Venezuela's Oil Industry Under the Leadership of the Great Leader Chávez (excerpted translation)

Theoretically, Venezuela is indeed a 'petrostate', but not all petrostates conform to the stereotypical image often associated with Gulf countries like Saudi Arabia. Venezuela’s oil endowments and current realities diverge markedly from that stereotype. In fact, even back in 2006—when Hugo Chávez’s so-called '21st-century socialism' was still blazing brightly—Venezuela’s oil sector was already hollowed out beneath the surface. An Economist article from that year (economist.com/special-r...) offers insight into the actual situation at the time. Below is my translation of its section on Venezuela. Petróleos de Venezuela, S.A. (PDVSA) is one of the world’s largest oil companies. Its trajectory serves as a cautionary tale illustrating just how dire things can become. Venezuela has exported oil since the 16th century: Emperor Charles V of the Habsburg dynasty reportedly received shipments of Venezuelan oil from his mother, who sent it to Spain to treat his severe gout. Major multinational corporations such as Shell established operations in Venezuela nearly a century ago. By the 1930s, Venezuela had become the world’s second-largest oil producer. Today, it remains one of the United States’ principal sources of imported oil. Venezuela possesses enormous oil production potential: counting its virtually inexhaustible reserves of viscous 'ultra-heavy' crude, it holds the world’s largest proven oil reserves. Like many developing countries, Venezuela nationalized its oil industry in the 1970s. Yet Venezuelan policymakers learned from the chaos that Pemex—the Mexican state-owned oil company, then Latin America’s largest—had caused in Mexico’s oilfields since the 1930s. Consequently, Venezuela designed a structure intended to minimize the disruptive impact of nationalization. The pre-existing foreign concessionaires became autonomous divisions within PDVSA, and many of their original managers retained their positions. Thanks precisely to these prudent measures, PDVSA earned a reputation for professionalism and efficiency unmatched by most other national oil companies. It was widely perceived as relatively insulated from the corruption and cronyism endemic in Venezuela—corruption and cronyism fueled precisely by oil wealth. PDVSA was indeed highly efficient: employing only one-third as many staff as Pemex, it nonetheless matched Pemex’s oil output. In the 1990s, PDVSA launched a program aiming to raise daily production to 6.5 million barrels. To achieve this, the company planned both to boost its own output and to contract out marginal fields to foreign firms. Luis Giusti, who served as PDVSA’s president from 1994 to 1999, stated that the goal was to leverage multinational corporations’ technology and capital—without surrendering the most profitable opportunities to them. By 1998, approximately 36 foreign companies had established operations in Venezuela and were rapidly scaling up production. Meanwhile, PDVSA’s daily output had reached 2.9 million barrels, and the company was seeking government approval to increase investment and expand capacity.

65 Billion Barrels of Oil, a 25-Year Agreement: Has Venezuela’s Oil Bowl Really Been Carried Away This Time?

Yet the very next day, Venezuela’s acting president, Delcy Rodríguez, announced a different version of the agreement on national television. She described it as a 25-year bilateral development project covering 17 strategic oilfields, expected to attract roughly $100 billion in investment, raise daily oil production to over 1.5 million barrels, and generate more than $209 billion in tax revenue for the Venezuelan government. One version emphasizes 'control'; the other stresses 'development cooperation'. Earlier, U.S. officials had indicated that the development rights for the relevant oilfields might extend up to 100 years, whereas Venezuela insists the project term is 25 years. Since the full text of the agreement has not been made public, external observers cannot yet confirm all its details. However, according to factual statements released by the White House, the U.S. side—beyond holding equity stakes—has secured arrangements to purchase part of the output at cost price, and retains priority purchasing rights over the remainder. Chevron, for instance, plans to invest approximately $7 billion to develop two large oilfields in Venezuela’s Orinoco Belt. This sum is critically important for Venezuela, which has suffered from chronic underinvestment and technological neglect for years—and for the United States, it represents a vital opportunity to re-enter Venezuela’s oil sector. What does '65 billion barrels' actually mean? Venezuela’s proven oil reserves stand at roughly 303 billion barrels—the largest in the world. The agreement covers 65 billion barrels, representing about one-fifth of its total reserves: a substantial portion of Venezuela’s petroleum inheritance. Yet this does not mean the United States can immediately extract or claim 65 billion barrels. The term 'control' here does not necessarily equate to ownership of the resource; the oil remains underground in Venezuela, and legal sovereignty over the resource may still reside with Venezuela. 1.5 million barrels per day—how far back must we go to find that level? A daily output of 1.5 million barrels is not an unattainable new record. Around 2013, Venezuela was still producing approximately 2.5 million barrels per day; at its peak in the late 1990s, output exceeded 3 million barrels per day. On August 25, Rodríguez stated that Venezuela’s current daily production had surpassed 1.23 million barrels—the highest since February 2019. Earlier this year, however, that figure stood at only around 940,000 barrels per day. Now, having signed a long-term agreement and attracted massive investment, Venezuela’s immediate priority is restoring output to past levels. The oil industry is not simply a matter of turning a valve to release oil. Equipment requires maintenance, wells need refurbishment, heavy-oil extraction depends on advanced technology, and transportation and refining infrastructure demands sustained investment. Years of underinvestment, sanctions, and mismanagement have compounded one another, leaving Venezuela’s oil industry far removed from the notion that 'resources underground automatically translate into revenue above ground.' And when a country must enter long-term agreements to secure funding and technology, possessing resources does not guarantee retaining full autonomy. At $65 per barrel, how much does Venezuela actually keep? Another figure reveals even more starkly the weight of this agreement. Rodríguez stated that, assuming a benchmark price of $65 per barrel, Venezuela receives approximately $19 per barrel sold. In other words, for every $65 barrel sold, Venezuela retains less than one-third.

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