The US government has said it aims to control Venezuelan oil sales indefinitely.
Energy Secretary Chris Wright said Wednesday that “we need influence and control over oil sales to drive the change that absolutely must happen in Venezuela.”
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His comments came days after U.S. forces abducted Venezuelan leader Nicolas Maduro on Saturday. Since then, the administration of US President Donald Trump has announced an agreement in which Venezuela will deliver 30 million to 50 million barrels of sanctioned oil to the US for sale.
This is driven by demands that Venezuelan government officials open access to U.S. oil companies or risk further military action.
On Friday, executives from several major oil companies, including ExxonMobil, ConocoPhillips and Chevron, are scheduled to meet with the president to discuss potential investments in Venezuela.
Can the US control Venezuelan oil sales indefinitely?
“The U.S. federal government can absolutely step in, make demands, capture what it wants, and redirect the barrel accordingly. If that’s what the federal government decides to do, I don’t know of anything that would meaningfully interfere with the federal government,” Jeff Krimmel, founder of the Houston, Texas-based energy consulting firm Krimmel Strategy Group, told Al Jazeera.
However, there are also geopolitical hurdles. U.S. influence is less than it was more than two decades ago, when the U.S. military and its allies invaded Iraq, another oil-rich country. Now, other superpowers can get in the way in ways they didn’t in 2003.
“When we invaded Iraq, we were living in an era of unipolarization as the world’s only great power. Those days are over. China is now a great power, and most experts consider it a peer competitor. That means China opposes such actions. “If they choose to do so, it means they have a way to hurt the U.S. economy through proxy disputes and to strike back militarily,” Anthony Orlando, a professor of financial law at California Polytechnic State University, Pomona, told Al News Agency. Jazeera.
China is the largest buyer of Venezuelan oil, but only imports about 4% of its oil from the South American country.
“The question is whether they want to draw a line in the sand with the United States and say, ‘We can’t do that, because if we allow it, we’ll keep going further,'” Orlando said.
“If you’re a small country like Venezuela, as opposed to China or Russia, you’re vulnerable to U.S. intervention. That creates an incentive to work more closely with China and Russia to prevent that from happening, and that’s not a good outcome for the U.S.,” Orlando continued.
In the days since Maduro’s abduction, members of the Trump administration have also renewed calls for Maduro to take over Greenland.
How does this compare to Iraq?
The US intervention in Venezuela has been compared to the intervention in Iraq that began in 2003 under the administration of former President George W. Bush. At the time, Iraq had the world’s second-largest oil reserves at 112 billion barrels.
However, production was limited. Before the invasion, Iraq produced 1.5 million barrels per day (bpd), which rose to 4.5 million barrels per day (bpd) by 2018.
While the Iraqi government retained ownership of the oil, American companies such as ExxonMobil and BP were often awarded no-bid contracts to operate operations in Iraq, with the majority of sales going to markets in Asia and Europe.
In 2021, then-Iraqi President Barham Salih claimed that an estimated $150 billion in funds stolen through corrupt transactions had been “smuggled out of Iraq” since the 2003 US-led invasion.
Unlike the Bush administration, which targeted Iraqi oil, the Trump administration has been clear about oil’s role in attacking Venezuela.
“The difference between Iraq and this time is that (Bush) didn’t keep the oil. We’re going to keep the oil,” Trump said in a conversation with MS Now anchor Joe Scarborough.
By comparison, in 2002, before the U.S. invasion, then-Secretary of Defense Donald Rumsfeld argued that the strategy to take control of postwar recovery had “literally nothing to do with oil.”
“When the Bush administration invaded Iraq, they claimed it didn’t matter, even though there was substantial evidence that it was a factor. This time it’s more obvious and it’s clear that it will affect the oil market. (But) one of the lessons from the Iraq war is that it’s easier said than done,” Orlando, the professor, told Al Jazeera.
Will this benefit oil companies?
Analysts argue that investments in Venezuela may not actually benefit oil companies due to increased economic uncertainty, the need for major infrastructure improvements, and the fact that large companies such as ExxonMobil and Chevron are already planning capital programs for the rest of the decade.
“To raise the necessary capital,[the companies]will either have to take on more debt, issue more stock, or redirect capital expenditures from other regions to Venezuela. In either scenario, we would expect a significant backlash from shareholders,” energy consultant Krimmel said.
Increasing production also requires infrastructure improvements. Venezuelan oil is dense, making it more difficult and expensive to extract than oil from Iraq or the United States.
Venezuelan oils are often blended with lighter grades of oils from the United States. This density is comparable to that of Canadian oil, which, despite tensions between Ottawa and Washington, is sourced from US allies with more modern extraction infrastructure.
“I don’t think Canada will be too happy about all of this,” Orlando said.
But Chevron, the only US company currently operating in Venezuela, is seeking permission from Washington to expand its license to operate in the country after the US imposed restrictions on the country last year, Reuters reported on Thursday, citing anonymous sources.
In recent years, the rise of hydraulic fracturing technology has increased the United States’ role in energy, particularly oil and gas. The United States is currently the world’s largest oil producer. But Republicans are doubling down on expanding the oil and gas sector following recent cuts to alternative energy programs and increased energy demand from the artificial intelligence industry.
“There is a surplus in oil supply. Even if we are currently in a shortage, military action in Venezuela will not immediately lift the barrel increments. So even if we were to try to solve a short-term supply shortage (and let’s be clear, we don’t have one), Venezuela would not be the answer because increasing production would take too long and cost too much,” Krimmel added.
Venezuela has the world’s largest oil reserves, but OPEC members account for only 1% of global oil production.
Currently, Chevron is the only U.S. company operating in Venezuela. ExxonMobil and ConocoPhillips operated in Venezuela until President Hugo Chávez nationalized the oil sector in 2007, and years of disinvestment and poorly operating equipment led to sluggish production. In the 1990s, Venezuela produced 3.5 million barrels per day. Production has since declined due to limited investment, with production averaging 1.1 million barrels last year.
“Venezuela’s infrastructure has deteriorated under the Chavez and Maduro regimes,” Orlando said. “While they are extracting oil, it will take a lot of investment to get back to the production levels of 10 or 20 years ago.”
