The United States is rushing to sell off millions of barrels of Venezuelan oil after the Trump administration ousted and detained leader Nicholas Maduro on January 3. Trump has been extremely vocal of his plans to capitalize on Venezuela’s oil reserves – the largest in the world – and build his “very own oil empire” capable of going toe-to-toe with OPEC.
Already, the United States Department of Energy is organizing the sale of about 50 million barrels of oil that the United States seized from Venezuelan tankers that have been stranded since Trump imposed a partial blockade on the South American nation last month. “The first sale has already occurred and the sales will continue indefinitely,” a spokesman for the Department of Energy said in a recent statement.
Some supermajors are already circling the warm Caribbean waters, eager to get a bite of Venezuela’s drilling assets. Some experts contend that Venezuela’s oil production levels could easily increase by 50 percent without a large investment – the country has already produced more than 3.7 million barrels a day in its 1970s heyday – the precedent is there, and so is a lot of the infrastructure. But is the demand there?
Today’s oil market is already saturated, faced with a persistent global oil glut, and oil companies can’t afford for prices to dip much lower than their current levels of around $60 per barrel. Production is already projected to exceed demand in 2026, thanks in large part to OPEC’s reversal of production cuts over the last year, without even factoring in a Venezuelan oil renaissance.
Against this backdrop and from where U.S. shale producers are standing, a flood of cheap oil and gas onto the global market isn’t going to make America great again – it’s more of a nightmare scenario. The number of operating rigs in Texas oil country is already down nearly 15 percent this year as producers anxiously wait for prices to climb back up. As a result, the economy is already slowing down in a painful and tangible way across West Texas. “It has really cast a shadow over the Permian,” Ben Shepperd, president of the trade group Permian Basin Petroleum Association, recently told the Wall Street Journal.
After the dramatic capture of Maduro earlier this month, Trump broadcasted that the U.S. would “run the country” in order to control its oil resources. “We’re in the oil business,” Trump said. “We’re going to have our very large United States oil companies […] go in, spend billions of dollars, fix the badly broken infrastructure, and start making money.”
But it’s not clear that Big Oil actually wants in on this deal. “Investors don’t care about energy dominance,” Clayton Seigle, senior energy security at the Center for Strategic and International Studies, told a reporter for Semafor earlier this month. “They care about energy dividends.” And the fact is that dividends aren’t aligning with Trump’s petro-state policy.
“Trump’s dominance vision could undermine the free trade ethos that has helped the oil market function smoothly over the past several decades, to the benefit of US energy security,” Semafor reported on January 6. In fact, depending on how Trump approaches rebuilding Venezuela’s ailing and infirm oil sector could hurt U.S. energy security far more than it helps it.
A recent Foreign Policy analysis asserts that “today’s oil system is defined not by imperial control or even long-term bilateral contracts but by deep, liquid, transparent global markets supported by the dollar and a diversity of suppliers,” and that this system has been enormously beneficial and strategic for the United States. “Trump’s rhetoric about ‘controlling’ Venezuelan oil misunderstands how power operates in the 21st-century oil system and risks undermining the very advantages the United States enjoys,” the article goes on to argue.
Meanwhile, for Venezuela, the revitalization of the oil industry could help the economy pull out of its death spiral – even if it also lines foreign pockets. “Recent events have completely changed the economic outlook,” Venezuelan economist Asdrubal Oliveros recently told the New York Times. “Oil production could fuel a real economic takeoff.”
By Haley Zaremba for Oilprice.com
More Top Reads From Oilprice.com