CARACAS, Venezuela: Venezuela’s Congress has advanced proposals to loosen state control over the oil industry and increase the role of the private sector in the industry’s first major overhaul in years.
Venezuela’s proposed reform of its hydrocarbon law was brought to the country in response to the abduction of former President Nicolás Maduro by the United States on January 3, and has attracted significant interest across businesses and political parties.
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In response to these events, the White House and US Energy Secretary Chris Wright announced a $500 billion energy deal between the two countries, under which the US government seeks to exert significant influence over Venezuela’s oil industry.
The reforms, approved in a first reading on Thursday, go against some of the principles of oil nationalization implemented by former President Hugo Chávez in 2006, which reserved exclusive oil marketing rights to state-owned oil company PDVSA.
The new articles allow direct commercialization by private companies, allow the opening of bank accounts in any currency and jurisdiction, and reaffirm PDVSA’s majority stake in the joint venture, while allowing the minority partner to exercise technical and operational control.
The bill also proposes to repeal laws that reserve ancillary services related to primary oil activities to the state and allow private companies to subcontract oil extraction, provided they bear the associated costs and risks.
Additionally, it will introduce flexibility in royalty payments and reduce royalty payments from 30 percent of extracted crude oil to just 15 percent as an incentive to attract investment, especially new drilling in greenfield areas.
Another important change aims to incorporate legal safeguards through independent dispute resolution mechanisms such as mediation and arbitration.
Legal certainty was one of the main demands raised by multinational oil company executives in a January 9 meeting with US President Donald Trump in connection with the multibillion-dollar claims ExxonMobil and ConocoPhillips filed against the Venezuelan state after the 2007 nationalization process.
“The Law of Ambiguity”
For José Guerra, an economist and former head of research at Venezuela’s central bank, the proposal remains rhetorical. He argues that this lacks clarity and does not explicitly establish that private companies can retain majority ownership.
“This law is a vague one, designed to avoid publicly destroying Chávez’s oil legacy,” Guerra said. “Private participation is not important.”
He pointed out that in reality, the government has already ceded ground to private capital through production participation contracts (CPPs), under which companies can effectively own more than 50%.
The CPP framework emerged in 2024 when Mr. Rodríguez was energy and oil minister. Its activities are characterized by opaqueness, as it is protected by Article 37 of the Anti-Blockade Law, which was enacted in 2019 to avoid sanctions imposed on PDVSA.
The clause establishes a regime of confidentiality and document secrecy, allowing the government to circumvent current hydrocarbon laws, which restrict private and foreign capital from participating in joint ventures and require PDVSA to maintain a majority stake.
On January 15, President Rodríguez told Congress that the introduction of the CPP in April 2024 would restore oil production from 900,000 barrels per day to 1.2 million barrels per day, and that investments under this model would reach nearly $900 million in 2025.
However, the introduction of the proposed changes was marred by controversy, as the bill was not made public until just hours before MPs convened for a first debate. Opposition parties rejected the vote, arguing that in a country with the world’s largest oil reserves, the energy law should be treated as a “social compact”, the result of extensive and thorough consultation among all stakeholders.
“Chevron model”
Luis Oliveros, dean of the economics department at the Metropolitan University of Caracas, said this is a positive sign that the law will formalize what is known as the “Chevron model.”
“This opens up space for foreign companies to have more flexibility and take over the technical, operational and financial management of the joint ventures they run,” he said. However, he added that eliminating the required majority stake in PDVSA would have been more attractive to foreign investors.
Oswaldo Ferizzola, coordinator of Venezuela’s International Center for Energy and Environment (CIEA), told Al Jazeera that the reforms contain enough elements to attract new capital investment into the industry, but ultimately fall short.
“What is being proposed is necessary, but not sufficient. The law needs to be updated for the 21st century,” Ferizzola said. “However, it is no longer statistical enough to paralyze the industry.”
He noted that many incumbent companies may move to other operating models to improve profitability, but warned that the framework remains seriously flawed. He said: “This law is not a law that will advance the role of oil in the coming years because it does not take into account current and future issues, such as climate change.”
Fellizzola said the conditions outlined in the reform are close to the model that prevailed in Venezuela in the last quarter of the 20th century. “Do we need further reforms? Yes. But at least we are well-equipped to cooperate and the Venezuelan government has allowed us to do so.”
Before the reform bill is enacted, it will need to move to the consultation stage and undergo a second article-by-article debate in the Diet. It’s not clear when that will happen.
Meanwhile, energy cooperation with the Trump administration is already having an impact on Venezuela’s economy. This week, the country received its first $300 million from U.S. oil sales, earmarked for stabilizing foreign exchange markets.
“We are seeing change,” Guerra said. “The Rodríguez-Trump agreement is clearly being implemented and oil revenues are already flowing in. With the lifting of sanctions, Venezuela will be able to sell at market prices rather than at a discount as before. At the very least, oil revenues this year are expected to increase by 30% compared to last year.”
