Trump’s plan to seize, revitalise Venezuela’s oil industry faces major hurdles

Washington: President Donald Trump’s proposal to take control of Venezuela’s oil industry and invite US companies to revive it after the capture of President Nicolas Maduro is unlikely to have a meaningful immediate impact on global oil prices, analysts said.

Years of neglect, corruption and sanctions have left Venezuela’s energy sector in poor shape, making any rapid production rebound difficult.

Limited price impact

Oil markets were closed over the weekend, but analysts do not expect major price swings when trading resumes. Venezuela’s output is already included in OPEC supply calculations, and the global market is currently facing a surplus. Although some analysts believe Venezuela could eventually double or even triple its current production of about 1.1 million barrels per day, such gains would take time.

“While many are reporting Venezuela’s oil infrastructure was unharmed by US military actions, it has been decaying for many years and will take time to rebuild,” said Patrick De Haan, lead petroleum analyst at GasBuddy.

Political uncertainty

US oil companies are likely to wait for political clarity before investing heavily. Uncertainty persisted on Saturday, with Trump claiming the US was in charge, while Venezuela’s vice president argued that Maduro should be restored before the country’s high court ordered her to assume the role of interim president.

“If it appears the US can run the country even briefly, there would be optimism that US energy companies could move in and revitalise the industry fairly quickly,” said Phil Flynn, senior market analyst at Price Futures Group. A sustained recovery, he added, could help keep oil prices lower over the longer term and increase pressure on Russia.

Vast reserves, low output

Venezuela holds the world’s largest proven crude oil reserves—around 303 billion barrels, or roughly 17 per cent of global reserves—according to the US Energy Information Administration. Despite this, it produces less than 1 per cent of global crude supply. Production has steadily fallen from about 3.5 million barrels per day in 1999 due to mismanagement, corruption and US sanctions.

Chevron is the only major US oil company with significant operations in Venezuela, producing roughly 250,000 barrels per day through joint ventures with state-owned PDVSA. Other companies, including Exxon Mobil and ConocoPhillips, said they were monitoring developments but declined to speculate on future investments.

Investment hurdles

Analysts say the main challenge is not finding oil but restoring confidence in the political and legal environment. In 2007, then-president Hugo Chavez nationalised much of the industry, forcing firms such as ExxonMobil and ConocoPhillips to exit. “The issue is how to get foreign companies to invest without clarity on political stability and contracts,” said Francisco Monaldi, director of the Latin American energy programme at Rice University.

Rebuilding infrastructure will be costly. Monaldi estimates it would take about $100 billion and nearly a decade to raise output from around one million barrels per day to four million.

Strong demand for heavy crude

Venezuela produces heavy crude used for diesel, asphalt and industrial fuels. Global diesel supplies are tight due to sanctions on Venezuela and Russia, and lighter US crude cannot easily replace it.

US refineries, especially along the Gulf Coast, were designed to process heavy crude and would benefit from increased Venezuelan supply, which is typically cheaper. Higher output could also reduce dependence on Russian fuel.

“There’s been a big benefit for Russia to see Venezuela’s oil industry collapse,” Flynn said.

Legal questions

Legal experts warn that US control of Venezuela’s oil resources could raise international law concerns. “A key issue will be who really owns Venezuela’s oil,” said Matthew Waxman, a Columbia University law professor and former US national security official, noting that occupying powers are generally barred from exploiting another country’s resources. He added that the Trump administration has often taken a dismissive view of international law in its Venezuela policy.