Gene Kuleta, Editor, Latin America Advisor publications

U.S. President Donald Trump on Aug. 28 announced what he called the “biggest oil deal in world history,” under which a private company, North American Blue Energy Partners, received 100-year concessions to 17 Venezuelan oil fields holding roughly 65 billion barrels of proven reserves, with the U.S. government securing a 35 percent equity stake in the company’s corporate parent and the right to purchase a fifth of the company’s production at cost. Venezuela’s interim president, Delcy Rodríguez, has said the agreement with the United States would run for 25 years with a production target of more than 1.5 million barrels per day, calling it the start of a new era of recovery and growth for the country. What does Venezuela gain and give up under the terms of this agreement? What effect, will the deal have on U.S. gasoline prices, and what role might it play in the broader stabilization and reconstruction plan Washington has outlined for Venezuela?

Bob McNally, president of Rapidan Energy Group: “I’m not a fan of the U.S. government taking ownership stakes in private companies, foreign or domestic. Moreover, details remain murky; the deal’s legal footing is untested, political backing from Washington and Caracas could evaporate under new administrations, and Alejandro Betancourt is controversial. Those objections and concerns aside, if the deal sticks, it may help Caracas obtain the massive foreign capital and technology it badly needs, plus a partner in Washington with a real stake in making these projects succeed. In exchange, Venezuela hands over long-dated control over a fifth of its reserves to a company under direct U.S. influence, betting that NABEP can execute and that Washington remains committed long enough to ensure success. None of these developments will affect near-term gasoline prices. Washington can buy roughly 30,000-40,000 barrels a day at cost from fields already producing, but that is still not enough to make a significant difference. The $100 billion investment NABEP has pledged will take years to turn into barrels. Venezuelan production gains will remain incremental through 2027-2028. The larger opportunity lies further ahead. Global demand is still climbing while investment in new supply has lagged for years. This gap turns into a structural shortage early next decade. Venezuela is one of the few countries with reserves large enough to help close it. Even without formal U.S. government ownership, major international oil companies like Chevron and Eni see the opportunity this medium-term supply-demand gap offers and have recently announced large new investments in Venezuela’s oil sector.”

Rachel Ziemba, founder of Ziemba Insights and adjunct fellow at the Center for a New American Security: “The deal is unlikely to have a near-term effect on U.S. gasoline prices given the timeframe for implementing projects. At best, and if this venture and the parallel PDVSA contracts with global companies work, we will continue to see gradual increases in Venezuelan fuel supplies, which would add to global supplies and reinforce the reliance of Venezuela on U.S. refinery capacity. Many of the fields granted to NABEP were those previously operated by China, which have been in limbo since the Maduro extraction and were already struggling to produce beforehand. The new structure gives up Venezuelan sovereignty and decisions about who the fuel can be sold to, and it may reduce potential revenues. However, if NABEP and partners are able to bring in capital and equipment and follow through on their revenue plans, it could be beneficial to Venezuela. The challenge is one of replacing one form of cronyism with another and exposing these Venezuelan investments to both U.S. and Venezuelan political cycles via the Pentagon investment. A greater U.S. stake may indeed make future expropriation more difficult, but the real question is if they are able to scale up production, if Venezuela is allowed to collect government revenues and support local growth. The bulk of most energy and mining revenues are currently trapped in locked accounts in the United States shielding them from creditors and the government but also restraining growth in Venezuela. It may be side deals like power projects and those direct with international oil companies like Chevron and Eni that provide more growth, fuel and revenues in the near-term.”

Juan Pablo Fuentes, assistant director and economist at Moody’s Analytics: “On paper, the deal offers Venezuela an opportunity to unlock its vast oil potential by attracting massive investment over the coming years and decades. However, the Trump administration’s deal with the interim government led by Delcy Rodríguez poses significant political and legal risks that will likely hinder investment and oil output. The agreement does not offer a road map for restoring democracy in Venezuela. Furthermore, it seemingly legitimizes the Rodríguez government and disregards any input the democratic opposition might have had on the agreement. A more advantageous agreement for Venezuela would have been possible if those fields had been offered to multiple oil companies through an open bidding process. However, such a process would have required a stable, secure legal and political environment that does not exist and could take years to build. In that regard, this agreement offered the interim Venezuelan government a shortcut to boost much-needed investment. In the best-case scenario, Venezuela’s oil production could increase by about 150,000 barrels per day over the next year, a significant increase for Venezuela but insignificant for the global oil market. The effect on international oil prices would be negligible in the short term and small in the medium term. More substantial increases might occur in the medium-to long-term. However, this will require a massive investment to build and upgrade infrastructure. The agreement with the United States does not specify the source of the needed funding.”

David Smilde, professor at Tulane University and senior fellow at the Washington Office on Latin America: “From what we know of it so far, this plan looks like it will favor economic stabilization and oil-sector reconstruction over democratic transition. The Trump administration forged this deal precisely because the oil majors have not made the big investments the country needs. Most new money has been dedicated to expanding existing production and recovering dormant oil wells. Few companies want to make multi-billion-dollar, multi-decade investments in a country controlled by an unpopular, unelected government. The U.S. government is effectively underwriting this deal not with financial capital but by using its geopolitical power to reduce the investment risks. However, in doing so the U.S. government now has an abiding economic interest in the continuity of Venezuela’s unpopular leadership and less incentive to push it into a presidential election it would likely lose. In this sense, this oil deal does not bode well for the Venezuelans’ aspirations for a return to democracy. It is important to remember, however, that arrangements between the United States and its neighbors to the south were common a hundred years ago. The United States moved away from them not out of the goodness of its heart but because they ended up being more costly to maintain than simply relying on market mechanisms for trade. Likewise in this case, thinking that a country whose population has clear memories of democracy and sovereignty will submit to this type of deal for years to come is likely to be a costly miscalculation.”

Francisco J. Monaldi, director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy: “The announcement leaves many open questions. The negotiation was opaque and not competitive, which is likely to raise political risk, contrary to its intended objective. Venezuela’s legal framework does not allow concessions or selling production at cost. In practice, PDVSA hires NABEP to invest in and operate these fields in exchange for a share of the output. The fiscal framework is unclear. Three of the fields were already operated by NABEP, with combined output of some 180,000 barrels per day. The other 14 fields include six extra-heavy greenfields and eight brownfields. Over the next few years, NABEP’s output growth will come largely from the three original fields and should accelerate now that NABEP will get an OFAC license and U.S. government backing. In the short run, though, the deal is unlikely to add more than 100,000-150,000 barrels per day. Other producing fields operated by Chevron and Repsol could add 200,000 barrels per day. The impact of the deal on world crude, gasoline and diesel prices will be minimal. In the long term, the more consequential deals are probably the unrelated contracts recently signed by Chevron, Eni and qualified independents like Geopark and Hunt. Venezuela can add two million barrels per day in seven to 10 years, but that requires transparent, competitive contracts and the restoration of democracy and the rule of law. That would be a win for Venezuela, the U.S. and global economic stability. Unfortunately, this deal looks like a wasted opportunity to derisk long-term investment in Venezuela’s oil sector.”

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What Will the New U.S.-Venezuela Oil Deal Deliver?