Venezuela holds some of the largest proven oil reserves in the world, estimated at over 300 billion barrels, though the country’s oil production has significantly declined in recent years due to a combination of economic challenges, political instability, and infrastructure deterioration. In a move announced by the former U.S. administration, the United States has entered into an agreement with Venezuela and a private oil company to secure majority control of approximately 65 billion barrels of the nation’s oil reserves, representing about one-fifth of its total reserves.

The arrangement, unusual in the context of U.S. policy which typically favors private sector involvement over direct government stakes in oil assets, involves the U.S. government gaining the right to obtain a 35 percent equity stake in North American Blue Energy Partners (NABEP), Venezuela’s second-largest private oil company. Additionally, the U.S. would have the option to purchase 20 percent of the oil produced by NABEP at production cost, with rights to acquire the remaining 80 percent as well.

Venezuela’s oil industry has experienced dramatic shifts over the past decades. Once producing over three million barrels daily during the 1970s and 1990s, output has fallen sharply, with estimates from the International Energy Agency putting production at about 1.12 million barrels per day as of July 2023. The decline is attributed to entrenched corruption, financial mismanagement, U.S. sanctions, and lack of investment in oil infrastructure. The state-owned company, Petróleos de Venezuela (PDVSA), has struggled to maintain operations amid these challenges.

The relationship between the United States and Venezuelan oil has been complex. Historically, the U.S. was a major importer of Venezuelan crude, but trade largely ceased following sanctions introduced in 2019. Shipments resumed in 2023 and increased after U.S. forces apprehended Venezuelan President Nicolás Maduro in January of this year, though volumes remain below previous levels. Meanwhile, much of Venezuela’s output in recent years has been directed toward China.

The oil Venezuela produces is heavy crude, which is thicker and requires more processing than the lighter crude common in the U.S. Many American refineries are equipped to handle this type, making Venezuelan oil strategically significant. However, foreign investment in Venezuela has fluctuated over time. The country opened its oil sector to international companies in the 1990s but reversed course under former President Hugo Chávez, who in 2007 forced oil companies to reduce their stakes without compensation. Some firms, such as Chevron, remained and have since continued to operate, now accounting for a sizable share of the country’s production. Chevron is reportedly in advanced discussions to expand its presence in Venezuela.

Under the new deal, NABEP has stated intentions to invest $100 billion to boost production from its current output of around 200,000 barrels per day to over one million barrels per day. The Venezuelan government has projected that the agreement could generate approximately $200 billion in additional tax revenue. Nevertheless, many Venezuelans remain skeptical about the deal’s potential benefits, citing the country’s long-standing structural problems.

Given the scale of investment and infrastructural rehabilitation required, analysts caution that the agreement will not produce immediate increases in oil output or cause significant changes in global oil prices in the near term. The outcome of this U.S.-Venezuelan agreement will likely unfold over several years amid ongoing economic and political uncertainties.