The U.S. – Venezuela deal
Not long ago, Venezuela closest friends and economic parters were Cuba, Russia and China as well as regional leftist regimes such as Nicaragua and Bolivia. Cuba provided deep intelligence, security, and medical personnel and Cuba relied on Venezuela for discounted oil in a relatively destructive economic relationship. Russia acted as a major military and political backer and invested heavily in energy and helped Venezuela evade international sanctions. China lent tens of billions of dollars over the years and served as a top buyer of Venezuelan crude oil, while blocking U.S.-led pressure at the UN. Iran supplied critical economic and political backing, including shipments of gasoline during severe shortages.
From the moment U.S. troops swooped into president Maduro’s compound in Caracas to remove him from power in January, Trump made clear that securing control over Venezuela’s oil resources was a key goal of his administration. The U.S. would run Venezuela, he said at the time, and manage the sale of Venezuelan oil for the foreseeable future. The recent signing of a huge U.S.-Venezuela oil deal in Caracas marks the fruition of that plan. The agreement grants a U.S.-led company 100-year concessions over 17 oilfields in Venezuela, amounting to a staggering 65 billion barrels of crude. That equates to more than a fifth of the country’s proven oil reserves.
Beyond the eye-watering numbers, both sides heralded the deal as good for their respective nations. Trump called it the biggest oil deal in world history, while the interim Venezuelan President, Delcy Rodríguez, said the agreement was historic, and would generate $100bn in investment and more than $200bn in tax revenue. The White House released a fact sheet which set out some details of the deal’s framework. The U.S. government will work alongside a private business in Venezuela called North American Blue Energy Partners (Nabep), the second largest private oil producer in Venezuela after Chevron.
One extraordinary detail of how the Trump administration will work with Nabep is that the U.S. government will have veto power over the appointment of any member of the board of directors, and a majority of Nabep’s board of directors must be U.S. citizens. The U.S. is moving into the power vacuum and will extend its power incrementally in Venezuela. This is not necessarily bad for the country given the economic problems under the former corrupt regime. With the ongoing U.S. war with Iran increasing prices at the petrol pumps, a boost in oil production outside of the Middle East could affect consumers. The pact might shift the geopolitical center of the global energy markets away from the Middle East to the Western Hemisphere.
The Trump White House has spoken of the deal having re-established the Monroe Doctrine, the 19th century principle exerting U.S. power across South America, purging foreign influence from the U.S. backyard and ensuring American dominance in the western hemisphere is never again be questioned.
The are some questions about the deal though. The proposed timeframe alone is problematic. Trump has said the agreement will generate profit within two or three years. Energy experts, however, warn the dire state of the Venezuelan oil sector means a decade is more realistic. After years of self-destructive Venezuelan economic policies, the country needs to invest about $100bn over eight years in order to return to its oil production levels of 30 years ago. Also, who will manage the oil production? Are they going to put the same people in charge of managing that money who already squandered the biggest oil boom of the century, referring to past mismanagement of the country’s oil wealth.
The Venezuelan opposition is concerned the deal deepens Trump’s relationship with Delcy Rodríguez, whom they accuse of heading the same regime as Maduro. The ease and speed with which Washington has now pivoted to working with Maduro’s former vice-president infuriates the opposition. What happened to restoring constitutional order and democracy? The lack of an imminent election in Venezuela, or, any clear plan towards one, strikes many opponents as a betrayal. There is likely part neo-colonialism with the deal, but after decades of corruption, mismanagement and partner misalignment, the future will be better for Venezuela with a close alignment to the U.S., and for the U.S., this is clearly a great long-term economic deal. Overall, a significant victory for the Trump administration.