Despite President Trump’s push to unlock Venezuela’s vast oil reserves, major US energy companies are likely to approach the country with caution, weighing the substantial costs and political uncertainties against the potential rewards.
The theory behind the plan seems straightforward – Venezuela boasts enormous oil reserves and used to produce over three times its current output. However, the reality on the ground is far more complex. While Chevron, which already has joint ventures in Venezuela, could potentially ramp up production if sanctions and restrictions are lifted, other oil majors face a more complicated risk-reward calculation.
Analysts estimate that it would take around £115 billion to repair the country’s dilapidated oil infrastructure and double production to 2 million barrels per day by the early 2030s. This is a daunting prospect, even for the deep-pocketed giants like ExxonMobil and ConocoPhillips, especially if Trump simultaneously pushes for lower oil prices, capping long-term rewards.
Boardrooms will also want clarity on the precise terms of US involvement in Venezuela, including the fiscal regime for oil operations and the longevity of any commitments. Given Venezuela’s history of nationalising oil companies, not once but twice, the major players are likely to approach the country with extreme caution.
“Even if the political environment backdrop was more predictable, in a world already awash with oil, the business case for significantly ramping up drilling in Venezuela is far from strong – particularly given the estimated high cost of extracting Venezuela’s ‘heavy’ oil reserves,” said David Oxley, the chief climate and commodities economist at the think tank Capital Economics.
While a short-term rebound in Venezuelan oil output is plausible, the multi-decade project to unlock the “tremendous amount of wealth,” as Trump put it, faces significant headwinds. Most oil majors are more focused on share buybacks and spending cuts rather than high-risk, capital-intensive ventures.
The geopolitical significance of the US effectively controlling or heavily influencing Venezuela’s oil industry and reserves cannot be denied. Redirecting Venezuela’s exports to US refineries would shift the global market dynamics, with China, the current largest buyer of Venezuelan oil, losing out. However, for now, the oil majors are likely to adopt a wait-and-see approach, until the political and economic landscape becomes clearer.