{"id":233616,"date":"2026-01-12T03:27:08","date_gmt":"2026-01-12T03:27:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/233616\/"},"modified":"2026-01-12T03:27:08","modified_gmt":"2026-01-12T03:27:08","slug":"too-dirty-too-late-why-the-economics-of-venezuelas-oil-dont-pencil-out-haas-news","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/233616\/","title":{"rendered":"Too dirty, too late? Why the economics of Venezuela\u2019s oil don\u2019t pencil out – Haas News"},"content":{"rendered":"

\"\"View of the El Palito refinery of the Venezuelan state oil company PDVSA in Puerto Cabello. Photo by: Jesus Vargas\/picture-alliance\/dpa\/AP Images<\/p>\n

Venezuela holds the world\u2019s largest oil reserves\u2014a staggering 300 billion barrels\u2014but there\u2019s a vast distance between theoretical wealth and actual profit, says UC Berkeley Haas labor economist David Levine<\/a>.<\/p>\n

In this interview, Levine provides a sobering reality check on the \u201cstranded\u201d chemistry of Venezuela\u2019s heavy crude, the risky investment required to restore broken infrastructure, and the devastating brain drain that scattered the nation\u2019s best engineers to competitors around the world over the past two decades. From the country\u2019s history of treating foreign capital like a \u201cpi\u00f1ata\u201d to the global shift toward renewables, Levine argues that investing in Venezuela remains a massive strategic gamble.<\/p>\n

Levine is the Eugene E. and Catherine M. Trefethen Chair in Business Administration at the Haas School of Business. His research focuses on understanding and overcoming barriers to improving health and economic well-being in poor nations.\u00a0<\/p>\n

Haas News: How do you view the actual economic potential of Venezuela\u2019s 300 billion barrels of oil today?<\/p>\n

David Levine: When I heard about the Trump Administration\u2019s actions in Venezuela, I assumed there was money to be made from what we\u2019ve all read are the world\u2019s biggest oil reserves. So I wanted to do a quick estimate of how much money we were talking about. I was surprised that the answer is not very much, and not easily. I want the people of Venezuela to prosper, but it\u2019s not obvious how this will happen.<\/p>\n

Venezuela\u2019s oil reserves are largely \u201cstranded\u201d by chemistry. Most of it comes out of the ground with the consistency of cold peanut butter. To even move it through a pipe, you must mix it with costly imported diluents (such as naphtha), which adds roughly $15 per barrel to your costs before you\u2019ve even reached a port. And when it gets onto a tanker, it\u2019s still some of the hardest crude on the planet to turn into something useful. It requires specialized equipment and it emits a lot of carbon for each gallon of gasoline or other useful product. Because it requires complex \u201ccoker\u201d refineries to process, it currently sells at a $12\u2013$20 discount compared to global benchmarks like Brent<\/a>.<\/p>\n

\u201cVenezuela\u2019s oil reserves are largely \u2018stranded\u2019 by chemistry. Most of it comes out of the ground with the consistency of cold peanut butter.\u201d<\/p>\n

\u2014Professor David Levine<\/p>\n

Haas: In the past, Trump actually called it garbage oil and the \u201cworst oil probably anywhere in the world<\/a>.\u201d<\/p>\n

DL: I hadn\u2019t seen that line, and it\u2019s not entirely inaccurate. It\u2019s not actually garbage\u2014it has economic value. Once it\u2019s turned into gasoline, it\u2019s just gasoline, but it\u2019s really expensive to do that. And at $60 a barrel, it\u2019s not very economical to ramp up production quickly in spite of the incredible potential for sheer output.<\/p>\n

Haas: On Friday, President Trump told American oil executives that he expects their companies to invest $100 billion to restore Venezuela\u2019s broken infrastructure. Do you think that amount would do it?<\/p>\n

DL: Nobody knows exactly what it takes to restore Venezuela\u2019s power grid plus the entire energy infrastructure for pumping and distribution. We don\u2019t know whether it\u2019s $75 billion or $150 billion, but I think we can safely say it\u2019s going to be a number with that many zeros. Generations ago, Venezuela was producing more than three times as much oil as it does now, but it would be very hard for it ever to get up to that level. Even doubling production from one to two million barrels a day is going to take an enormous investment.<\/p>\n

The above-ground risks are also staggering. Even with Nicol\u00e1s Maduro in U.S. custody, the nation now is at risk of ongoing civil war, gang violence, or continued conflict with the United States. Beyond civil unrest, Venezuela has a history of nationalizing assets when prices are high and begging for help when they are low. And Venezuela need not nationalize, it can just increase the fees and taxes it charges.<\/p>\n

Fiduciary duty makes it hard for a CEO to explain to shareholders why they are sinking billions into a jurisdiction that has historically treated foreign capital as a pi\u00f1ata.\u00a0<\/p>\n

\u201cFiduciary duty makes it hard for a CEO to explain to shareholders why they are sinking billions into a jurisdiction that has historically treated foreign capital as a pi\u00f1ata.\u201d<\/p>\n

\u2014David Levine<\/p>\n

Even if Venezuela were politically stable, it\u2019s a very scary place to invest. It\u2019s hard to think that an oil company exec can look at that spreadsheet and tell their shareholders, \u201cThis is the highest risk-adjusted return I have on the planet.\u201d Right next door in Guyana, there\u2019s enormous new discoveries of light crude. There\u2019s not an imminent civil war. There\u2019s not this level of political instability. I think it just would require a very different model than most economists use to make Venezuela a profitable $100 billion investment for major oil companies.<\/p>\n

Haas: You\u2019re a labor economist. Let\u2019s talk about human capital. What has happened to Venezuela\u2019s human capital over the past couple decades?<\/p>\n

DL: Maduro\u2019s dictatorship was a human rights catastrophe and an economic catastrophe, and the result was that almost all of the skilled population left the country. And in the oil sector, many of them are highly skilled engineers, and they\u2019re now working in the oil industry in Houston, Bogot\u00e1, Brazil, or Calgary. The oil companies there are operating with a skeleton crew. And for a massive sector of the economy, you need an entire pipeline of skilled people (no pun intended). You need good schools, you need vocational schools, you need on-the-job training, you need mentors with decades of experience. All of that is long gone in Venezuela. That\u2019s not something you can replace in a year or two. All this took a generation to destroy, and it will take at least ten or 15 years to rebuild the human capital that left Venezuela.<\/p>\n

\u201cMaduro\u2019s dictatorship was a human rights catastrophe and an economic catastrophe, and the result was that almost all of the skilled population left the country\u2026All this took a generation to destroy, and it will take at least ten or 15 years to rebuild the human capital that left Venezuela.\u201d<\/p>\n

\u2014David Levine<\/p>\n

Haas: What was your calculus on how long it would take oil companies to turn a profit?<\/p>\n

DL: If oil stays at $60\/barrel, a new massive project in Venezuela\u2019s Orinoco Belt might never hit a risk-adjusted break-even. The exception would be if the U.S. government provides unprecedented sovereign guarantees, meaning a taxpayer subsidy guarantees the investments. This approach means it might be profitable for the oil company, but not profitable for the nation because United States taxpayers are at risk.\u00a0<\/p>\n

The story changes if oil prices return to $100 for a decade or more, and we cannot rule out new technologies that substantially reduce the cost to pump and refine Venezuela\u2019s heavy crude.\u00a0 But it\u2019s very hard to see the medium-term trends making Venezuela into a serious oil exporter on a significantly larger scale than they are today. We live in a world where almost all the net new power coming online is from renewables, and where an increasing share of vehicles are electric, so persistently higher oil prices are not likely. Furthermore, investing $100 billion in the highest-carbon-intensity oil on earth when carbon taxes remain a possibility is a massive strategic gamble.<\/p>\n

It\u2019s possible that the price of Venezuela\u2019s heavy crude will rise for a decade or more far above current levels, but it\u2019s at least as likely that the already-unfavorable economics of that investment will worsen over time.<\/p>\n","protected":false},"excerpt":{"rendered":"View of the El Palito refinery of the Venezuelan state oil company PDVSA in Puerto Cabello. Photo by:…\n","protected":false},"author":2,"featured_media":233617,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":{"0":"post-233616","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-il","11":"tag-israel"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/233616","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=233616"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/233616\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/233617"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=233616"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=233616"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=233616"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}