Since sanctions have been placed on Russian oil following the invasion of Ukraine, much of the Western world has been scrambling to find alternative sources of the hydrocarbon, with the measures being taken including extended exploration contracts in the North Sea of the UK, efforts to negotiate with Saudi crown princes and controversial discussions with Venezuela (namely between Joe Biden’s US administration and Nicolás Maduro’s semi-official government in Venezuela).
This renewed spotlight on Venezuela and its vast oil reserves (the most abundant globally at 18.2% of total barrels in 2016, according to Worldometer) has sparked debate on whether or not Venezuela’s hydrocarbon reserves will ever be successfully utilised. It also begs the question of what a fully functioning Venezuelan oil sector would look like.
Hypothetically, if the country's many issues – poor infrastructure, a steady decline in production (as illustrated in the chart above), political corruption, sanctions on its oil sector and a lack of talent – were ignored, what would Venezuela be capable of?
Who might import Venezuela's oil?
One of the key advantages that Venezuela has when it comes to the supply of oil is its location. Situated on the north-east coast of South America, the country borders Brazil, Colombia and Guyana and could serve North American and Latin American markets (it is also relatively close to the Panama Canal), which could be particularly beneficial for the US and its long-term goal of shortening supply chains.
However, would these partnerships, historic or otherwise, translate into a thriving oil industry in Venezuela? When it comes to the US, there are two key deterrents to importing oil from the country: a lack of infrastructure and distrust of the Venezuelan government. The latter seems unlikely to be resolved while Maduro is president and the sanctions against him and his government are in place.
Andrew Inkpen, a professor of management at Arizona University, adds: “The significant Russian and Cuban presence in Venezuela will prohibit any US willingness to lift sanctions. [Furthermore] the US has always been a key market for Venezuelan crude, but in recent years the US oil industry has been just fine without it. But the Russian presence in Venezuela would have to be removed before the US would ever consider lifting those sanctions.”
Associations with Russia and Cuba are not an issue for China, however, which is currently Venezuela’s biggest crude customer. In 2021, according to data from Kpler, China bought approximately 324 million barrels of oil from Iran and Venezuela combined, an increase of 53% when compared with 2020 figures. Therefore, if Venezuela were to improve its infrastructure, increase production and cultivate a more favourable trade environment, China holds great potential as a key export location for Venezuela.
Among other major global economies, in March 2022, Indian oil minister Hardeep Singh Puri made his country's stance on importing oil from Venezuela quite clear, saying: “It is our hope and expectation that oil, not only from Venezuela but from other countries under sanction, will become available. I am hopeful that we will all use collectively our margin of persuasion... to request the international community to make more [Venezuelan] oil available.”
Finally, a 2019 oil spill on the Brazilian coastline – believed by many in the country to have been caused by Venezuelan oil – may have dampened any trading spirit between the two countries. However, when energy shortages or a rising cost of living are on the cards, politicians – in Brazil and elsewhere in the world – will often put aside such issues if it stops their poll ratings from taking a hammering.
How many barrels of oil could Venezuela export?
So, with few certainties when it comes to the potential buyers of Venezuelan oil, what of its production capabilities? When it comes to how many barrels of oil Venezuela could produce at maximum capacity, the estimates are widespread (although the number is currently forecast to diminish into 2025, according to GlobalData figures).
There is even debate about just how much oil the country is producing in 2022, according to Leonardo Vivas, a former fellow at the Carr Centre for Human Rights Policy and lecturer on Latin American at Emerson College in Massachusetts. “Maduro says that Venezuela is currently producing one million barrels per day [bpd], but that is not correct," he says. "Opec sources show that production is closer to 678,000 barrels per day. In order to get double of that, it would take a whole lot of investment.”
Inkpen agrees with Vivas's numbers. “Production has fallen from more than two million barrels per day in 2016 to about 600,000 barrels." he says. "Venezuela could add about 400,000 barrels per day fairly quickly if sanctions were lifted but getting back to over two million bpd will take many years.”
So if production could pick up by 400,000bpd in the short term, but a long-term increase in production would take hefty investment, who is most likely to foot the bill?
Who will invest in the Venezuelan oil sector?
When it comes to obstacles to investing in Venezuela's oil industry, Inkpen highlights broken equipment, derelict oil fields and a lack of talent as the key areas. Moreover, until US sanctions are lifted, government-backed FDI from Western countries seems unlikely, but private investment is another matter.
As of April 2022, the US's Chevron remains in the country, as does Italy’s ENI and Spain’s Repsol. Another US company with a vested interest is ExxonMobil, which was in and out of Venezuela between 2015 and 2019, so could potentially re-enter the market if the situation changes.
It seems that a redemption for Venezuela’s oil market – at least on a global scale – is a long way off while the country retains its links with Russia and is bound by US sanctions. Yet, as the global oil market continues to fluctuate in the aftermath of Russia's invasion of Ukraine, it would be foolish to write off Venezuela's oil industry entirely, as being the lesser of two evils can prove lucrative in international markets when it comes to much-needed natural resources.