analysis
US oil industry
What does Trump plan to do with Venezuela’s oil?
The USA has clear economic interests in Venezuela. Trump speaks of “stolen oil” that US companies should now take back. But they are still hesitant – for good reason.
It’s about oil – that has been clear at least since Donald Trump’s press conference after the US attack on Venezuela. The US president barely mentioned the “war on drugs,” which had been his main justification for the military offensive for months.
Instead, he talked about oil more than a dozen times – even when he hadn’t been asked about it. For example, Venezuela’s oil reserves are intended to finance the US military if the United States invades the country. It wouldn’t cost the US “a penny” to occupy Venezuela, Trump said happily. “The money comes from the ground.”
Large oil reserves, low oil production
In fact, Venezuela has the largest oil reserves in the world: around 303 billion barrels – about 17 percent of global reserves. These oil reserves are mainly concentrated in the Orinoco Belt, a vast region in the east of the country that covers around 55,000 square kilometers.
However, this potential is hardly used. The background is mismanagement, lack of investment and sanctions. Last year, Venezuela only produced around 1.1 million barrels per day. This corresponds to just one percent of global oil production – and is less than a third of the production volume in the 1970s.
Expropriation of the US oil industry under Chávez
Donald Trump wants that to change now. The president wants to bring the US oil industry back to Venezuela to recover the oil treasures there. US companies have been drilling for oil in the South American country since the beginning of the 20th century.
But in 2007 they were effectively expropriated under Venezuela’s then-President Hugo Chávez. Only the Chevron company remained in the country and continues to operate there with a special license.
In contrast, ConocoPhillips as well as Exxon and Mobil – which later merged to form ExxonMobil – completely gave up their Venezuela business and initiated compensation proceedings before international arbitration courts. In the end, they were awarded a total of over eleven billion dollars – but Venezuela paid next to nothing.
Trump wants to bring back “stolen oil”.
Trump speaks of “one of the largest thefts of American property in the history of our country.” This – according to Trump – “stolen oil” should now be brought back.
However, experts emphasize that there is no legal right to the natural reserves. US companies only had exploration concessions, which granted them temporary rights of use but not permanent ownership.
According to the principle of permanent sovereignty over natural resources, enshrined by the United Nations in 1962, sovereign states have the inherent right to control and dispose of the resources within their territory.
Chevron in good condition Starting position
Chevron would probably benefit the most from opening up Venezuela to US oil companies. Even during the US sanctions, the company never completely stopped its activities in the country.
Chevron currently has around 3,000 employees in Venezuela and controls over 25 percent of oil production. The Venezuelan oil company PDVSA controls around 50 percent, another ten percent are in joint ventures under Chinese leadership, around ten percent under Russian leadership and five percent under European leadership.
Petróleos de Venezuela, SA (PdVSA) is the state-owned oil and gas company of Venezuela, founded in 1976 as part of the nationalization of the oil industry. It is responsible for the exploration, production, refining and export of crude oil and natural gas. It controls large parts of the world’s largest known oil reserves and has traditionally been the Venezuelan state’s most important source of income.
Stock market reactions US oil stocks
The improved prospects for US oil companies are clearly reflected on the stock market: At the beginning of the week, Chevron shares shot up 5.1 percent, while shares from ExxonMobil and ConocoPhillips rose by over two percent.
The shares of suppliers SLB and Halliburton, whose technology would be crucial for rebuilding production, also rose. They had already risen significantly in the run-up to the US attack on Venezuela.
No price rally expected on the oil market
Oil prices also rose at the beginning of the week – but experts reacted calmly: “We believe that these events represent only minimal short-term supply risks and therefore offer little chance of a significant increase in oil prices,” says analyst Norbert Rücker from the Swiss bank Julius Baer.
In the medium to long term, oil prices could even fall. “A higher oil production expected in Venezuela in the medium term is likely to have a dampening effect on the oil price,” emphasizes market expert Robert Rethfeld from Wellenreiter-Invest.
Negative side effects for US fracking industry
And that, in turn, would not be in the interests of the US oil industry at all: “Interestingly, such supply growth would primarily make parts of US shale oil production superfluous in an environment in which oil demand is probably at its peak,” explains Norbert Rücker.
In addition, Venezuelan oil is “heavy oil”. It is viscous, difficult to process – and significantly cheaper on the world market than “light oil” from the Middle East or the North Sea.
Against this background, it is unclear whether and to what extent US corporations will actually invest in Venezuela. ExxonMobil and Chevron are still hesitant. Industry representatives have recently repeatedly expressed concerns about rebuilding the ailing oil infrastructure in a country where future leadership is completely uncertain.
Iraq as a warning example
Especially since history shows that such a commitment would not necessarily benefit US companies. “The US did not benefit from oil during the regime changes in Iraq and Libya,” emphasizes energy expert Ed Hirs from the University of Houston. I fear history will repeat itself in Venezuela.”
It therefore remains to be seen whether Trump’s hopes will be fulfilled and a return to Venezuela will actually become big business for the US oil industry.
