Oil platforms in Maracaibo, Venezuela. While U.S. President Donald Trump may have won the battle for Venezuelan oil, he may also have lost the war for global energy dominance.FEDERICO PARRA/AFP/Getty Images
John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.
In Canada, there was anxious chatter over the weekend that the United States’ daring move to apprehend Venezuelan President Nicolás Maduro and secure the country’s oil reserves might hurt demand for Canadian oil.
It will be years, if ever, before Canada suffers any serious loss of market share to Venezuelan exports. Nevertheless, while a handful of U.S. oil giants will reap any benefits that accrue from this operation, the industry may have just taken a body blow. Because while U.S. President Donald Trump may have won the battle for Venezuelan oil – even that isn’t yet certain – he may also have lost the war for global energy dominance that his administration has set as a strategic goal.
Mr. Trump, who as we all know thinks climate change is a hoax and hates renewable energy, wants to restore the centrality of oil in the global energy mix and secure American dominance of its supply. To attain that goal, he has rolled back initiatives to decarbonize the U.S. economy and is now setting out to seize key sources of supply in the Americas. On the face of it, therefore, the Venezuelan operation is the first step toward that goal. Already we saw in Monday’s market trading that the share prices of the U.S. oil majors that can refine Venezuelan crude jumped.
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Yet for the industry as a whole, the advantages of the Venezuelan operation are less clear. Let’s assume that Mr. Trump’s stated plan of having the U.S. oil giants “go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money” works. The impact of that added supply to the world market would drive the price of oil, already below the break-even point for many U.S. shale drillers of US$60 a barrel, further down. The result might be higher profits for the big U.S. oil companies, but a recession for the domestic industry, with all the job losses that go with it.
And even for that plan to work, Mr. Trump would almost certainly have to launch a long and costly military occupation of Venezuela. The infrastructure and business environment there has been so degraded by decades of neglect and corruption that, by most estimates, it will take something in the range of US$100-billion of investment over 10 to 15 years to exploit the opportunities which are present. No company will make that sort of commitment without a guarantee of long-term security for both their staff and their investments.
The current regime won’t provide that. Despite his boast that the new acting president, Delcy Rodríguez, will do whatever she’s told, it’s the country’s military and militias which will determine the security environment. So far, they show little interest in taking U.S. orders.
Already on Monday the militias were out in force repressing any expressions of support for the coup. Although Mr. Trump insists he’s prepared to put U.S. troops on the ground, the response on world oil markets to the weekend’s events reveals considerable doubt that he will. World oil prices barely budged when markets reopened on Sunday night, suggesting that traders don’t expect the Venezuelan coup to have changed things all that much.
One unintended consequence of this action may be to hasten the decline of the industry. Now that Mr. Trump has shown he’s dead serious about his America First approach to the world, securing every advantage for the U.S. and disregarding any impact that might have on other countries, it’s to be expected others will follow suit. And if the U.S. wants to dominate global oil markets, a quick and easy way for a country to reduce its vulnerability is to reduce its need for oil.
The oil intensity of the world economy has been steadily declining for decades, and now an energy transition is under way across much of the world. Although Western countries have joined Mr. Trump in backpedalling on their moves to adopt renewable energy, the rest of the world is following China’s lead and moving toward decarbonization.
The big attraction of renewable energy to them is not that it will slow climate change, but that it will reduce their import dependence and foreign-exchange demands. Add to that a newly belligerent U.S. which is determined to weaponize oil, and the incentive to countries of cutting those ties will only strengthen.
Thus, analysts who determined that the Venezuelan operation would hurt China, since it imported oil from Venezuela, misread the situation: China’s stock market rose healthily on Monday. After all, the country is rapidly reducing its dependence on all imported oil and will if anything benefit from further increases in demand for its EVs and solar panels.
So, the threat facing Canada’s oil patch isn’t Venezuelan fields. It’s a geopolitical environment which may have just grown less keen on the stuff.