Key messages
- The Venezuelan oil sector has been severely damaged by almost 30 years of energy nationalism and a decade of US sanctions.
- There is the possibility of three basic scenarios: a legitimate government open to international companies; an exclusive realignment with the US; and uncertainty due to a power vacuum.
- The repercussions on oil markets will be limited but worrying for some of Venezuela’s traditional allies.
- President Trump’s corollary to the Monroe Doctrine and his strategy of energy dominance should also be of concern to US allies.
Analysis
Introduction
The US intervention in Venezuela and the capture of its President, Nicolás Maduro, leaves an uncertain political landscape that will largely determine the country’s oil future and, with it, its economic and social prospects. President Trump’s rejection of a rapid transition to an opposition government based on the results of the 2024 presidential elections and his insistence on controlling the country’s oil have raised many questions about Venezuela’s political future and the possible mechanisms for controlling its resources. This uncertainty is projected onto an oil sector ravaged by nearly three decades of energy nationalism, mismanagement and corruption under Chavismo, aggravated by US sanctions over the past decade.
This paper first outlines the evolution of Venezuela’s oil production, the energy nationalism policies adopted by Chavismo and the US sanctions and oil blockade. Secondly, it explores three basic scenarios for Venezuelan oil: a democratically legitimate government open to all foreign investors; an exclusive realignment with the US that erodes the country’s energy sovereignty; and a power vacuum that prevents oil sector reform and its credibility in the medium and long term. Finally, it outlines the main international repercussions of these scenarios on the oil market, some of Chavismo’s traditional allies and several US partners, including the EU.
An oil sector ravaged by energy nationalism and sanctions[1]
The negative effects of the nationalist and interventionist policies of the Chavista regime and the accumulation of US sanctions have caused Venezuela to go from producing almost 3.5 million barrels per day (mbd) in 1998, before Hugo Chávez became President, to only 800,000 barrels/day (bd) in December 2025, less than 0.8% of global production. Venezuela has almost 20% of the world’s oil reserves, the largest due to its huge reserves of unconventional ultra-heavy crude oil in the Orinoco belt, one of the most expensive to extract and process due to its high density. In contrast, the reserves located in the Maracaibo and Monagas basins contain conventional resources, which are much smaller than those in the Orinoco Belt but less expensive to exploit. Some fields near Lake Maracaibo, such as those in the Bolívar coastal complex (the largest oilfield in South America), have been producing since the 1920s. Production in the Monagas basin is more recent and is concentrated in the El Furrial giant heavy-oil field, discovered in the 1980s and considered the jewel of the state oil company PDVSA.
As shown in Figure 1, Venezuela reached a peak production of almost 3.8 mbd in 1970, but after the nationalisation of the oil sector and the imposition of quotas by the newly created OPEC, it fell below 2 mbd in the middle of the following decade. Venezuela is a founding member of OPEC and one of its traditional ‘hawks’, consistently supporting the cartel’s production restrictions due to its own difficulties in increasing production. A second peak of almost 3.5 mbd was reached in 1998 because of the opening to foreign investment in previous years. The boom ended when Chávez came to power the following year and his confrontation with PDVSA’s leaders led to the 2002 strike, which paralysed the country’s oil production and resulted in the departure of many of the most qualified personnel and their replacement by regime loyalists. The end of the strike allowed a rapid recovery in production, supported by high oil prices due to a strong demand and new production restrictions by OPEC.
This favourable price context prompted President Chávez to deepen his energy nationalism, forcing international companies operating in the country to restructure their agreements with PDVSA to give it a majority stake in their joint projects. When the US companies ExxonMobil and ConocoPhillips refused to restructure, their assets were requisitioned by the Venezuelan state and they resorted to international arbitration. Both won their arbitration cases, which awarded them millions in compensation that Venezuela never paid. This is what President Trump refers to when he speaks, improperly, of ‘theft’ from US oil companies: the expropriations were not carried out correctly nor were they compensated, but there was no oil theft because it was and always will be Venezuelan and US companies only had concessions; in fact, Chevron has continued to operate under the new conditions to date.
The departure of international companies caused a further decline in production up to the present day. At the same time, the deterioration of the Venezuelan economy led to a rapid decline in the country’s oil consumption from the mid-2010s, which, as shown in Figure 1, has also continued to this day. The drop in consumption initially cushioned the fall in exports, but it was unable to offset the production collapse when the first Trump Administration and its policy of maximum pressure on Venezuela imposed the initial sanctions on oil.
In 2017 Trump’s first Administration imposed its initial sanctions on Venezuela’s oil sector, prohibiting its government and PDVSA from accessing financial markets, freezing their assets in the US and forbidding US nationals from conducting transactions with them and their subsidiaries. Trump also imposed secondary sanctions on those who did business with Venezuelan oil companies, including shipping companies and traders, thus encouraging the emergence of a dark fleet to circumvent them, expanding the influence of Iran and Russia and incentivising a greater opacity and corruption in the sector. The sanctions drove many Western companies out of the country due to the impossibility of collecting payment for their services. Those that continued to operate limited their presence and investments, waiting for better times. As a result, production plummeted, falling from around 2.5 mbd in 2016 to less than 700,000 bd in 2021.
The Biden Administration adopted a more benign approach, pressured by the energy crisis triggered by the invasion of Ukraine and sanctions against Russian oil, which caused the price of WTI crude, the benchmark in the US, to exceed US$115 per barrel in May 2022. That same month, the Biden Administration authorised the resumption of some crude oil swap operations with PDVSA for the debt generated with several international companies, which had been suspended since 2020. It also authorised Chevron to resume its operations and exports to the US. Following the 2023 Barbados Agreements between the Venezuelan government and the opposition, in which Nicolás Maduro committed to presidential elections with full democratic guarantees, the US lifted sanctions on condition that the agreement was fulfilled. Although the impact on a sector severely damaged by a lack of investment and skilled labour was limited, in just two years production increased significantly by almost 250,000 bd to reach nearly 1 mbd in 2024. Nevertheless, under Biden the Treasury sanctioned several oil tankers in Venezuela’s dark fleet; for example, in November 2022 the Skipper (then Adisa) was sanctioned for its alleged role in an oil smuggling network benefiting the Iranian Revolutionary Guard and Hezbollah.
In 2025 Trump’s second presidency reinstated sanctions and a policy of maximum pressure at a frenetic pace. In February he announced the end of what he called Biden’s ‘concessions’ and revoked his licences, although at the end of July he allowed Chevron to continue operating to export oil to the US. In early September, the US military attacked the first vessel allegedly involved in drug trafficking and killed its 11 crew members, beginning a series of attacks that seemed to justify the growing US naval presence in the Caribbean. The oil dimension of this deployment became evident on 10 December with the seizure of the Skipper, followed by other oil tankers, some sanctioned but others not.
The US escalation against Venezuelan oil flows culminated on 16 December, when Trump announced on social media a ‘TOTAL AND COMPLETE BLOCKADE OF ALL SANCTIONED OIL TANKERS’ (in capital letters in the original) originating from or destined to Venezuela. Shortly thereafter, the Centuries was seized despite not being sanctioned, and at the time of writing five oil tankers had been seized, including one under the Russian flag, and the US Navy was reportedly pursuing several more in the Atlantic. On 31 December President Trump closed the year by adopting a new package of sanctions against four Chinese shipping companies and four dark fleet tankers. The blockade and the fear that new ships would be seized, both those exporting Venezuelan crude and those used to import the diluents needed to process it, reduced flows and saturated the country’s storage capacity. As a result, production, which remained at 1 mbd for much of 2025, fell to around 800,000 bd last December.
Three oil scenarios for Venezuela[2]
Three basic scenarios can be projected for Venezuelan oil. From best to worst: (1) a legitimate government open to foreign companies that gradually regains production levels; (2) a realignment with the US and its tight control of the sector’s recovery in a more or less exclusive and selective manner regarding which international companies are allowed to participate; and (3) a power vacuum that slows reforms and prolongs stagnation or even intensifies the production decline.
In this author’s opinion, the optimal scenario would be a reasonably rapid and orderly transition to a presidency emerging from the results of the 2024 elections, when Edmundo González won with the support of an opposition coalition. This transfer of power cannot happen overnight, but it should have a clear timetable and horizon and be a matter of months, not years. A democratically elected government would have sufficient legitimacy to undertake the urgent and profound reforms, many of them unpopular, that the Venezuelan oil sector requires: depoliticisation, transparency, rationalisation, efficiency and openness to foreign investment, starting with reforming PDVSA, but always preserving the country’s energy sovereignty and control over its resources. Without sanctions or blockades, the sector could reintegrate into international markets to resume normal operations, accessing the investments, services, diluents and professionals essential to revitalise it and gradually recover production.
In the short term, the end of the blockade would allow the release of stored oil awaiting export to a volume that President Trump himself has estimated at up to 50 million barrels. Regarding production, and according to some estimates, it could increase in a few months by up to 200,000 bpd without the need to invest in new exploration and production projects. All that would be needed is access to international financing, the diluents and the technologies necessary to process the country’s ultra-heavy sour crude oil, and relatively modest investments in existing operations. The experience of the Biden Administration’s easing of sanctions shows how, in just two years, production increased by almost 250,000 bd. This recovery could be greater and faster in the medium term, reaching between 300,000 and 500,000 bpd by mid-2027, still far from the 700,000 bd targeted by the US Energy Secretary Chris Wright. In any case, this would be a very substantial increase for the Venezuelan economy, but also significant for global markets.
In the long term, the opening up to international companies could encourage sustained investment in exploration and production as happened in the 1990s, and in a few years’ time could approach the peak reached at that time. According to Rystad Energy, it would be technically possible for Venezuela to reach a production of 3 mbd by 2040 with an investment of more than US$180 billion in the country’s oil and gas sectors as a whole. To recover the peak of 3.5 mbd, the oil sector would need some US$110 billion in investment in exploration and production alone, in addition to regaining the thousands of engineers and geologists who have left the country. Although analysts differ on how long it would take to restore production and to what extent, there is consensus that it would take years, massive investment and much more advantageous investment conditions than those that prevail in the country today, including democratic legitimacy, profound reforms of its energy sector and even constitutional reform.
This open scenario, respectful of democratic legitimacy, was apparently ruled out at the President Trump’s press conference on 3 January, when he made an ugly gesture dismissing Corina Machado and insisting on controlling Venezuelan oil. He did not specify what that control would consist of or what kind of deal it would involve, but he pointed at the new Venezuelan President, Delcy Rodríguez, as the person chosen to manage a seemingly long and closely supervised transition under the threat of further intervention. Applying the Trump corollary to the Monroe Doctrine developed in last November’s National Security Strategy, this would imply an exclusive and exclusionary control of Venezuelan natural resources by the US.
The exclusion of Russia and China can be justified by their connivence with Chavismo, but not that of European companies whose countries have supported the democratisation of Venezuela, recognised Edmundo González and put pressure on Maduro’s government. For now, the Trump Administration seems to have opted for the selective inclusion of those international companies already present in Venezuela. Obviously, Chinese and Russian oil companies would not be among those selected, raising the question of what will happen to the fields they operate in Venezuela. Eligibility would be conditional on the companies accepting the US Administration’s investment objectives, as shown by the warning to Exxon that it would be excluded from operations in Venezuela following a statement by its CEO that the country is currently ‘uninvestable’.
Under this second scenario, oil production would increase with the return of US and selected companies on preferential terms. However, the absence of competition from other foreign companies would reduce Venezuela’s room for manoeuvre and the expected benefits for its citizens. This forced oil alignment would imply renouncing to the country’s energy sovereignty and a subordination to US interests. If the objective is for the oil sector to fully recover before progressing towards a democratic transition, the latter could be delayed for years, losing credibility in the reforms necessary to attract long-term investment. Only through very aggressive incentives can US companies be expected to make the enormous investment effort that this would entail, especially in the current context of low oil prices. For some analysts, this scenario could even damage US energy security if a mercantilist model focused on immediate profits at the expense of a more balanced and open long-term development of the sector is imposed.
Finally, a worsening in the Venezuelan domestic political situation cannot be ruled out, which could affect the recovery of production in both the short and long term due to increased internal conflict. It is unclear whether the US approach is sustainable over time and could lead to a cycle of instability with periodic interventions that erode the sector’s investment framework and its credibility, plunging it into a state of uncertainty. Prolonged uncertainty creating a power vacuum between the remnants of Chavismo, US interventionism and the aspirations of the opposition would send a bad message to investors. The maintenance of sanctions and the blockade, the exclusion of non-US actors, and the lack of clarity regarding reforms and the role of PDVSA could prolong the deterioration of the country’s oil production, and therefore of its already painful economic situation.
International repercussions
The impact on prices has so far been very moderate in a global market affected by an overproduction of around 2 mbd. Only slight price increases were experienced at the beginning of the blockade, and the short-term outlook is bearish if the stored barrels are released. In the longer term, the gradual recovery in production would have an additional downward impact on prices as the new barrels gain share in the global oil supply. The increase in production would likely require Venezuela, currently exempt from OPEC+ quotas since 2016 due to the limitations imposed by sanctions, not to join in OPEC+ discipline as sanctions are lifted and production gradually recovers. It could even lead to the country leaving OPEC, weakening the cartel and reducing its market power.
The impact would be greater on the US market if it is confirmed as the sole or preferred destination for Venezuelan oil exports. US refineries in the Gulf of Mexico are equipped to refine heavy Venezuelan crude and suffer from excess capacity, so prices for refined products would tend to fall in the US market, one of President Trump’s stated goals. Lifting the blockade would also have a positive impact on Venezuelan oil revenues, and thus on the country’s economy. Some estimates suggest that Venezuela could treble its oil export revenues by redirecting them from China to the Gulf of Mexico, considering that the former incorporate a heavy discount on market prices to offset the risks and costs of the dark fleet.
Other direct impacts could affect different countries in the Western Hemisphere, in line with the Trump Administration’s desire to achieve energy dominance and its corollary to the Monroe Doctrine. Canada exports 80% of its oil to the US (around 3.6 mbd) and could be affected by the displacement of its heavy crude by Venezuelan crude, although analysts limit the impact. The bulk of Canadian heavy crude exports to the US goes to refineries in the Midwest via an efficient pipeline system that continues to the Gulf of Mexico. Competing with that market would require reversing the pipeline flow so that Venezuelan crude could reach these refineries. Refineries in Washington State on the west coast benefit from the Trans Mountain pipeline system, which provides direct low-cost access to Canadian crude oil, making Venezuelan oil transported by tanker less competitive. As a result, in the short term only Canadian crude exported to the Gulf of Mexico would seemingly be affected: some 350,000 bd, which would be above the maximum that Venezuela is expected to supply and less than 10% of Canada’s oil exports to the US.
Mexico could also be affected by competition from Venezuelan heavy crude, but only moderately. Mexican oil exports to the US have been falling for several years due to declining production and the reorientation of the country’s energy policy in favour of allocating more crude oil to its refineries and reducing imports of refined products from the US. The short-term impact would be felt mainly in a downward pressure on the prices of Mexican heavy oil exported to the US, rather than in its displacement. This development, although of limited short-term impact, poses difficulties for the national oil company PEMEX, which is burdened by an enormous debt, and erodes its attractiveness as an investment destination at a time when it needs to forge new alliances to reverse or at least contain further production decline.
There is broad consensus that the most affected country will be Cuba, which has been mired for years in a deep economic and energy crisis, with continuous blackouts and acute fuel shortages despite supplies of Venezuelan oil at very advantageous prices. Venezuela’s own economic crisis had already been reducing exports at subsidised political prices. Cuba needs around 100,000 bd, of which it produces close to 40,000 bd of heavy, high-sulphur crude oil for electricity generation in plants that are almost in ruins due to a lack of investment and maintenance. The rest must be imported, but Cuba lacks the foreign currency to purchase it at market prices, so it can only obtain supplies at subsidised prices from political allies. Venezuela supplied around 35,000 bd until the beginning of the blockade, when the flows were halted.
Cuba’s second largest supplier was Mexico, with some 22,000 bd exported by Gasolinas Bienestar, a subsidiary of PEMEX created to avoid being affected by the embargo on humanitarian grounds. However, they were reduced to some 7,000 bd from September onwards following a visit by Marco Rubio to Mexico City. Russia follows with some 10,000 bd, barely one tanker per month. Under these circumstances, a total cut in Venezuelan crude oil supplies would lead to a rapid and total collapse of the Cuban energy system. The US Energy Secretary, Chris Wright, recently said that the US will allow Mexico to continue exporting oil to Cuba without specifying quantities. While this would probably make Mexico the country’s largest supplier of oil and oil products it would barely be enough to prevent Cuba’s energy collapse.
China, the main buyer of Venezuelan crude oil, would be the most affected country outside the Americas. It is estimated that between 3%-4% of Chinese oil imports come from Venezuela, most of it transported by the dark fleet to circumvent US sanctions. Although this is not a vital percentage for China’s energy security, its disappearance would add to the pressure on Russian exports threatened by new US sanctions and instability in Iran, two major suppliers to China along with other Persian Gulf producers. Chinese companies are involved in oil projects that account for around 10% of Venezuelan production. Venezuela has received loans from China to be repaid with oil, worth around US$60 billion, more than half of those granted to Latin America as of 2023. It is estimated that Venezuela’s debt to China currently stands at between US$10 and US$12 billion, which would be difficult to recover if oil exports were to be interrupted. The repercussions for China are not limited to Venezuela, insofar as it shows the Trump presidency’s determination to exclude it from access to Latin American natural resources.
The implications for Russia are more political and strategic than economic or energy-related, but the latter are far from negligible. As an oil power, Russia is not a significant importer of Venezuelan crude oil; on the contrary, it supplied light crude oil and naphtha to dilute Venezuelan heavy crude oil through the dark fleet, circumventing sanctions for both parties. Russia’s interests include oil production and the recovery of unpaid debt. Its oil companies participate in joint venturesthat accounted for more than 20% of Venezuelan production in mid-2024. At the end of 2023, Venezuela owed Russia some US$1.5 billion in unpaid debts from PDVSA, but Russia’s exposure to Venezuela’s enormous debt is likely to be much greater. Although the identity of the holders of more than 80% of the bonds issued by Venezuela and PDVSA is unknown, there is evidence that several Russian oligarchs may hold significant amounts of both.
For Iran the immediate impact is also essentially political, but the economic and energy dimensions are still relevant. While for Russia the fall of Maduro is likely to close its main gateway to Latin America, for Iran it means losing one of its few remaining international allies after the fall of al-Assad and the weakening of Hamas and Hezbollah. Furthermore, the loss comes at a critical time for an Iranian regime beset by a deep economic crisis that has catalysed popular unrest into a political crisis with mass protests threatening its survival. Like Russia, Iran has supplied material for Venezuelan refineries, petrol and diluents; in exchange, it received heavy crude oil and gold through barter. Iran invested in the improvement of two Venezuelan refineries, El Palito and the Paraguaná refining complex, but has been unable to recover much of the debt incurred and the prospects of doing so are now even more uncertain.
As with Russia, the main negative impact for Iran would be a recovery in Venezuelan production without returning to OPEC+ discipline, from which Iran is equally exempt because it is also subject to sanctions. This would put additional downward pressure on oil prices in the medium and long term, on which both countries depend economically. Another adverse impact would be the eventual strengthening of US sanctions, extending them in the case of Russia and applying them more strictly to both countries. Conversely, China’s replacement of Venezuelan crude with Russian and Iranian oil could provide some economic relief to both countries by increasing the volume of their oil exports and, perhaps, reducing the heavy discounts imposed by Chinese companies.
For Europe, the repercussions will depend on which scenario materialises in the future. Unlike Russia and Iran, a drop in oil prices would help European economies, which have been severely affected by the energy crisis caused by Russia’s invasion of Ukraine. On the other hand and from a strategic perspective, the exclusive US control of Venezuelan oil would reinforce its energy dominance and could erode Europe’s presence in Latin America. It would also set a worrying precedent for European interests, from Greenland to countries in other regions supplying Europe with key natural resources. To conclude on an optimistic note, perhaps this reality check will encourage the EU to accelerate its measures towards a greater strategic autonomy in energy matters and to reach new agreements with other energy partners, such as the one recently approved with Mercosur.
Conclusions
The Venezuelan oil sector has suffered almost three decades of mismanagement, corruption, interventionism and energy nationalism under Chavismo, as well as a decade of US sanctions. The result has been a sharp decline in production, deteriorating infrastructure, an exodus of skilled personnel and a loss of influence in international markets. A full recovery to the production peaks of the 1990s could take years and will require the convergence of many factors.
This analysis proposes three stylised scenarios for Venezuela’s oil sector: (a) openness with democratically legitimised reforms; (b) US dominance; and (c) a power vacuum with stagnation. The future of the Venezuelan oil sector under the current uncertainty is determined by the Trump Administration’s insistence on tightly controlling it. However, a combination of the three scenarios could occur: the Trump presidency may offer prospects for democratic transition that provide certainty for the country’s oil governance, allow a limited and selective opening to some foreign companies and approve investment incentives, in addition to allowing part of the extracted crude oil to be traded in non-US markets. The uncertainty does not only affect oil, as Venezuela has large reserves of gas and minerals that could create more complex scenarios.
The international repercussions will also depend on which scenario tends to materialise. For Venezuela’s traditional allies, the impact will necessarily be negative at the strategic and economic levels, but with a variable intensity. Cuba is the most exposed country, as the cessation of Venezuelan subsidised oil exports would lead to the collapse of its energy sector in a matter of weeks, with the consequent worsening of its economic and humanitarian crisis. China, Russia and Iran run the risk of not recovering what Venezuela owes them and seeing the deterioration of the dark fleet that allows them to circumvent sanctions; and, in China’s case, access to sanctioned barrels at a price discount. A fall in oil prices due to the gradual increase in Venezuelan production would reduce Russian and Iranian revenues; to the contrary, it could offset the reduction in oil price discounts on Chinese imports.
For US traditional partners the main repercussions would likely be strategic. Economically, Canada and Mexico will be affected to a limited extent by competition from Venezuelan crude, while Europe may benefit from a moderation in oil prices. In contrast, US partners face a deterioration of their position in Latin America and a growing US energy dominance that makes them increasingly vulnerable. For Europe, the only solution seems to be to increase energy strategic autonomy by accelerating a competitive and orderly energy transition as suggested by the Draghi report, as well as strengthening its agreements with Latin America and diversifying alliances with other suppliers.
[1] There are several analyses of the evolution of Venezuelan oil production, the policies pursued by Chavismo and US sanctions. See, for instance, those published by the Elcano Royal Institute (in chronological order): P. Isbell (2007), Hugo Chávez y el futuro del petróleo venezolano (I): el resurgimiento del nacionalismo energético, ARI, 9/II/2007; P. Isbell (2007), Hugo Chávez y el futuro del petróleo venezolano (II): el pillaje de PDVSA y la amenaza a su nivel de producción, ARI, 12/II/2007; G. Escribano (2013), La política energética de Venezuela, con y sin Hugo Chávez, Comentario, nr 20/2013, 11/III/2013; G. Escribano (2017), El declive petrolero de Venezuela se acelera, Comentario, nr 51/2017, 11/XII/2017; and I. Urbasos (2024), El retorno de la Venezuela petrolera: las expectativas frente a la cruda realidad, ARI, nr 65/2024, 23/V/2024.
[2] This section updates and expands on the opinion piece published by the author in El País, ‘El bueno, el feo y el malo: tres escenarios para el petróleo en Venezuela’, 9/I/2026.
