The unimportance of Venezuelan oil

 

Venezuela's century-old oil industry is living its worst hours not because of sanctions but because of Chavismo's incompetence.

Hugo Chávez came to power with the monetary and political support of Arab kingdoms that saw a defiant Venezuela growing its oil production before 1998. Had Hugo Chávez not come to power, Venezuela would be close to 8 million barrels per day right now.

25 years later, they are celebrating if they reach 900,000 barrels per day, after receiving a production capacity of 3.5 million barrels per day in 1999. The Saudis and other kingdoms wanted Venezuela to stay part of OPEC. They wanted to keep the same levels of production and helped Chávez come to power. But then he betrayed them by working with the Persians, although he was still employed with the task at hand. Chávez did the dirty work of not only keeping production levels the same but destroying them, which benefited his Arab, Russian, North American, Latin American, African etc. oil competitors. I know many will think it was Maduro. But actually, Maduro just continued the work that Chavez had started.

Venezuelan crude oil was already hard to sell, which is why the company that controlled Venezuela's oil before Chávez, PDVSA, built up a powerful marketing and refining network. This network was also destroyed by the Chavista movement over the last 25 years.

Venezuela has a lot of heavy and sour crude, and it has the potential to produce conventional crude, associated gas and free natural gas. It is likely that these resources will not be used because the government is not making the investments needed. The energy transition will take time, but it will happen. So, at most, the crude oil, if new materials technology allows it, will only be used for petrochemicals in 20 to 30 years. As Yamani said, 'the stone age did not end for lack of stones'.

In this situation, it is wrong to think that Venezuelan hydrocarbons are an important part of Venezuela's political situation. This idea is made stronger by the arrival of Trump. One option is that Trump will ask to enter Venezuela in exchange for keeping Maduro stable, but this is unlikely to be easy for either side. This is because Trump wants to develop the American oil industry before the next election, and because Maduro doesn't keep his promises and his power is based on a criminal and corrupt network that makes it difficult to do business.

As we said in another post, the Venezuelan oil industry can only be developed sustainably if democracy is restored and the economy is managed in a liberal way with the rule of law. We also talked about how using oil to influence geopolitical situations is wrong in another post.

In short, when it comes to hydrocarbons, it's not about how much you own, but how much you can produce and sell. For this to happen, the shockpoints must be free, which is why it's important to have large global navies. At the moment, while China makes its own, only the United States has the capacity to do this. If the energy transition fails (which is unlikely) and the US oil drive fails, and if China develops a global navy and closed geopolitical blocs are consolidated, then Venezuela's oil would be very important. As you can see, it is highly unlikely that everything will come together at the same time.

Chavismo is doing the United States and other oil powers a favour by leaving these oil reserves under the ground, which will be available if the things mentioned above happen at the same time. Then, and only then, will it matter that Venezuela has these reserves. But this probably won't happen.

Unfortunately, the oil factor will continue to be used as an important part of analyses. This will happen in the same way as it did in Iraq and Africa. There, it was used to justify senseless wars and illegal agreements against the Venezuelan population. The fact is that Venezuelan oil is not very important. But the stories made up by some powerful people are another matter. The good news is that the influence of big oil will no longer be a problem for Venezuela, and the country's people will no longer be opposed by powerful elites. If Venezuela stops being a petro-rentier, it will become a normal, productive society. This will be a difficult process, but it is possible.