Oil tankers near Puerto Cabello, Venezuela, in December.Juan Carlos Hernandez/Reuters
The U.S. is the world’s top oil producer. Venezuela has the world’s greatest oil reserves. Donald Trump has threatened Colombia and Mexico – two Latin American countries with fairly rich oil supplies.
You can see where this is going. Mr. Trump is, in effect, creating his own personal OPEC within the Western Hemisphere. America’s phenomenal oil output was not enough. The big missing piece was Venezuela. The U.S. is now “in charge” of Venezuela, he told reporters over the weekend, after the Pentagon’s special forces abducted Venezuelan President Nicolás Maduro and delivered him to New York to face criminal narcoterrorism charges.
“We’re in the oil business,” Mr. Trump told Fox News on Sunday.
Mr. Trump has said he will deploy U.S. oil companies to “go in, spend billions of dollars [and] fix the badly broken infrastructure” that had crunched Venezuela’s output. The country used to produce more than three million barrels a day; lately, fewer than one million have been pumped.
Opinion: Don’t expect a big gush of Venezuelan oil onto world markets any time soon
What the U.S. attack on Venezuela could mean for oil and Canadian crude exports
On Monday, the global oil markets had a fairly restrained reaction to the Trump-inspired regime change in Caracas and the President’s vow to return Venezuela’s oil fields to glory. Brent Crude, the international benchmark, rose about 1.5 per cent to US$62 a barrel, for a one-year loss of 20 per cent. Clearly, oil traders are not expecting Venezuela’s output to ramp up or down quickly.
But that’s not to say that the U.S., with Venezuela by its side, won’t be able to manipulate the global oil markets at some point. It’s a question of time and money. Various energy analysts have said that the Venezuelan oil fields would require tens of billions of dollars of investment just to keep production from falling further, and perhaps US$100-billion to double output from today’s levels. Production is unlikely to change much in the next two or three years, but could in five or six.
A lot could go wrong with Mr. Trump’s plan to turn Venezuela into an oil superpower to bolster America’s own energy superpower status. Shorn of its leader, Venezuela could descend into chaos. The streets could fill with anti-resources-colonialism protests. Venezuela’s oil hardware could be in worse shape than anyone realized. A legal quagmire over compensation for the nationalizations that shut out the U.S. oil companies years ago could stall investments. (Chevron was the one U.S. oil biggie that was not booted out of Venezuela.)
But a lot could go right. If the oil companies find ways to make a strong return on investment and feel certain that the U.S. military and banks won’t abandon them, torrents of Venezuelan oil could hit the market.
Suppose Venezuela reaches three million barrels a day. Add that to U.S. production of 13.5 million and you are up to 16.5 million, or more than half of OPEC’s daily production of 30 million. (The U.S. is not an OPEC member; Venezuela is.) The effective U.S.-controlled oil output could go higher if Mr. Trump, say, forces regime change in Colombia. He has accused Colombian President Gustavo Petro of operating “cocaine mills” and that Mr. Petro should “watch his ass.”
Venezuelan and U.S. output alone would be enough to swing global oil prices to America’s advantage – and cause trouble.
Suppose Mr. Trump or his successors want oil prices to fall before an election. They could flood the market and OPEC might be powerless to keep prices high enough to finance their member-countries’ budgets, or those of Russia, a non-OPEC member. According to Ukrainian news outlets, Russian oligarch Oleg Deripaska said, “If our American ‘partners’ get to the oil fields of Venezuela, they will control more than half of the world’s oil reserves,” adding that the scenario would ensure that the price of Russian oil “does not rise above US$50 a barrel,” threatening the country’s economic model.
Canada could become another victim. Almost all of Canada’s oil exports, largely from the Alberta oil sands, go to U.S. refineries, some of which are tailored to handle the heavy crude. Venezuelan crude from the Orinoco belt has a similar makeup. If Venezuela’s exports come on strong, they could displace much of Canada’s market share in the U.S., all the more so because the Venezuelan oil could be fed to the same refineries that now use Canadian crude.
China is still another potential victim. The country is Venezuela’s biggest export customer. Reuters reported that China took about 80 per cent of Venezuela’s exports of about 920,000 barrels a day in November as part of its oil-for-loans program. If the U.S. were to place sanctions on China, those oil exports could disappear fast.
The U.S. could heap more pressure on China by bombing Iran, which it did last June. In 2025, China was buying some 1.4 million barrels a day from Iran. If the U.S. or Israel were to bomb Iranian oil sites, and all of Venezuela’s crude oil exports were to go to the U.S., China would be hard-pressed to find replacement supplies.
The late comedian George Carlin said, “America is an oil company with an army.” Mr. Trump proved that on the weekend. With control of Venezuela’s oil reserves, he will soon be able to damage countries without firing a shot.