One thing is clear from U.S. President Donald Trump's oracular Aug. 28 announcement of "the biggest oil deal in world history" with Venezuela and Venezuelan counterpart Delcy Rodriguez's sketchy clarifications: The two leaders are doubling down on each other.
That won't necessarily facilitate the $100 billion of U.S. investment in Venezuelan hydrocarbons that Trump promises.
Oil drilling generally involves daunting capital expenditures that pay back over years if not decades. That's particularly true in Venezuela, whose "super heavy" crude reserves require a very expensive "upgrading" process before refining into fuels and petrochemicals, says Clayton Seigle, a senior associate at the Center for Strategic and International Studies. "Only the majors could decide to bring in tens of billions of dollars for upgrader facilities," he says.
Those leading global oil companies have taken a cautious approach to Venezuela since U.S. forces seized President Nicolás Maduro this January and recognized Rodriguez as interim president.
Delcy, as Rodriguez is broadly known, showed signs of inching toward broader political participation, meeting opposition leaders for six days in mid-August. "There was some move to negotiations after the earthquakes," says Alejandro Velasco, a New York University professor who follows Venezuela, referring to natural disasters that killed some 6,500 Venezuelans in June.
That went out the window for now with the secretly negotiated Trump deal, which saw Delcy theoretically yielding 65 billion barrels worth of oil reserves to U.S. "majority control."
She can pull off the authoritarian retrenchment in the short term, Velasco predicts. The liberal opposition was caught off guard and has limited maneuver given unofficial leader Maria Corina Machado's own embrace of Trump. She gave the president her Nobel Peace Prize medal at a White House meeting in January, presumably counting on his help to re-enter Venezuelan politics.
"I have not seen any news out of the opposition after the oil announcement, which is sadly shocking," Velasco says.
Delcy is potentially antagonizing rank-and-file supporters of her own "Chavezista" political movement, who have sworn by an anti-imperialist and specifically anti-American credo since Hugo Chávez declared his "Bolivarian Revolution" in 1999, Velasco adds. "This constitutes the final betrayal for the base of Chavismo," he says. "If they take to the streets, it could create the appearance of social instability."
Delcy's political risk won't pay off in a flood of investment so long as the parameters of the U.S. agreement remain so vague, Seigle says. Trump offered no clue, for instance, on the private entity that is meant to manage the oil riches on Washington's behalf, nor whether the reserves involved are "green fields" that need to be mapped and drilled from scratch or abandoned or underproducing "brown fields."
"What we are missing here are the facts," Seigle observes.
Trump's dictat may in fact hinder the steady progress Venezuelan oil has made since Maduro was deposed on Jan. 3, he says. Production is on track to rise 20% this year, Seigle calculates. Chevron, the only oil major still operating in the country, expanded two joint venture positions in April, hewing to "disciplined development of the country's significant resources." SLB, the oil services giant formerly known as Schlumberger, contracted with Caracas to update reams of reserves data that was formerly a state secret.
Rewriting the ground rules in secret and seemingly off the cuff might cause them and others to think again, Seigle says. "There is a chance of negative consequences, that this causes international companies to have more concerns, not less," he says.
With Trump set to leave office in 29 months and Rodriguez sitting atop a political powder keg, their unlikely partnership is too weak a basis for a $100 billion investment boom.
"Is this situation sustainable?" Velasco asks rhetorically. "No, it is not."
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