The United States’ capture of Venezuelan President Nicolás Maduro following air strikes on Caracas has shifted attention to Venezuela’s vast oil reserves. It has also raised questions over the role energy interests may have played in Washington’s decision. While speaking to the press after the dramatic capture of Venezuelan President Nicolás Maduro, President Donald Trump said that the US will be “running Venezuela now” until his administration can ensure “a safe, proper and judicious transition”.
Trump did not dwell into the specifics of running the country. However, the large-scale US strike on Caracas earlier on Saturday has pointed to the question if this was about politics or did the country’s oil finally decide Maduro’s fate?
According to the US Energy Information Administration, Venezuela sits atop the largest proven oil reserves on Earth, an estimated 303 billion barrels, roughly one-fifth of global reserves. That staggering figure dwarfs the reserves of Iraq and Saudi Arabia and it is difficult to separate Venezuela’s political turmoil from the value buried beneath its soil. With oil trading at around $57 a barrel, Venezuela’s estimated reserves translate into a staggering valuation of roughly $17.3 trillion. Put differently, control over that oil would amount to assets worth more than the combined GDP of every country in the world except the United States and China.
“The conflict there, in my view, is not about democracy or about progress…It’s about minerals and oil. People do not realize that Venezuela has the largest reserves of oil in the world…The Trump Administration and President Trump want control over Venezuela,” India’s former MoS for External Affairs MJ Akbar said.
The Venezuelan government has also said that the goal of the attack was for the United States to take possession of the country’s oil and minerals. And US President Donald Trump has made little effort to downplay energy considerations. In an interview with Fox News after the operation, Trump said Washington would be “very strongly involved” in Venezuela’s oil industry.
Yet Venezuela’s oil story is one of immense potential colliding with years of decay.
Why does Venezuela’s crude still matter to US?
Strategically, Venezuelan crude still matters, especially to the United States. Much of US oil production is light and sweet, ideal for gasoline but less suitable for diesel, asphalt and heavy industrial fuels. Venezuela’s heavy, sour crude fills that gap. Many US refineries were built specifically to process Venezuelan oil and operate more efficiently with it, senior market analyst Phil Flynn told CNN.
That reality has fuelled speculation that Maduro’s downfall was accelerated not just by politics, but by energy math. “If indeed this continues to go smoothly — and it looks like a masterful operation so far — and US companies are allowed to go back and rebuild the Venezuelan oil industry, it could be a game-changer for the global oil market,” Flynn said.
According to Giovanni Staunovo, Strategist at UBS, “It is still early to fully assess the impact, but Venezuelan production and exports have been trending lower since the US began blocking oil tankers.”
Oil giant in decline
Production once peaked at around 3.5 million barrels per day in the 1970s, accounting for more than 7% of global output. Under Maduro, output collapsed. Last year, Venezuela produced roughly 1.1 million barrels per day, less than 1% of global supply and less than half of what it pumped when Maduro took office in 2013.
Sanctions imposed by the United States and its allies played a role, but they were only part of the problem. Chronic underinvestment, mismanagement, corruption and the steady deterioration of infrastructure hollowed out the industry. Refineries fell into disrepair, skilled workers fled the country and oil facilities became increasingly unreliable.
How will this impact the market?
This is why markets have remained relatively calm despite the shock of US strikes. Even a complete disruption of Venezuelan supply would not dramatically move global oil prices. The country simply does not produce enough oil today to trigger a major price spike.
For now, Maduro is gone, Venezuela is at a crossroads and its 303 billion oil endowment looms large. Whether those reserves sealed the fate of both the country and its long-ruling strongman may only become clear as the next chapter unfolds.