To boost oil supplies, US looks to lift sanctions on Venezuela

American and Venezuelan officials have been holding talks for several months. Despite the Venezuelan opposition being opposed to contact between Washington and the Maduro regime, the Biden administration is prioritizing energy security.

Venezuela’s vast oil reserves have piqued the interest of the United States and Western Europe, especially since oil prices have skyrocketed following the Russian invasion of Ukraine. Over the last 10 months, Putin has repeatedly threatened to cut off energy supplies to Europe, while Saudi Arabia has reduced oil production, despite pleas made by Western leaders.

“Relaxing sanctions is, at this moment, more urgent for the United States than for Venezuela,” says economist and university professor Víctor Álvarez. Biden is willing to overlook human rights abuses in countries like Venezuela or Saudi Arabia, in order to safeguard oil supplies for Americans and their European allies.

The Maduro regime is eager to use oil concessions as bargaining chips to reintegrate itself into the international community. With the exploitation of new oil fields in the Orinoco Belt, to the south, and in Boscán, to the west of the country, the Venezuela government – which is almost entirely dependent on revenue from crude exports – is hoping to dramatically increase its income. The country may be able to increase oil production by an additional 200,000 barrels per day in the short and medium-term.

Energy multinationals like Chevron and Repsol have been lobbying their respective countries – the United States and Spain – to remove sanctions on Venezuela, so that they may freely bid on gas and oil concessions without risk of legal repercussions. There is speculation that other major American and French companies are eager to make deals with the Venezuelan government, should Western sanctions – which were imposed to curtail human rights abuses and force Maduro from power – be lifted.

Maduro – like his predecessor, Hugo Chávez – has been unable to turn a substantial profit from the state-owned Petróleos de Venezuela (PDVSA). At the start of 2022, the socialist leader vowed that his country would produce two million barrels of crude per day by the end of the year. It is now November – Venezuela struggles to produce even 700,000 barrels on a daily basis. This subpar output is due to corruption, mismanagement and an exodus of petroleum and chemical engineers from the ravaged economy.

In its best year, PDVSA managed to produce 3.2 million barrels a day. The US is hoping that this number can be reached again, in order to flood the global market with Venezuela crude, lower prices at the pump and curtail Putin’s oil and gas revenue.

Current Venezuelan law requires that the state be the majority shareholder in any energy endeavor. Francisco Monaldi – an economist from Stanford who specializes in the energy sector – explains that, in the past, the socialist Venezuelan government has seized the assets of many private companies operating within the country.

“Chevron is owed a lot of money,” he notes. And, if oil giants plan on recovering any of what they have lost, they will need to do the work themselves. “They would be obliged to invest immediately [in Venezuelan energy projects] and increase production to obtain profits… the Venezuela state would keep 33% of the royalties.” On the other hand, Maduro would be obliged to sign contracts that do not require the majority of profits to go to the state, as current law dictates.

Monaldi calculates that, in the very short term, Chevron’s investments could raise local production by about 50,000 barrels per day.

“I don’t think there are many US multinationals willing to make new investments in Venezuela,” explains economist Francisco Rodríguez. “PDVSA and the Maduro government have a very serious reputation problem in the world of finance with their way of doing business. The United States needs Venezuela right now to meet its needs… but a partial easing of sanctions will not cause the country’s oil production to increase by much. For that to happen, all international sanctions would have to be completely lifted.”

Even then, there is no guarantee. After years of a hostile and nationalistic tone towards private and global capital, Maduro is now calling on the international community to trust him and invest in Venezuela’s oil fields, presenting them as an alternative to replace the high international demand for energy. His rhetoric is tempting energy executives, especially within an inflationary context and an increase in the price of fuel due to the imminence of winter.

Álvarez feels that, in order to get sanctions lifted, Maduro will be offering conciliatory gestures soon. He may release political prisoners, or lift bans on opposition politicians. “At the moment, these measures wouldn’t have any significant costs for Chavismo.” Maduro and the military are firmly in control.