

Chevron’s Unique Position

If sanctions are relaxed, Chevron is in a strong position. Unlike other major U.S. oil companies, Chevron never fully withdrew from Venezuela. Thanks to exemptions, it maintained joint ventures, kept staff in-country, and preserved operational continuity.

This ongoing presence means Chevron doesn’t need to renegotiate terms or rebuild relationships. While it still requires a clearer commercial framework, Chevron could ramp up operations faster than any other Western firm because it never lost its foothold.

ConocoPhillips: A Different Challenge

ConocoPhillips faces a very different scenario. After being expropriated in 2007, it later secured an $8.7 billion arbitration award plus interest for its seized investments in the Orinoco Belt.

The ongoing sale of Citgo could provide a path to compensation. If ConocoPhillips is adequately compensated, it might consider returning, but it would have to rebuild its operations from scratch.

Moreover, ConocoPhillips has changed significantly since 2007. After spinning off Phillips 66 in 2012, it became a pure exploration and production company and shifted much of its heavy oil investment to Canada. As a result, it may have little interest in re-entering Venezuela.

The Decisive Role of Sanctions

The speed of Venezuela’s oil recovery depends on which aspect is considered. Structural problems will take many years to address, and lifting sanctions won’t fix them overnight. Even in the best-case scenario, returning to pre-2007 production levels could take a decade or longer.

However, if sanctions are eased, oil shut in for commercial or logistical reasons could return to the market much more quickly. This makes sanctions the key variable in the short term. While they won’t restore Venezuela’s output to three million barrels per day, they could enable a significant, if temporary, increase.

For a lasting recovery, Venezuela will need political stability, reliable contracts, and massive investment. But in the immediate future, the fate of the oil sector depends less on geology and more on whether the sanctions regime changes.

By Robert Rapier

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