Latin Analysis: Who Owns Venezuela’s Oil?
Venezuelan Bolivarian Government Site
It is no secret that Venezuela is the country with the greatest oil reserves in the world. Not that many years ago, given the abundance of the resource, it was one of the most economically-promising countries in Latin America – even more so than OECD members as Mexico, Chile, Brazil, and Colombia – and was expected to take the leap to become a developed nation over the years and aid its Latino neighbours to boost growth rates throughout the continent. At the time, the state-owned enterprise (SOE) Petróleos de Venezuela (PDVSA) was one of the most successful around the globe, as not only did it effectively supplied the country, but exported millions of gallons to several nations.
After the crisis sparked during Chavez’s administration, the Venezuelan positive prospects for development naturally disappeared, and the abundance of oil did not seem to be the answer to the country’s economic depression. Yet, despite the Venezuelan collapse and the oil prices crisis, the country managed to maintain its activities of oil production and exportation. However, as the country is in such a vulnerable political and economic position, the management of its reserves of oil has become a polemic and tricky business.
A country with two presidents
It has been known for some years now, that Venezuela’s official president is Nicolás Maduro, but that Juan Guaidó self-declared himself interim president of Venezuela to challenge the communist dictatorship. Consequently, countries which reprove of the holding on to power of the leftist Venezuelan leader decided to then impose high tariffs to the imports of Venezuelan oil. Particularly the US, supported by the EU countries, froze the PDVSA assets in America and decided that the sales of the remaining oil reserves in the country would be directed towards a trust fund that will be provided to Guiadó’s government when he accomplishes to get full control of the Venezuelan government. Additionally, the American government added PDVSA to the Specially Designed Nationals companies listing, which indicates that both citizens and companies should avoid establishing any type of transactions or deals with the SOE.
Given that the US was previously the top buyer of Venezuelan oil, the abovementioned measures represent a tough economical hit for Maduro’s government and is hoped to further pressure him to leave office. Indeed, the effect has been so immediate, that Venezuelan oil exports dropped dramatically, followed by a necessary reduction of the oil extraction activities which has reached historically low levels. Due to this situation, domestic authorities have claimed that the US has kidnapped the Venezuelan oil.
Russia is Maduro’s biggest ally
As a consequence of the stringent sanctions the US imposed on the Venezuelan oil imports, Russia decided to step up to aid the vulnerable situation of the Latin American country. Russian oil company ROSNEFT became the world distributor of Venezuelan oil, as well as the main provider of infrastructure and funding to keep the excavation and transportation activities going. As of today, the main buyers have come to be India and China, which remain (not without controversy) some of the few nations that do not recognise Guaidó as the Venezuelan president.
Although Venezuelan oil has kept its production and that India and China buy millions of gallons per year, the US blockade of the PDVSA has intensively harmed the finances of the SOE, and therefore, the total governmental budget of the Venezuelan government has been dramatically affected. Thus, Russia has directly funded Maduro’s governmental activities with more than USD 15 million, as well as has provided economic support for gold-excavation activities, which are now managed by Russian companies as well.
This situation has inevitably solidified the bond between both leftist governments, reflected on Maduro’s multiple visits to Moscow, such that PDVSA has gradually closed all its offices and headquarters from right-wing governments (particularly European) which had professed support to the interim president Guaidó.
Considering the panorama, it is needless to say that the oil industry in Venezuela does not seem like a very attractive destination for foreign direct investors which do not whole-heartedly support a specific political ideology and its prevalence within the country. Additionally, investors from capitalist right-wing governments (except for a few countries) are discouraged to direct their capital to the Venezuelan market due to rigid regulations that significantly increase investment risk and reduce potential revenue rates.
This cold war-like conflict over the Venezuelan oil has been considered by experts as a further manifestation of the long US vs Russia battle, portrayed on their support for one of the two current Venezuelan presidents. Nevertheless, even when Maduro’s administration was not expected to last very long due to the international pressure, it has managed to hold on to power for many years. Therefore, the fact that the Venezuelan government is now suffering further attacks on its economy is no guarantee that the dictatorship will end any time soon – especially now that Russia became its major sponsor.
Right now, the US has partial control on the Venezuelan oil due to the frozen assets and oil preserved in the country, however, it has been Russia who has keep the production going and who has been taking decisions on the management of the hydrocarbon. It is argued that the only way Venezuela can re-take the control of the oil reserves is if Guaidó is able to obtain total control of the government by gaining more international support and influence over domestic institutions. Contrarily, if Maduro manages to continue as head of government, it appears that Russia will continuously grow its control on the Venezuelan reserves.
