Category World 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.

The United States says it will control sales of Venezuelan oil “indefinitely” and decide how the proceeds of those sales are used, as President Donald Trump’s administration consolidates control over the South American country after abducting its president.

The US Department of Energy said on Wednesday that it had “begun marketing” Venezuelan oil on global markets and all proceeds from the sales “will first settle in US-controlled accounts at globally recognized banks”.

“These funds will be disbursed for the benefit of the American people and the Venezuelan people at the discretion of the US government,” it said.

“These oil sales begin immediately with the anticipated sale of approximately 30-50 million barrels. They will continue indefinitely.”

In the hours afterwards, Trump himself weighed in on how the proceeds might be spent, suggesting that Venezuela had agreed to use its funds to buy products from the US.

“I have just been informed that Venezuela is going to be purchasing ONLY American Made Products, with the money they receive from our new Oil Deal,” Trump wrote on his platform, Truth Social.

“These purchases will include, among other things, American Agricultural Products, and American Made Medicines, Medical Devices, and Equipment to improve Venezuela’s Electric Grid and Energy Facilities.”

The announcement comes just days after the Trump administration abducted Venezuelan President Nicolas Maduro on Saturday in what legal experts say was a clear violation of international law.

The US has said it plans to “run” the country and take control of its vast oil reserves, with Trump saying on social media on Tuesday that Caracas would hand between 30 and 50 million barrels of oil over to Washington.

The US actions against Venezuela come amid a months-long pressure campaign by the Trump administration against Maduro, who has been charged in New York with drug trafficking offences that he denies.

That has included a partial US naval blockade against Venezuela and the seizure of several vessels that the Trump administration says were transporting oil to and from the country in violation of US sanctions.

Earlier on Wednesday, US special forces seized two Venezuela-linked vessels – including a Russian-flagged ship in the North Atlantic – for allegedly breaching those sanctions.

The seizures came as senior US officials briefed lawmakers on Capitol Hill about the Trump administration’s plans in Venezuela.

Reporting from Washington, DC, Al Jazeera’s Alan Fisher said most Republicans have backed Trump’s actions while Democrats have raised a slew of questions.

That includes “how long this operation in Venezuela will continue, what it will cost, [whether] any American servicemen actually be deployed on the ground in Venezuela, and what is the Venezuelan reaction,” Fisher explained.

“The Trump administration [is] hoping to get everyone on side before the end of the day,” he added.

Democratic Senator Elizabeth Warren wrote on social media that Wednesday’s briefing was “worse” than imagined.

“Oil company executives seem to know more about Trump’s secret plan to ‘run’ Venezuela than the American people. We need public Senate hearings NOW,” she said.

Three-phased plan

US Secretary of State Marco Rubio told reporters on Wednesday that the Trump administration is pursuing a three-phased plan that begins with the sales of Venezuelan oil.

“That money will then be handled in such a way that we will control how it’s dispersed in a way that benefits the Venezuelan people, not corruption, not the regime,” Rubio said.

The second phase would see US and other companies gain access to the Venezuelan market, and “begin to create the process of reconciliation nationally … so that opposition forces can be amnestied and released from prisons or brought back to the country”.

“And then the third phase, of course, would be one of transition,” Rubio added.

Gregory Brew, a senior analyst on Iran and energy at Eurasia Group, said the US announcement about controlling Venezuelan oil sales hints at “a return to the concessionary system” in place before the 1970s.

Brew explained in a social media post that, under that system, “producer states own the oil but it is Western firms that manage production and marketing, ultimately retain the bulk of the profits”.

A group of United Nations experts also warned that recent statements from Trump and other administration officials about plans to “run” Venezuela and exploit its oil reserves would violate international law.

Specifically, the experts said the US position contravenes “the right of peoples to self-determination and their associated sovereignty over natural resources, cornerstones of international human rights law”.

“Venezuela’s vast natural resources, including the largest proven oil reserves in the world, must not be cynically exploited through thinly veiled pretexts to legitimise military aggression, foreign occupation, or regime-change strategies,” they said.

Political situation unstable

Renata Segura, the Latin America and Caribbean programme director at the International Crisis Group, noted Venezuelan authorities have not commented on the US saying it plans to control sales of the country’s oil.

“And so we have to assume that either [the Venezuelan authorities] have accepted these terms, or that they’re just going to be forced to accept them,” Segura told Al Jazeera.

Venezuelan Vice President Delcy Rodriguez was sworn in as president earlier this week following Maduro’s abduction, stressing on Tuesday that “there is no foreign agent governing Venezuela” despite US claims to “run” the country.

Segura explained, “There’s a lot of debate within the [Venezuelan] regime itself about how to move forward” amid the US pronouncements, stressing the political situation remains far from stable.

“It’s very important what the army might do,” she said.