Trump’s Plan To Seize And Revitalize Venezuela’s Oil Industry Faces Major Hurdles

President Donald Trump’s plan to seize control of the Venezuelan oil industry and ask American companies to revive it Capturing President Nicolás Maduro in a raid It is not expected to have a significant immediate impact on oil prices.

Venezuela’s oil industry is in disrepair due to years of neglect and international sanctions; therefore, it may take years and large investments for production to increase dramatically. But some analysts are optimistic that Venezuela could return to historic levels fairly quickly by doubling or tripling its current oil production of about 1.1 million barrels per day.

“While many report that Venezuela’s oil infrastructure has not been damaged by US military operations, it has been decaying for many years and will take time to rebuild,” said Patrick De Haan, chief oil analyst at GasBuddy, which tracks gasoline prices.

American oil companies will want a stable regime in the country before they are willing to invest heavily. The political landscape remains uncertain While Trump on Saturday said the United States was responsible, the current Venezuelan vice president argued that Maduro should be restored to power before Venezuela’s supreme court rules on him assuming the role of interim president.

“But if the U.S. looks like it’s successful in running the country for the next 24 hours, I would say there’s going to be a fair amount of optimism that U.S. energy companies will be able to step in and revive the Venezuelan oil industry pretty quickly,” said Phil Flynn, senior market analyst at Price Futures Group.

And if Venezuela can turn into an oil production powerhouse, Flynn said “that could cause prices to fall in the long run” and put more Pressure on Russia.

Since there was no oil trading over the weekend, there was no immediate impact on prices. However, no major changes in prices are expected when the market reopens. Since Venezuela is a member of OPEC, its production is already calculated there. And right now there is a glut of oil on the global market.

According to the US Energy Information Administration, Venezuela is known to have the world’s largest proven crude oil reserves of approximately 303 billion barrels. This accounts for approximately 17% of all global oil reserves.

So international oil companies have reason to be interested in Venezuela. Leading companies, including Exxon Mobil and Chevron, did not immediately respond to requests for comment Saturday. ConocoPhillips spokesman Dennis Nuss said in an email that the company is “monitoring developments in Venezuela and their potential impact on global energy supply and stability. It is premature to speculate on future business activities or investments.”

Strip It is the only company with significant operations in Venezuela, where it produces approximately 250,000 barrels per day. Chevron, which first invested in Venezuela in the 1920s, does business in the country through joint ventures with the state-owned company Petróleos de Venezuela SA, known as PDVSA.

However, despite these huge reserves, Venezuela produces less than 1% of the world’s crude oil supply. Corruption, mismanagement and U.S. economic sanctions have caused production to steadily decline from the 3.5 million barrels per day pumped in 1999 to today’s levels.

The problem is not finding the oil. It’s a question of the political environment and whether companies can trust the government to honor their contracts. In 2007, then President Hugo Chavez It nationalized much of oil production and forced major players such as ExxonMobil and ConocoPhillips to export.

“The problem is not just that the infrastructure is in bad shape, it’s mostly about how do you start pouring money into foreign companies without having a clear perspective on political stability, contract status and so on,” said Francisco Monaldi, director of Rice University’s Latin American energy program.

However, infrastructure needs significant investments.

“The estimate is that it will take about ten years and an investment of about a hundred billion dollars for Venezuela to grow from one million barrels of oil per day (today’s production level) to four million barrels,” Monaldi said.

Venezuela produces heavy crude oil, which is needed for diesel fuel, asphalt and other fuels for heavy equipment. Diesel is in short supply around the world due to sanctions imposed on oil by Venezuela and Russia and the inability to easily replace America’s lighter crude oil.

Years ago, American refineries along the Gulf Coast were optimized to process such heavy crude at a time when U.S. oil production was declining and Venezuelan and Mexican crude was abundant. So refiners would love to have more access to Venezuelan crude because it would help them run more efficiently and it would be a little bit cheaper.

Increasing Venezuela’s production could also make it easier to put pressure on Russia, because Europe and the rest of the world could get most of the diesel and heavy oil they need from Venezuela and stop buying from Russia.

“It was a huge benefit to Russia to see Venezuela’s oil industry collapse. And that’s because they were a competitor on the global stage for that oil market,” said Flynn.

But Columbia University law professor Matthew Waxman, who was a national security official in the George W. Bush administration, said gaining control of Venezuela’s resources paves the way. additional legal issues.

“For example, will it be a big issue who actually owns Venezuelan oil?” Waxman wrote in an email. “An occupying military power cannot enrich itself by taking another state’s resources, but the Trump administration will likely argue that the Venezuelan government never rightfully held those resources.”

But Waxman, who served in the State and Defense departments and on the National Security Council during the Bush administration, said, “We’ve seen the administration talk pretty cavalierly about international law when it comes to Venezuela.”

Associated Press writers Matt O’Brien and Ben Finley contributed to this report.