After abducting Venezuelan President Nicolas Maduro, US President Donald Trump has promised to “take back” Venezuela’s oil reserves and release them onto the world market.
However, experts warn that exploiting the country’s vast reserves would present a number of significant challenges, including growing oil shortages, decrepit infrastructure, and legal challenges to Caracas’ leadership uncertainty.
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Venezuela currently produces only a small portion of the world’s oil output, which is estimated to be around 303 billion barrels. However, it has the largest known oil reserves in the world at this time. Compared to 3.7 million barrels per day (bpd) during peak production in 1970, its estimated output was 860, 000 barrels per day (bpd), which is less than 1% of the global total.
The decline of the oil sector was brought on by Maduro and his left-wing predecessor Hugo Chavez’ combined effects of US sanctions and years of underinvestment, mismanagement, and corruption.
According to energy analysts, restoring Venezuela’s output to levels at their peak levels would require significant investment and take years. However, the Trump administration could raise supply in the short term by lifting sanctions.
Venezuela’s oil infrastructure is in poor shape, according to the report.
Due to market expectations that output will remain largely unchanged for the foreseeable future, oil prices moved only marginally in Monday trading.
According to Scott Montgomery, a global energy expert at the University of Washington, “Venezuela’s oil infrastructure is overall in poor shape due to lack of maintenance for both equipment and oilfield wells.”
According to Montgomery, “The state oil company, PDVSA, is well known for having corruption and lacking in expertise; many well-trained individuals have moved elsewhere to work, and has been unable to invest in the country’s petroleum sector.”
According to Thomas O’Donnell, an energy and geopolitical analyst based in Berlin, Germany, Venezuela could experience peak production in five to seven years under the “absolute best” conditions, including a peaceful power transfer.
“Longer term, if things are resolved, Venezuela may become one of the world’s largest oil producers. According to O’Donnell, how long that process takes depends entirely on the transition and what is put in place to manage both the security of the country and the investments.
Trump administration messaging is divergent
Trump’s administration has disputed Venezuela’s exact plans, as well as its oil reserves.
Trump stated on Saturday that the US would “run” Venezuela and that US oil companies would make billions of dollars to “get the oil flowing” and to repair the country’s crumbling infrastructure.
US Secretary of State Marco Rubio addressed Trump’s claims that he was “running policy” and that his plans to encourage private investment were “not securing the oilfields” in interviews with US media on Sunday.
Trump later claimed that without providing any further information, Washington was “in charge” of the nation and was “dealing with” members of the acting administration.
As sovereign states have the right to control and use their natural resources in accordance with the United Nations’ Principle of Permanent Sovereignty over Natural Resources, the US has no right to control Venezuela’s oil reserves under international law.
However, when authorities seize their assets, foreign investors may be entitled to compensation.
Following the Chavez government’s 2007 nationalization of the oil sector, ExxonMobil and ConocoPhillips were awarded $1.6 billion and $ 8.7 billion, respectively, in international arbitration. In neither case did Caracas receive a payout.
Trump’s assertions about planned investments in Venezuela have not been directly addressed by US oil giants, including ExxonMobil, ExxonMobil, and ConocoPhillips.
The result of Chevron’s first major US oil company, the administration of former President Joe Biden, is the only large US oil company operating in Venezuela at the moment.
According to research firm Rystad Energy, based in Oslo, Norway, Venezuela’s oil sector would need about $110 billion to regain its mid-2010s output of about 2 million barrels per day.
Companies may be reluctant to make significant investments in the nation when supply is out of balance, according to Patrick De Haan, an analyst for energy price tracking service GasBuddy.
“It will take more time than most people will realize,” he declared. With oil prices already low, oil companies would likely be cautious investing billions in a low-priced environment, De Haan told Al Jazeera.
“In addition, Trump’s capture of Maduro could cause loyalists to sabotage efforts to boost output. The most optimistic timelines would require a lot of right-of-center operations.
Following their own experiences with the Chavez government’s expropriation of their assets, US companies are likely to weigh Venezuela’s political developments carefully.
According to Montgomery, an oil company at the University of Washington, “oil companies are not likely to rush into a situation where the state is in turmoil, security is lacking, and there is no clear way to achieve political stability.”
Maduro is scheduled to appear in court in New York.
Following a ruling from Venezuela’s Supreme Court, interim president Delcy Rodriguez, who was Maduro’s deputy, is now in charge of the nation.
On Monday, Maduro is scheduled to appear in court in New York on suspicion of working with criminal gangs and allegedly supplying drugs.
Maduro’s arrest was deemed a “cowardly kidnapping,” according to Venezuela’s government, which has condemned the Trump administration’s response to the bombing and overthrow of the country on Saturday.
Other nations, including Russia, China, Iran, and Brazil, have criticized Washington for breaking international law, while countries like Israel, Argentina, and Greece have welcomed Maduro’s forced removal.
Venezuela is yet another factor in the Latin American nation’s potential oil output because of OPEC, which places production limits on its 12 members.
According to De Haan, “Venezuela is a member of OPEC, and as with many other nations, it may become more actively subject to quotas.”
Although Price Futures Group’s market analyst Phil Flynn was more optimistic than other analysts about the near-term prospects, he predicted that reviving Venezuela’s oil production would face “significant challenges.”
He claimed that in the foreseeable future, there might be a few hundred thousand more barrels of oil coming online.
Source: Aljazeera
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