"Running" Venezuela: It's All About the Oil

Okay, but with crude at <$60 a barrel, it's not near-term obvious that big oil wants to develop a lot more supply.

There’s much to be said about the U.S. capture of Venezuelan President Maduro and the Trump administration’s assertion that they’ll now be “running” the country. The fact that one doesn’t see that word—running—without scare quotes in the many articles on the invasion, tells you that no one, including the admin itself, yet knows what it means.

As usual, I’ll stay in my econo-lane with a Q&A about the highly prominent oil angle of the invasion. The other scare quotes you see in these write-ups is around the word “stolen” re the admin’s false rationale that the invasion is to reclaim stolen oil, so I’ll get into this part of the story in a moment.

But first, a complaint. It’s early days of course, and maybe this will change, but I’m struck by the lack of alarm around these actions. There’s definitely been some pushback, but it always starts with “of course, Maduro had to go, and this will be better for Venezuela” (which is far from obvious—such interventions can careen in unforeseen ways), “but the admin should have consulted with Congress.” In fact, this is an outrageous overreach of presidential power, and should be loudly and incessantly called out as such.

Jen Rubin gets this and is helpfully tracking what’s being said; here’s a quote from Rep. Jim Hines, ranking Democrat on the Intelligence Committee:

Maduro is an illegitimate ruler, but I have seen no evidence that his presidency poses a threat that would justify military action without Congressional authorization, nor have I heard a strategy for the day after and how we will prevent Venezuela from descending into chaos. Secretary Rubio repeatedly denied to Congress that the Administration intended to force regime change in Venezuela. The Administration must immediately brief Congress on its plan to ensure stability in the region and its legal justification for this decision.

“Must immediately brief Congress” reads to me like telling the guy who just blew up a building that he’s got some explaining to do.

Okay, let’s get to a Q&A on the oil.

Q: Is there anything to the Trump administration’s claim that they’re simply taking back stolen oil?

A: No. Of course, countries own their oil reserves, of which Venezuela has “about 17 percent of the world’s known reserves, or more than 300 billion barrels, more than any other country.” The U.S., now the globe’s largest producer, is believed to sit atop 81 billion barrels.

Venezuela’s production, on the other hand, has fallen from around 3 million barrels/day to less than 1 million (less than 1% of daily global production; the U.S. produces 13 million b/d). Along with “multi-polar” geopolitical goals I discuss below, a good part of what’s going on here is old-fashioned drill, baby, drill as Trump is clearly motivated to try to increase production, expand oil supply, and lower the gas price.

Q: So, there’s nothing to the admin’s claims that they took our oil?

A: It’s their oil, as noted, but it is also true that Venezuela has failed to pay international court-order fines to American oil companies after they nationalized—i.e., took—infrastructure financed and built by these companies. NPR provides an efficient take:

U.S. oil companies like Chevron began drilling in Venezuela about one hundred years ago and played a key role in developing the country’s oil sector.

But around 2004 to 2007, then-President Hugo Chávez “basically forcefully renegotiated contracts” with international oil companies, says Francisco Monaldi, director of the Latin America Energy Program at the Center for Energy Studies at Rice University.

ExxonMobil and ConocoPhillips left the country in 2007 and then took the Venezuelan government to international arbitration courts. The courts ordered Venezuela to pay ConocoPhillips over $10 billion and ExxonMobil over $1 billion. Venezuela has only paid a fraction of those sums to ExxonMobil and to ConocoPhillips.

Interestingly, the U.S. company Chevron never left Venezuela. They continue to pump oil there under an agreement wherein half of what they extract goes to the gov’t and the other have is exported to the U.S.

Q: So, what happens now? Will the big U.S. drillers go back to Venezuela and exploit that nation’s ample reserves, as the admin is assuming?

A: That’s far from obvious and depends on the oil price. It’s certainly possible, as the NPR points out, that “For companies like ConocoPhillips, returning to Venezuela could be an opportunity to recoup some of the billions owed to them by the government.” But the widely held view in the industry right now is that with WTI crude (the U.S. benchmark) at <$60/b, global oil supply is already ahead of global demand.

You will note that in my extensive commentary on affordability, I rarely reference the gas price. That’s because it has been pretty low and steady (see figure below), and while this price can get volatile, expectations are for it to stay that way in the near future. Trump’s play here may thus be to get the retail gas price down even further (perhaps he aspires to hit the $2/gallon he keeps falsely claiming already exists), though, should American companies decide to drill in Venezuela, it will take considerable time, at least 2-5 years, for that oil to hit the market (lifting sanctions could add more barrels to the U.S. supply, but that would be more redirecting existing barrels vs. adding to global supply).

So far, the companies haven’t said much, and presumably, they’ll want to avoid currying disfavor with the admin, who thinks it just offered them a big, shiny new present. But watch their actions, not their words.

Q: Are there deeper geopolitics in play here?

A: Yes, and the podcast the Daily recently had a good discussion of this. To the extent that it’s coherent, which is far from always the case, there’s an evolving Monroe Doctrine (I will not, as some have, call it the Donroe Doctrine) wherein Trump envisions a bipolar power dynamic wherein the U.S. controls its hemisphere and same for Russia. It’s…

…an acceptance by these two great powers that, yes, carving up the world into spheres of influence works well for them, too…

Control of the world’s largest oil reserves would allow the United States to follow through on its plan of becoming the dominant player in the Americas, of expelling its adversaries, China, Russia, and Iran from a region, and dominating the country’s political and economic environment.

And, going back to my “where’s-the-alarm” comments, this is a strategy that the admin believes it can freely pursue to with no checks and balances. Given the global equities at stake—China’s role in all of this strikes me as particularly under-assessed—the administration’s isolationism and lack of consultation is another source of alarm.

Q: How do you think the politics of this will play out for the President?

A: To some extent, that depends on how smoothly or chaotically things proceed in the coming days and weeks, but my guess is that this hurts him politically.

They clearly haven’t thought through what to do next. At this point, “running the country” appears to mean the former VP Delcy Rodríguez will be interim president with instructions to do what we tell her or face additional military action. This certainly sounds like a recipe for uncertainty, chaos, and unintended consequences, all of which are familiar to past U.S. incursions into South and Central America.

But while Rs in Congress are, of course, fine with Trump’s actions, MAGA’s “America First” wing is already beefing about it. Ds and liberals have nothing good to say about it, and for non-MAGA Trump voters who were already annoyed that the administration isn’t helping make their life more affordable, this has to be a head-scratcher at best. They’d probably be a lot more favorably disposed if Trump took over a country with a cheaper yet higher quality healthcare system (watch your back, Denmark…).

So, while I get that Hegseth is over the moon about what just happened, I don’t see a sizable constituency for whom it was a high priority to invade a sovereign country so that our big oil companies might, should they decide it’s worth it, get back what they’re owed.