The US airstrikes in Caracas and the capture of Nicolas Maduro have caused confusion and uncertainty in Venezuela. US President Donald Trump has said the US will “run” Venezuela - a move that appears to be linked to how the US will approach oil - the South American country's main raw material resource.
“We are going to have our very large US oil companies, the largest in the world, come in, spend billions of dollars, fix the badly damaged infrastructure, the oil infrastructure, and start making money for the country”, Trump said.
How important is oil to Venezuela?
Venezuela's fragile economy is based on oil. For Maduro's government, the raw material is extremely important - the state treasury's revenue is almost entirely dependent on it. Crude oil and related products provide about 90% of export revenues. It is they that have helped the government in Caracas, internationally isolated and subject to strict sanctions, to stay in power despite the severe economic crisis in the country.
Venezuela has the largest proven oil reserves in the world - with more than 300 billion barrels, which is more than even the reserves of Saudi Arabia. However, Venezuela now accounts for less than 1% of global oil production. Crude oil production has fallen by more than 70% since the late 1990s and Venezuela now ranks 21st in the list of world producers.
The collapse can be traced back to the government of former President Hugo Chavez. His socialist revolution in the 1990s and 2000s led to widespread corruption at state-owned oil company PDVSA and a drain on foreign investment from the country due to government interference in the oil sector.
Several incidents at oil pipelines and refineries have caused further difficulties, and U.S. sanctions, tightened since 2017, have further limited Venezuela's production capacity.
In the meantime, PDVSA has stabilized oil production at around 1 million barrels per day - thanks in part to U.S. licenses that allow a limited number of foreign partners to operate in Venezuela and export oil.
How much have U.S. oil companies invested in Venezuela?
Throughout the 20th century, the United States was a key partner for the Venezuelan oil sector, with major U.S. oil companies investing significantly in the country. All but one left the country after the Chavez revolution - “Chevron“.
Although sanctions have affected its operations, in 2022 the Biden administration granted the American giant special licenses to resume exporting Venezuelan oil, but under strict conditions. The idea was that easing sanctions on Venezuela would reduce pressure on the oil market after Russia's invasion of Ukraine.
In October of this year, the Trump administration gave “Chevron“ a new permit to extract oil in Venezuela, arguing that the American company is a vital partner for Caracas. It is the most obvious and immediate beneficiary of Trump's actions - the company already employs about 3,000 people in Venezuela, but has not yet said whether it has plans to expand its operations. In a statement, the company said it would operate in "full compliance with all applicable laws and regulations."
If Trump says that major American oil companies will now return to Venezuela, it could mean new opportunities for other giants such as ExxonMobil and ConocoPhillips. The assets of the two American companies were seized by former Venezuelan President Hugo Chavez in 2007. The American companies subsequently won the cases in international arbitration and were awarded billions of dollars in compensation, which Venezuela has yet to pay. This is also the basis of Trump's claim about "stolen oil", which he keeps repeating.
“We built Venezuela's oil industry with American talent, energy and skills, and the socialist regime took it away from us during previous administrations, and by force. It was one of the greatest thefts of American property in the history of our country,“, says Trump.
Does the US really need Venezuelan oil?
The United States is already the world's largest oil producer, so it might not be obvious at first glance why Trump is so interested in Venezuelan oil. The problem, however, is the type of oil the United States produces. Its main product is light crude, not the heavier type that many of its refineries, especially those along the Gulf of Mexico, are equipped to process. Refineries turn crude into gasoline, diesel, and other products that are crucial to the economy.
Although the United States is a major crude producer, the country still imports heavy crude from countries like Canada and Mexico to supply refineries that process this type of oil. This means that much of the crude produced in the United States is actually exported.
„Retooling refineries to process only American light crude would cost billions. "It is a risky investment that would take decades to be approved, implemented and ultimately paid off," the Association of American Petroleum and Petroleum Products Producers (AFPM) said in this regard.
Although Venezuela's production has fallen dramatically, the country's vast reserves are a resource that American refineries need. In fact, for decades, heavy crude from Venezuela has powered refineries in the United States. Therefore, providing access to Venezuelan oil reserves opens up new prospects for American companies.
Can Trump fulfill his promise on oil?
Before Venezuelan oil can start flowing to the United States, however, a number of legal and logistical issues must be resolved. It is not entirely clear what kind of government will govern Venezuela in Maduro's absence, nor to what extent it will cooperate with the United States and its appetites for the country's oil sector.
There is also the question of the state of Venezuela's oil infrastructure. According to Dan Brouillette, a former energy secretary in the first Trump administration, there is no guarantee that this infrastructure will allow for the rapid development of Venezuela's vast oil reserves.
Although there are foreign oil companies remaining in the country, sanctions have prevented them from investing sufficiently in oil facilities, which means they have not been modernized for a long time. What investments for modernization will be needed may not become clear until the coming months.
Another key issue is global oil demand. Last year prices fell, and for 2026, expectations are for a further decline due to overproduction. So, if Trump’s intentions for Venezuela come true, it will lead to an even greater surplus in the already saturated world markets.
And what about China?
For the past two decades, China has been an important political and economic partner of Venezuela. In the oil sector, the Chinese company CNPC has a joint venture with PDVSA. Most of the oil produced in Venezuela is exported to China. Beijing strongly condemned the US ouster of Maduro as a violation of Venezuelan sovereignty. Despite the Americans’ absence, however, China has not significantly expanded its activities in the oil sector in Venezuela.
Author: Arthur Sullivan