VENEZUELA: Washington takes direct stake in oil production

President Donald Trump has made no secret that making America great again, for him, involves dominating the western hemisphere so as to ensure US national and economic security. As part of the so-called ‘Donroe Doctrine’ he has floated the idea of annexing Greenland, Canada, and the Panama Canal, and suggested using military force in Colombia and Mexico. But nowhere has the Trump administration come closer to asserting full control over a sovereign nation in the western hemisphere than in Venezuela. More than nine months after the military intervention to seize former president Nicolás Maduro (2013-2026) on drug trafficking charges, Washington is still closely managing the South American nation.

The US dictates economic policy and essentially oversees the country’s finances. Between January and July, the sale of Venezuelan oil reportedly generated more than US$13bn that has gone through the US Treasury, which controls its flow to the administration of President Delcy Rodríguez, formerly Maduro’s vice president.

Part of Washington’s script was to ease sanctions and push framework legislation through Venezuela’s congress to reopen much of the country’s economy to the world and allow foreign ownership in hydrocarbons and minerals. It granted licenses to US firms such as Chevron, and other international companies, to resume their activities.

But progress was slower than the US had hoped for and President Trump was eager to deflate oil prices that had soared following his administration’s war on Iran. So, on 28 August Trump stunned the world by announcing that the US government itself was going to take a stake in producing oil in Venezuela and take control of fields containing around 65bn barrels of crude reserves. That’s about one-fifth of Venezuela’s total reserves. Trump called it the biggest oil deal in history and framed it as a reward for his administration’s intervention in Venezuela. “To the victor belong the spoils,” he told the United Nations General Assembly on 22 September.

Under the scheme, the Pentagon’s Office of Strategic Capital (OSC) gets a 35% equity stake via penny warrants in North American Blue Energy Partners (Nabep), a private venture that was concurrently granted a lease by Rodríguez to operate 17 strategic oilfields. Roughly half of the fields are in Lake Maracaibo in western Venezuela and some are reportedly severely dilapidated. The other fields are in the Orinoco Belt and some would require the construction of basic infrastructure such as roads, pipelines, and housing for employees.

Under the arrangement, the US State Department receives preferential rights to buy 20% of Nabep’s total oil production at production cost, alongside a right of first refusal for the remaining 80%. The Pentagon’s stake grants the US government veto power over the company’s board members, of whom a majority must be US citizens. Meanwhile, Nabep said on 1 September that it will shell out up to US$100bn to boost oil production.

“It’s really nothing short of shifting the geopolitical centre of the global energy markets away from those chokepoints like in the Middle East and moving it back to the western hemisphere,” US Secretary of the Interior Doug Burgum told Fox Business. He said that Venezuela would supply cheap and reliable energy through the Gulf of America for generations to come.

Trump said that the deal would generate income for the US and help ensure the longevity of its own reserves. He also said that the arrangement benefitted Venezuela and its people by generating significant revenue. “Venezuela is making a lot of money, and so are we,” he told reporters on 1 October.

If the deal works and helps to reassure other western oil companies to step up their activities, it could facilitate a spectacular recovery from Venezuela’s current state of disarray.

On the other hand, it could turn out to be another one of Trump’s blusters, like the claim that Mexico would pay for a wall along its border with the US or that he would end the Ukraine-Russia war on the first day of his second term.

Obstacles

Indeed, there is a laundry list of reasons why the deal might fall short of what Trump has promised. For one, there is an unrealistic timeline. Even if large-scale investments pour in, most experts agree it will take several years before Venezuela can achieve a meaningful increase in its oil output. As a result, quickly replenishing the US Strategic Petroleum Reserve (SPR) from the newly announced deal with Nabep is unrealistic.

“The United States can probably begin moving some existing Venezuelan barrels toward the SPR – or arranging commercial exchanges for suitable replacement crude – relatively soon,” the Canada-based industry news outlet EnergyNow wrote in a commentary. “But Venezuela cannot rapidly refill a reserve that is more than 400 million barrels below capacity. Its existing production is already committed to commercial markets, much of its crude requires blending or upgrading, and the new agreement depends on infrastructure rehabilitation and investment that will take years,” EnergyNow wrote.

The long-term political viability of the deal itself is also uncertain, particularly if Democrats regain control of congress in the November midterms or win the White House in 2028. “President Trump’s effort to turn the US military into an investor in Venezuelan oil is a blatant abuse of power and taxpayer dollars,” Jack Reed, ranking Democrat on the senate armed services committee, said in a statement, adding: “This misguided experiment in using America’s armed forces for commercial profit must be rejected.”

The deal also relies on a shady business partner – Nabep’s owner, Alejandro Betancourt. He was previously a target of US money laundering investigations involving funds allegedly embezzled from Venezuela’s state-owned oil company Pdvsa. He remains under investigation on money laundering charges in Switzerland and in Spain involving US$4bn allegedly embezzled from Pdvsa, according to reporting by Reuters and Spanish newspaper El País. Betancourt’s lawyers are cited as saying the allegations have been investigated in several jurisdictions but have not led to any charges.

Then there are possible legal constraints. While the Trump administration spoke of a 100-year contract, Venezuelan legislation approved this year under tutelage of the US says maximum concessions are 25 years. Unlike the US, where subsurface minerals can be privately owned, in Venezuela the constitution dictates that the state remains the sole proprietor of oil, meaning it can adjust taxes and royalties, dictate where drilling is allowed, and decide not to renew a contract.

To be sure, Venezuela’s oil recovery is well under way. More than a dozen companies or consortiums have pledged to invest considerable amounts of money in the coming years to increase oil and gas production. According to Rystad Energy, a Norwegian energy consulting firm, output could increase from 1.2m barrels per day (bpd) currently to 1.6m bpd by 2028, and 1.8m bpd by 2030, provided investments are carried out, rigs are available, and oilfield services scale up in line with requirements.

US oil firm Chevron announced on 2 September that it will invest US$7bn in Venezuela over the next five years, with the goal of more than doubling its production to 600,000 bpd. Other firms which have recently signed agreements with the Rodríguez administration include Italy’s Eni, which on the same day signed a 25-year contract to operate the “super giant” Junín-5 oil block in the Orinoco Belt, which contains some 35bn barrels of crude, and Colombia’s GeoPark, which will operate the Bare block in the Orinoco Belt.

Opposition

But the million-dollar question is what happens when Trump’s mandate comes to an end and, by extension, when the Rodríguez administration ends. In theory, at least, the governments in Caracas and Washington are committed to eventually holding democratic elections in Venezuela, although no timeframe has been set for this. Despite having loosened repression since taking over from Maduro, Rodríguez would be strongly expected to be voted out of office due to the leading role she played in his authoritarian and economically inept government.

Rising criticism of the Trump and Rodríguez governments over the opening of Venezuela’s oil sector and the lack of citizen participation suggests a considerable level of political risk. Legislators in Venezuela’s congress reportedly approved the oil deal without having reviewed it in any detail.

Exiled opposition leader María Corina Machado, a longtime US ally and potential presidential contender, criticized the deal without naming Trump. While the US was the natural and ideal partner to help develop Venezuela’s oil resources, the deal lacked legitimacy because the oil’s true owners weren’t consulted, she said in a video message, lamenting that major decisions were being taken without the input of the Venezuelan public.

“The wealth of our lands doesn’t belong to an illegitimate regime but to the Venezuelan people,” she said, adding that “the oil sector is just one part of the immense task of reconstruction… We need colossal investments, but we also need much more than money – in a country with our current institutional fragility, no sector can function in isolation”.

While the ruling party, the Partido Socialista Unido de Venezuela (PSUV), formally endorsed the deal with Washington, there were numerous influential voices with socialist credentials that didn’t. “It will certainly go down in history for capitulating and for opening the door to a new form of US colonialism,” said Rafael Ramírez, who was head of Pdvsa from 2004-2014 under the founding father of the PSUV, former president Hugo Chávez (1999-2013). “It is an agreement reached behind the country’s back – patently unconstitutional – that cedes control of the territory and the oil to a foreign power,” Ramírez told Venezuela’s El Nacional newspaper.

Ricardo Hausmann, an opposition-aligned Venezuelan economist, was even more outspoken in criticism directed at US Secretary of State Marco Rubio. “You opted to push an asset grab, an unconstitutional deal with an illegitimate oppressive government, instead of using US leadership to re-establish constitutional rule and democracy first, and then deal with a legitimate government that could have made credible long-term commitments, in due course,” Hausmann wrote on X. “Venezuelans will not respect this illegitimate deal and no major US oil company will take it seriously because they know it will not last.”