A mural featuring oil pumps and wells in Caracas, Venezuela, on Tuesday.Matias Delacroix/The Associated Press
Oh, to be a fly on the wall inside the boardrooms of major American oil companies these days.
As U.S. President Donald Trump expounds on his fever dream of expropriating Venezuelan oil by running the failed petrostate, he is musing about turning over its rotting oil infrastructure to American companies and reimbursing their costs to rebuild it.
Deposed Venezuelan President Nicolás Maduro, meanwhile, said he was a “prisoner of war” after he pleaded not guilty to narcoterrorism and other charges in federal court in New York.
“The oil companies were absolutely aware that we were thinking about doing something,” Mr. Trump told NBC News on Monday. “But we didn’t tell them we were going to do it.”
Mr. Trump would have us believe there’s no reason to worry that U.S. energy companies were caught flat-footed by Mr. Maduro’s capture or the “tremendous amounts of money” required to reconstruct Venezuela’s oil infrastructure.
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Chevron, which already operates in Venezuela, is reportedly sending more oil ships to the South American country. But don’t expect these surreal developments to spark a stampede by other U.S. oil giants.
So far, Exxon Mobil and ConocoPhillips appear circumspect about investing in Venezuela, even though Mr. Trump already has the business case figured out for them.
With his central-planning fetish on full display, Mr. Trump told NBC News in that same interview that U.S. oil companies could be “up and running” in Venezuela in under 18 months.
Details, schmetails.
The biggest head trip is yet to come for the U.S. oil industry.
U.S. Energy Secretary Chris Wright and his cabinet colleague, Interior Secretary Doug Burgum, are planning their first formal calls with top executives to ratchet up the pressure on energy companies to return to Venezuela, according to a report in Politico that cited four confidential sources.
With U.S. government debt topping US$38-trillion, who will finance this endeavour? Let’s not kid ourselves, U.S. sanctions against Venezuela remain a serious obstacle for banks.
Perhaps the U.S. oil industry can take a page out of Mr. Maduro’s playbook and transact in cryptocurrency, as the ousted leader is alleged to have done. Stablecoins pegged to the U.S. dollar could prove handy because the Genius Act and the Clarity Act have known loopholes for sanction evasion.
Mr. Trump’s rigorous cost-benefit analysis notwithstanding, the initial market enthusiasm over U.S. oil majors potentially resuming expansion in Venezuela was overblown.
There are staggering legal, financial and security risks for American energy companies that cannot be ignored willy-nilly by C-suite executives and corporate directors.
For instance, Venezuela’s state oil company, Petróleos de Venezuela, S.A., or PDVSA, is subject to U.S. sanctions, and so is company president Héctor Andres Obregón Pérez.
PDVSA is allegedly implicated in drug trafficking, according to the U.S. indictment against Mr. Maduro and other insiders of his regime.
Specifically, Mr. Maduro’s son, Nicolás Ernesto Maduro Guerra, is accused of using a Falcon 900 plane owned by PDVSA to transport “large packages wrapped in tape that the captain understood were drugs” from Venezuela’s Margarita Island, states the U.S. court filing.
Mr. Maduro Guerra, the filing alleges, “was present while the PDVSA plane was loaded and, on one occasion, stated that the plane could go wherever it wanted, including the United States.”
None of the allegations have been tested in court.
Even so, why would any reputable U.S. company pursue a joint venture or assume control of assets from a company so closely associated with the Maduro regime?
Separately, the recent rally in Venezuela’s distressed debt and PDVSA bonds is entirely premature.
Venezuela defaulted on US$60-billion worth of bonds back in 2017. Total liabilities, including interest amassed over those nine years, are unknown. What’s more, the ability of investors to recover value from the debt hinges on increased production.
That may not happen if there is civil strife.
Venezuela’s Interior Minister Diosdado Cabello, who is also named in the U.S. indictment, continues to wield significant power in Venezuela because of his iron-fisted control of paramilitary groups known as the colectivos.
The Miami Herald is reporting that Mr. Cabello, who the U.S. government accuses of taking bribes connected to cocaine trafficking, is mobilizing the colectivos in Caracas.
But perhaps the biggest risk to the White House’s plan for American energy companies to extract more Venezuelan oil is Mr. Trump himself. His mercurial decision-making exudes regulatory risk – the kind that jeopardizes costly capital investments.
U.S. oil companies have a long history of navigating unstable political environments and dealing with irrational strongmen. But they’ve never encountered anything like Donald Trump.