Outline:
On Saturday, President Donald Trump stated that the United States would assume control over Venezuela’s significant oil reserves and encourage American businesses to invest substantial amounts of money to restore the nation’s severely damaged oil sector.
Venezuela holds a significant 303 billion barrels of oil — approximately one-fifth of the world’s total reserves, as reported by theUS Energy Information Administration(EIA). That supply of oil will be crucial to the nation’s future.
Oil contracts are not traded over the weekend, making it somewhat uncertain how oil prices will be affected in the short term. However, Trump stated that the U.S. would temporarily manage the Venezuelan government.
“The largest oil companies in the United States, which are the biggest in the world, will enter the scene, invest billions of dollars, and repair the severely damaged oil infrastructure,” Trump stated during a press conference at Mar-a-Lago.
A U.S.-driven transformation might ultimately position Venezuela as a significantly larger exporter of oil, offering new prospects for Western petroleum companies and acting as an additional source of production. It could also help stabilize overall prices, although reduced prices might discourage certain U.S. firms from continuing oil production.
Even if global access was completely restored tomorrow, it might take years and a significant amount of money to resume full Venezuelan oil production. The state-owned oil and natural gas company PDVSA in Venezuela states that its pipelines have not been upgraded in 50 years, and the expense to modernize the infrastructure to reach maximum production levels would amount to $58 billion.
Regarding oil, this could lead to a historic occurrence,” stated Phil Flynn, senior market analyst at the Price Futures Group. “The Maduro government and (former Venezuelan President) Hugo Chavez essentially looted the Venezuelan oil sector.
Control over Venezuela’s oil reserves
Venezuela holds the world’s biggest confirmed oil reserves, yet its actual production falls significantly short of this potential: the country generates roughly 1 million barrels of oil daily — representing approximately 0.8% of worldwide crude oil output.
That is less than half of what it generated prior to Maduro assuming power in 2013 and less than a third of the 3.5 million barrels it was producing when the Socialist government came into control.
International restrictions placed on the Venezuelan government, along with a severe economic downturn, have played a role in the decline of the nation’s oil sector — however, the EIA also notes that insufficient investment and upkeep have been significant factors. Venezuela’s energy infrastructure is in poor condition, and its ability to produce oil has significantly decreased over time.
Venezuela does not generate enough oil to have a significant impact.
Crude oil prices have remained stable this year due to concerns about an excess supply. OPEC has increased output, yet demand has slightly declined as the worldwide economy faces ongoing challenges with inflation and affordability following the price surge after the pandemic.
U.S. oil prices temporarily exceeded $60 per barrel as the Trump administration started taking oil from Venezuelan ships, but they have since dropped back down to $57 per barrel. Therefore, the market’s response—assuming investors view the action as negative for oil supply—will likely be weak.
“From a psychological standpoint, it might offer a slight advantage, but Venezuela possesses oil that can be readily substituted by a mix of global producers,” Flynn stated.
Venezuela’s oil potential
The type of oil Venezuela possesses—thick, sour crude—demands specific machinery and advanced technical skills for extraction. International oil companies have the expertise to extract and process it, but they have been prohibited from operating within the country.
The United States, the top global oil producer, possesses light, sweet crude, which is ideal for producing gasoline but limited in other applications. Heavy, sour crude, such as that from Venezuela, plays a vital role in creating specific products during the refining process, including diesel, asphalt, and fuels used in factories and heavy machinery. Diesel is experiencing a global shortage—largely due to restrictions placed on Venezuelan oil.
Access to Venezuelan oil might offer significant advantages to the United States: Venezuela is close by, and its oil is relatively inexpensive — due to its thick, muddy consistency that needs extensive processing. Many U.S. refineries were built to handle Venezuela’s heavy crude, and they operate much more efficiently when using Venezuelan oil rather than domestic oil, as Flynn noted.
“If this continues to proceed smoothly—and it appears to be a well-executed operation so far—and if U.S. companies are permitted to return and restore the Venezuelan oil industry, it could significantly impact the global oil market,” Flynn stated.
Trump described Venezuela’s oil industry as “a complete failure.”
“They were extracting barely anything in comparison to what they could have been extracting and what might have occurred,” Trump stated.
“We’re going to have our massive American oil companies — the largest in the world — enter, invest billions of dollars, repair the severely damaged oil infrastructure, and begin generating revenue for the nation,” he added.
What comes next for oil prices?
It remains uncertain how the US involvement in Venezuela will affect energy costs.
Bob McNally, president of the Washington, DC-based consulting company Rapidan Energy Group, stated that he believes the effect on prices would be “limited,” but he doesn’t anticipate significant changes “unless there are indications of broad social disorder and the situation appears chaotic. It’s more probable that if things seem ‘stable.'”
“The question then becomes how quickly a Venezuela aligned with the U.S. could boost its production. That will be the topic of discussion. Perception might outpace reality. People may believe Venezuela can increase oil output faster than it actually can,” he said.
“Venezuela could become a significant issue, but not within the next 5 to 10 years,” McNally stated.
Oil markets begin trading on Sunday evening. The prices will be influenced by whether Trump can achieve a revival in Venezuela’s oil industry, as stated by Helima Croft, head of global commodity strategy at RBC Capital Markets.
The outcome depends on whether Venezuela goes against the recent trend of US-backed regime changes,” Croft said. “President Trump indicated that the US is returning to ‘nation-building,’ and that American companies will provide the necessary investments to revive the oil sector. I believe we need much more information before declaring ‘Mission Accomplished.’
Matt Egan contributed to this report.
This narrative has been enhanced with new material.
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