News

As the fallout from the United States’ abduction of Venezuelan President Nicolas Maduro continues to unfold, an immediate question is how his ouster will impact Venezuela’s economy.

A lot will depend on any relief in US sanctions on Venezuela, relations between Maduro’s replacement and the US, and, perhaps most crucially of all, what happens to revenues from Venezuela’s vast oil reserves, according to analysts.

Since Maduro’s capture on Saturday, the US has issued a series of announcements about Venezuela’s oil, the world’s largest known reserves, at lightning speed.

On Wednesday, US President Donald Trump’s administration, which has threatened Venezuela’s interim government with further consequences if it does not cooperate with its demands, said Washington would control Venezuela’s oil sales “indefinitely”.

US Energy Secretary Chris Wright said the US had already started marketing the sanctioned oil, held in storage until now due to the US embargo on Venezuelan exports, and that it planned to control all future sales.

Proceeds from those sales will be held in US Treasury accounts, with the money to be shared between the US and Venezuela, Wright said, without offering further details, including what proportion of the proceeds would go to Caracas.

Wright’s comments came a day after the Trump administration said it had struck a deal with Caracas to export up to $2bn worth of Venezuelan crude to the US, under which Venezuela will be “turning over” between 30 and 50 million barrels of sanctioned oil.

In the longer term, the Trump administration is likely to ease sanctions on the importation of Venezuelan oil “and eventually [the] import of equipment and capital”, Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, told Al Jazeera.

Trump, who has claimed that US oil companies are primed to invest billions in Venezuela’s oil sector, will likely issue licences to specific US businesses, facilitating an influx of foreign investors who can provide capital, equipment and expertise, Ziemba said.

Venezuela’s current oil output, at close to 1 million barrels per day (bpd), is far below the 1990s peak of 3.5 million bpd.

But none of this is expected to take place any time soon.

Ziemba said she anticipated that the US would maintain some sanctions on Caracas, though some oil exports are likely to continue to escape the measures, especially if Washington does not share revenues with the country.

US oil company interests ‘a myth’

Despite the Trump administration’s announcements, there continues to be a “great deal of uncertainty” about what will happen next, said Cynthia Arnson, an adjunct lecturer at the Johns Hopkins School of Advanced International Studies.

“Oil companies make very costly investments and usually in difficult environments. So until it’s clear which way this is going, and how much stability is there … the idea that the capture of Maduro will cause US oil companies to jump into Venezuela is also a myth,” Arnson told Al Jazeera.

There is a chance things could worsen for the Venezuelan economy before they get better, especially as it is not clear how soon – if at all – the US government will reimburse the country for its sanctioned oil.

According to Tim Hunter, senior economist for Latin America at Oxford Economics, 78 percent of the Venezuelan government’s budget is allocated to social spending.

With those finances squeezed, there could be “very quick knock-on consequences in terms of social spending, which in turn comes with a risk of social unrest”, Hunter told Al Jazeera.

Already, locals are experiencing a sharp increase in prices in some daily essentials, as Al Jazeera has reported.

Ultimately, oil revenues will be key to the revival of Venezuela’s economy, said Benjamin Radd, a senior fellow at the UCLA Burkle Center for International Relations.

But getting the Latin American country’s oil market ready will take massive investment in infrastructure, “so we are years away before we see any of that in Venezuela”, Radd told Al Jazeera.

While Trump has pledged to “run” Venezuela and control energy sales, there has been little clarity on what that would entail.

“Trump has been very vague on this entire process,” Radd said.

A key factor is the structure of Venezuela’s government, which has been left largely in place, in contrast to the de-Ba’athification of Iraq following the US’s 2003 invasion.

“It is also not clear what is the status of the legitimacy of the current Venezuelan government, [or] what economic measures can they even undertake,” Radd said.

United States President Donald Trump has issued a stern warning to defence contractors that supply the US military, accusing them of profiteering.

In a Truth Social post on Wednesday, he threatened to take action if the companies failed to take specific actions, including capping executive pay, investing in the construction of factories and producing more military equipment at a faster clip.

“MILITARY EQUIPMENT IS NOT BEING MADE FAST ENOUGH,” Trump wrote at one point in his lengthy, 322-word post.

“It must be built now with the Dividends, Stock Buybacks, and Over Compensation of Executives, rather than borrowing from Financial Institutions, or getting the money from your Government.”

Trump singled out the technology company Raytheon as the worst offender, in his eyes.

“I have been informed by the Department of War that Defense Contractor, Raytheon, has been the least responsive to the needs of the Department of War, the slowest in increasing their volume, and the most aggressive spending on their Shareholders rather than the needs and demands of the United States Military,” Trump wrote in a follow-up post.

The president threatened to sever government ties with Raytheon, now known as RTX, which earns billions from its defence contract work.

Just last August, the Department of Defence awarded the firm $50bn – the maximum possible – for a 20-year contract to supply the military with equipment, services and repairs.

“Our Country comes FIRST, and they’re going to have to learn that, the hard way,” Trump warned.

Defence spending fuels a significant portion of the US economy: As of 2024, Defence Department spending represented approximately 2.7 percent of the US gross domestic product (GDP).

Normally, the total defence budget hovers around $1 trillion. But in a Wednesday evening post on Truth Social, Trump announced that he would petition congressional Republicans to boost that amount to a record $1.5 trillion for fiscal year 2027.

“This will allow us to build the ‘Dream Military’ that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe,” Trump wrote.

Still, Trump’s threats sent stocks for defence contractors plummeting, amid uncertainty over the future of the high-stakes industry.

Since taking office for a second term, Trump has taken an aggressive, hands-on approach to private companies that have ties to national security concerns.

In June, for instance, the Trump administration was awarded a “golden share” in the metal company US Steel, in exchange for giving a green light to its merger with Japan’s Nippon Steel. That share allows the Trump administration to essentially have a veto over any major action US Steel may take to reorganise or dissolve.

Then, in August, the technology firm Intel struck a deal to sell the US government a 10-percent stake in its company, amid pressure from Trump.

The Trump administration has continued to snap up stakes in other private firms, most notably mining companies involved in the production of rare earth minerals and other raw materials used in technology.

It is not yet clear how Trump plans to enforce his demands for the defence contractors he blasted in Wednesday’s social media messages. Nor is it certain that Trump could legally enforce his orders.

But Trump aired a list of grievances against the companies, including that their executives’ pay was simply too large.

“Executive Pay Packages in the Defense Industry are exorbitant and unjustifiable given how slowly these Companies are delivering vital Equipment to our Military, and our Allies,” he wrote at one point.

At another, he called on the private firms to invest in new construction projects, a request he has made across industries, from the pharmaceutical sector to automakers.

“From this moment forward, these Executives must build NEW and MODERN Production Plants, both for delivering and maintaining this important Equipment, and for building the latest Models of future Military Equipment,” Trump said.

“Until they do so, no Executive should be allowed to make in excess of $5 Million Dollars which, as high as it sounds, is a mere fraction of what they are making now.”

He also complained that the defence companies were “far too slow” in offering repairs for their equipment.

Defence contractors are responsible for a range of services and products, from software to training to missiles and tanks. RTX, for example, designed the Patriot Missile, the US’s flagship surface-to-air missile system, and it keeps the US military supplied with spare parts and other updates.

Based in Virginia, the company boasted sales exceeding $80bn in 2024. Just this week, the US Federal Aviation Administration (FAA) awarded RTX a $438m contract to update its radar system.

Still, Trump maintained that too much of that income was going to shareholders, executive pay and stock buybacks, wherein a company purchases its own shares in order to limit their supply and increase their value.

“Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment,” Trump wrote.