An American oil empire is a deeply flawed idea

JUST HOURS after America captured Nicolás Maduro, Venezuela’s dictator, on January 3rd, President Donald Trump clarified his motivation. “The oil business in Venezuela has been a bust, a total bust for a long period of time,” he said. America would “spend billions of dollars, fix the badly broken infrastructure…and start making money for the country”.

The declaration had the sweet taste of revenge. Eighteen years ago, under Hugo Chávez, Venezuela nationalised assets belonging to American and other Western firms; claims worth a combined $60bn have been filed against it and PDVSA, the national oil firm, in American and international tribunals. Some of the payback may come in kind. On January 6th Mr Trump said Venezuelan authorities had agreed to turn over 30m to 50m barrels of crude, worth up to $3bn, to America. The next day Chris Wright, his energy secretary, said America would “market the crude coming out of Venezuela...indefinitely” with proceeds to be “deposited into accounts controlled by the US government”.

But Mr Trump wants more than retribution. Decades of underinvestment and mismanagement have caused Venezuela’s oil production to fall by two-thirds since the late 2000s, to 1m barrels a day (b/d), barely 1% of global production. Restoring idle capacity, the thinking goes, would make Venezuela rich while lining American pockets. The heavy, sour crude that the country harbours is precisely the type of which American refineries are chronically short, at a time when America’s relations with Canada, a supplier of the stuff, are strained. Better still, Venezuela sits on some 300bn barrels of oil—a fifth of the world’s deposits. Some analysts argue that America may soon have sway over such a big chunk of both global output and reserves that it could keep oil prices low for ever. MAGA types reckon it may even be in a position to starve China of the fuel.

What, then, is not to like about Mr Trump’s lunge for petroleum? Quite a lot, it turns out. In the immediate term, Venezuela’s crude output is more likely to fall than rebound. In December America declared a blockade on Venezuelan shipments ferried by blacklisted tankers; it then seized three of them. On January 7th it captured another two, including one near Iceland, that had evaded its embargo. Exports have cratered and the volume of Venezuelan crude floating on idle tankers has hit multi-year highs. Venezuela is also short of naphtha—a dilutant it needs to make its super-gloopy crude transportable—which is no longer coming through from Russia. Mr Trump’s takeover of 50m barrels, if it happens, will free up storage space. But unless the blockade is lifted, which depends on political and military developments, Venezuela’s output will still have to be curtailed further, to perhaps less than 700,000 b/d.

Output might recover in a few months if there is a smooth political transition and if the lifting of American sanctions on Venezuela, blockade included, allows naphtha to flow in and exports out. Maintenance and repairs at existing wells, coupled with limited investment in infrastructure, might yield another 300,000 b/d within a year or two. The prospect of reasonably easy wins will draw interest from American upstarts. Amos Global Energy, a fund manager in Houston, is trying to raise $2bn from institutional investors to take over Venezuelan assets capable of pumping a combined 20,000-50,000 b/d.

Modest flows of technology and capital may push Venezuela’s output to 1.5m b/d by the end of 2027. That would still be well short of the country’s potential, however, putting it only on par with Nigeria, the world’s 15th-largest producer. To pump more, Venezuela would need to overcome three problems: a shortage of funds, a lack of labour and a saturated market.

Rystad Energy, a consultancy, estimates that $110bn in capital expenditure would be required by 2030 to bring the country’s output back to where it was 15 years ago—twice the amount America’s oil majors combined invested worldwide in 2024. Mr Trump seems to think these firms will rush in. He has tasked his energy and interior secretaries with encouraging them to return, possibly, insiders suspect, by offering to subsidise services they would need to begin drilling again.

Although Chevron, the only American major still present in Venezuela, may well agree to expand some of its operations, others have not forgotten the pains of the past, if only because they are still waiting to receive billions of dollars in arbitration awards. Venezuela’s instability, legal system, security risks and damaged economy are off-putting to most foreign firms—let alone the majors, which worked hard to refocus on safer prospects after the oil market crashed in the mid-2010s.

Given such risks, says Carlos Bellorin of Welligence, another consultancy, the Venezuelan opportunity “has to be something they don’t find anywhere else in the world, in terms of size and fiscal-terms attractiveness”. But the vast majority of Venezuela’s reserves, deemed “extra heavy”, are too viscous to flow like conventional crude. Extracting them is hard, costly and polluting, at a time when there are plenty of cheaper and cleaner barrels available.

Mr Trump has not helped his cause. His officials did little to prepare the ground with the oil majors. And his admission that he deposed Venezuela’s dictator to take over the country’s oil has created a dilemma for them. An industry figure says half a dozen leading oil firms have told him they do not want to be involved. Nor are commodity traders “in the starting blocks”, says Jean-François Lambert, a consultant. Banks and insurers, which would need to finance and secure shipments, are wary.

Even if oil firms could be convinced to cough up, it is doubtful Venezuela’s oil industry could keep pace. It has suffered a huge brain drain. Tens of thousands of skilled workers, from engineers to geologists, have left the country. Many have fled to Canada, a land from which they may have little urge to return. PDVSA is now largely run by the armed forces. To form viable joint ventures with Western firms, the 70,000-strong company would have to be reformed wholesale. It may not be able to serve as a capable partner for many years.

Whatever extra oil Venezuela can pump will flow into a saturated market. The International Energy Agency, an official forecaster, expects global crude supply to outstrip demand until at least the end of the decade, owing to strong production in countries like Brazil, Guyana and, indeed, America. Many analysts expect surpluses to lower oil prices towards $50 a barrel, and possibly below, this year and next—under the breakeven price for most existing Venezuelan fields with decent reserves. The country’s flagship new projects are not bankable below $80 a barrel. They will not start producing until at least the late 2030s, after appetite for oil will have peaked.

In its most optimistic scenario, Kpler, a data firm, forecasts that Venezuela’s oil output might rise to 1.7m-1.8m b/d by 2028. American refiners are likely to snap up extra barrels: they imported 500,000 more a day in the early 2010s. China’s “teapot” refineries, which used to buy Venezuelan supplies at a discount, may be cut out of the trade; perhaps its state-owned oil firms will reduce their local footprint, too.

But the benefits to America are likely to be marginal. Bringing Venezuelan output back to 2.5m-3m b/d would be a long project, says Jorge León of Rystad Energy. China can easily replace the Venezuelan barrels it used to buy, which made up less than 4% of its imports in 2025. It has about 1.2bn barrels in storage, enough to cover 110 days of imports, and its consumption is slowing. And the notion that Uncle Sam will soon be commanding global oil markets, dictating production not just in Venezuela but across South America, is fanciful. Mr Trump does not control Brazil or Mexico’s national oil firms; American majors make their own decisions. None likes the idea of crude at $50 a barrel for ever. Mr Trump’s understanding of oil seems stuck in the 20th century. His plan for the 2030s, such as it is, makes little sense. ■