The US Geological Survey estimates show that Venezuela’s recoverable 513 billion barrels of oil is contained in the Orinoco Oil Belt. Venezuela has twice Saudi Arabia’s oil reserves
he death of Hugo Chavez in 2013 and then re-election of Nicolas Maduro in Venezuela was proof of the victory of anti-US Leftists in the Latin American nation. However, Washington never steered clear of his decision for regime change in Venezuela. The major tool used by US for intervention in Venezuela has been the lumbering economy of this country whose inflation rate has hit millions in percentage.Amid growing crisis in Venezuela, Maduro and his allies accuse the opposition, the United States and some American nations of having caused tough economic conditions in that country. That is while the opposition accuses the Maduro government of following wrong policies and rampant corruption.Given the significance of Venezuela’s standing in the oil market and OPEC, the present article reviews the impact of Venezuela’s political crisis on its own petroleum industry, as well as on the world energy markets.Best in Western HemisphereVenezuela, a major crude oil exporter, is a founding member of the Organization of the Petroleum Exporting Countries. Venezuela is not only the largest producer of oil in South America, but also it owns the largest oil reserves in the world. According to an OPEC report, Venezuela accounts for 24% of the Organization’s oil reserves.The US Geological Survey estimates show that Venezuela’s recoverable 513 billion barrels of oil is contained in the Orinoco Oil Belt. Venezuela has twice Saudi Arabia’s oil reserves.Venezuela produces ultra-heavy crude oil that has its own customers. In addition to the US, India and China are among nations whose refineries were built to process heavy crude oil. That is why they are among buyers of Venezuela’s oil.In late 2018, Venezuela recorded its lowest crude oil exports in three decades. Venezuela exported 1.245 mb/d of crude oil, which was the lowest since 1990. The drop in Venezuela’s oil production and exports drove global prices up lightly, which mainly affected the US market.Over recent months, despite the reduction in US oil imports from Venezuela, it continues to be a major buyer. According to the US Energy Information Administration (EIA), Venezuela exported 500,000 b/d of crude oil to the US in 2018. That constitutes 20% of Venezuela’s oil exports.Chavez, the former Venezuelan president, nationalized the petroleum industry in 2007 and seized all oil facilities. Two years later, he tasked the Army with taking control of all companies providing services to the petroleum industry. As a result, 8,000 people working for private companies and their vessels, tugboats and ports came under authority of government. Chavez’s move to nationalize the Venezuelan petroleum industry, which used to be controlled by US companies, drew angry reaction from the White House. Immediately after the nationalization of the petroleum industry in Venezuela, the two American oil companies of ExxonMobil and ConocoPhillips had to leave Venezuela.Oil CalamitiesOil has been a major source of income in Venezuela for years, bringing about progress in its economic policies. However, the black gold may be blamed for ongoing political crisis for the two following reasons: First and foremost, Venezuela’s economy totally depends on oil revenues. According to estimates, the government receives about 95% of its revenue from petroleum exports. Therefore, any fluctuations in the oil prices may harm Venezuela’s economy. As long as the crude oil prices were high in the global markets, the Venezuelan government was able to run state affairs, but it saw its economy harmed since 2014 due to the oil price slump. Second, rich oil reserves in Venezuela have always been coveted by the US. A major consumer of Venezuela’s oil, the US tends to expand its dominance over this country’s petroleum industry. That is in conflict with the existence of a Leftist political regime which considers any relationship with the US to be harmful. The US has been meddling with Venezuela’s state affairs since Chavez was in power. By creating chaos, the US has sought to push Venezuela to choose political elite. Consequently, oil has become a major source of dispute in US-Venezuela relationship. For instance, the first step the US took after recognizing opposition leader Juan Guaido as Venezuela’s president was to impose sanctions on the country’s oil.Oil Equations FutureAlthough economic woes, decrepit facilities and US sanctions have undermined Venezuela’s oil production and exports in recent years, the country has sought to renovate equipment and attract foreign investment. For example, Russia and its companies have invested more than $17 billion in Venezuela over the past 20 years, mainly in the oil sector. The bulk of Russia’s investments in Venezuela has been done by Russia’s state-run Rosneft company. Russia has been involved in five investment agreements struck by Venezuela’s state-run oil and gas company PDVSA. In 2017, Russia signed a deal to sell PDVSA’s oil. In the same year, Russia sold 8% of Venezuela’s oil production, i.e. 59 million barrels. That is why when tensions escalated in Venezuela, the CEO of Rosneft announced that his company would never leave Venezuela. For its part, China is both a leading importer of Venezuela’s oil and a big investor there. State statistics show that China imported 340,000 b/d of oil from Venezuela in 2018. China is estimated to have invested about $70 billion in Venezuela in return for importing oil. Furthermore, China’s state oil company China National Petroleum Corporation (CNPC) purchased about 10% of shares in oil joint venture Sinovensa from Venezuela to become a 49% stakeholder.Despite the fact that US oil sanctions have harmed Venezuela’s oil industry in the short term, Caracas, backed by such partners as China and Russia, is looking for a way out of the current situation. It has to renovate its oil industry. Undoubtedly, such approach is in conflict with the US policies in Venezuela. US National Security Advisor John Bolton has clearly said that if US companies manage to invest in Venezuela’s petroleum industry that would largely affect the US economically.Nonetheless, the current US policies have enlarged the distance between the US and Venezuela while persuading such rivals as China and Russia to increase investment in Venezuela.Meantime, the US oil sanctions could not continue forever because such sanctions would spur demand and finally drive heavy crude oil prices up to the dismay of consumers. US sanctions can also directly affect the price of energy carriers inside the US. It is noteworthy that Venezuela’s PDVSA owns the US-based Citgo refinery and therefore any sanctions on the part of Washington against Venezuela’s oil would trigger a crisis in the energy supply on the US territory.When in August 2017, the Trump administration banned the sale of US oil companies’ stocks in the US leading to the closure of Citgo petrochemical company, Maduro announced that the US economic sanctions on Venezuela would bring a halt to US oil exports. Therefore, the US oil sanctions on Venezuela are likely to have a boomerang effect and backfire on the US.