The first reaction of investors was clear: after the US attack on Venezuela, the prices of shares in American oil companies rose significantly. Chevron, the only major US oil company that has remained in the Latin American country, grew particularly strongly. Many US refineries specialize in processing the heavy oil produced in Venezuela. They have made a business model out of the fact that this oil is traded at a discount because of the complex processing into gasoline, diesel and kerosene. Many refineries have not yet been technically converted to use light “fracking” oil from domestic production. As the largest oil producer in the world, the USA is also one of the largest importers of crude oil.
Hans-Jürgen Burchardt, professor of international relations at the University of Kassel, sees the oil reserves as “a motive, but certainly not the only one” for the American government’s actions in Venezuela. Fracking shale oil is very expensive and complex. “The US will reach its oil ‘peak point’ in 2030, after which production will decline.” The country needs supplies. “After all, the motto is: Drill, baby, drill.” But Burchardt also points out the political dimension of the attack: “Trump is explicitly following the Monroe Doctrine. Then, as now, it is about a clear demarcation from Europe.”
Reactivation will be expensive
What is certain is that it will be extremely expensive to reactivate Venezuela’s oil production. Although the country has the largest reserves in the world, as a producer it has fallen to 20th place among the leading producing nations as a result of mismanagement and sanctions – to an estimated less than a million barrels a day.
Brad Setser, a researcher at the Council on Foreign Relations in New York, estimates that the country could earn $15 billion a year from oil exports in the short term and $30 billion in a few years. However, ongoing production and investments in the apparently dilapidated oil infrastructure would have to be paid for from the income. Trump is of the opinion that the US oil companies, some of which have been expropriated from Venezuela, must be compensated and that Venezuela must bear the costs of the American military presence.
However, Venezuela and its state oil company have accumulated a large mountain of debt and stopped making interest and principal payments some time ago. Brad Setser’s conclusion is: In the short term, there is no oil revenue stream large enough to simultaneously finance today’s imports, service old demands and make new investments.
Does the US need oil from Venezuela?
In previous US interventions, the public’s spontaneous judgment was often that the US was after oil, even though it claimed to be fighting for democracy. This time it’s the other way around, writes Luis Garicano, economics professor at the London School of Economics, on Platform X: “Trump says it’s about oil – but that’s not what it’s about.” Even if the USA were to acquire all the oil, this would only be a marginal amount for the USA: around 0.1 percent of gross domestic product – roughly what Nvidia generates in a quarter, says Garicano. This cannot justify the enormous political risk.
This fits with a statement by American Secretary of State Marco Rubio that the USA has a lot of oil and is not dependent on supplies from Venezuela. But he confirmed that the large reserves play a strategic role: “You cannot continue to leave the largest oil reserves in the world under the control of opponents of the United States without the people of this country benefiting from it,” Rubio told NBC on Sunday. He is keeping an eye on Russia and China, whose growing influence on Venezuela is viewed as threatening by the US government.
The current oil price plays a role
In general, the recovery of the oil sector in Venezuela depends on the willingness of companies from the USA and other countries to invest billions of dollars in Venezuela. With the current low oil price of around $60 per barrel (around 159 liters), experts believe this willingness is low. U.S. companies “will be reluctant to enter unless there is a stable security environment. And they will demand very favorable terms to reduce risk, especially as markets are oversupplied in the near term and prices are low,” Eurasia Group analyst Gregory Brew wrote, according to Axios.
“The actions of the Americans in Venezuela should be a wake-up call for all Europeans,” says German politics professor Hans-Jürgen Burchardt: “It shows: In order to enforce their political and economic interests, the USA also uses the military if necessary. They consciously break international law and criminal law when it benefits them. There is no longer any guarantee of a rules-based order in economic policy either.”
“Mercosur agreement is more important than ever”
Burchardt advocates for the EU to focus more on other countries: “The Mercosur agreement is now more important than ever. Europe has two main zones of influence: South America and Africa. South America offers the best options economically.” In particular, cooperation with Brazil urgently needs to be expanded. But better cooperation with Asia is also important: “We have to see a country like China more as a partner and not so much as a competitor.”
In his plea for a readjustment of economic policy, the researcher is not only concerned with the pure trade volume, but also with the substantive orientation. “Europe should not join Trump’s fossilism, but rather boldly represent the counter-model,” says Burchardt: “The decarbonization of the world cannot be stopped. In the future, solar energy will be significantly cheaper than oil.” Burchardt concludes with a political warning: “We must take Trump’s threats to Greenland seriously. The EU must counter this and prepare for an emergency. If the USA attacks Greenland, there is no way around sanctions.”
