Greater autonomy for foreign companies and easing of U.S. sanctions improve investment conditions
Capital inflows from the United States, Europe and the Middle East are joined by rising crude exports
Tackling high inflation and power shortages and rebuilding industry remain long-term challenges

Venezuela is accelerating efforts to attract foreign capital by focusing on rebuilding its oil and gas industry. Greater management autonomy for foreign companies, followed by improved trading conditions after the easing of U.S. sanctions, has prompted companies from the United States, Europe and the Middle East to invest and expand their operations. Exports are also rising as the war in Iran disrupts Middle Eastern crude supplies, helping Venezuela secure development funding. However, high inflation, power shortages and aging production facilities are hampering economic recovery, meaning it will likely take considerable time to translate oil earnings into industrial reconstruction and job growth.

Venezuela Expects USD 76 Billion in Oil and Gas Investment Over Five Years

According to Reuters on the 19th (all dates hereafter are local time), Venezuela’s acting president, Delcy Rodríguez, said on the 17th that she expected investment of USD 76 billion (approximately USD 77.7 billion) in the oil and gas sector over the next five years. Under the revamped oil and gas legal framework, 61 agreements have been signed, with another 44 under negotiation. Among them, a bilateral agreement with the United States includes plans to develop 17 oil fields and deploy 250 drilling rigs. Rodríguez outlined a plan to expand production by combining foreign investment with domestic capital and labor, forecasting that the related projects would create more than 324,000 direct, indirect and spin-off jobs.

Companies’ investment plans are also taking shape. On the 2nd of last month, U.S. oil company Chevron adjusted the tax, commercial and legal terms of its joint ventures with the Venezuelan government and secured additional development rights in the Orinoco Belt. Building on this, it plans to invest more than USD 7 billion (approximately USD 7.15 billion) in its local joint ventures over the next five years to raise daily production to about 600,000 barrels. Chevron’s production expansion will involve extending development into areas surrounding its existing operations. To that end, Petroindependencia, a joint venture in which Chevron holds a 49% stake, secured development rights for the adjacent Carabobo 1 block and Carabobo 2 South A block. On the same day, the Venezuelan government also signed an agreement with Italian energy company Eni, while pursuing cooperation to improve the power supply infrastructure needed to expand energy production. This included an agreement between U.S.-based GE Vernova and Venezuela’s state-owned electricity company to strengthen the national power grid.

Venezuelan Crude Exports Benefit Indirectly From the War in Iran

Foreign companies’ expansion in Venezuela has been supported by a shift in government policy toward guaranteeing management autonomy for Western companies. Amendments to the oil law passed by the legislature in January allow private companies to operate projects even if they hold only a minority stake in a joint venture, and to sell the crude they produce directly and collect payment. This has opened greater scope for foreign companies to participate in production and sales processes previously controlled by state-owned oil company PDVSA. In particular, the ability to collect crude sales proceeds directly is expected to reduce uncertainty over recovering investment and help secure funding for subsequent development.

The United States also supported the resumption of trading by easing sanctions related to crude exports immediately after the legal amendments. This enabled PDVSA’s joint-venture partners and international commodity traders to obtain Venezuelan crude and sell it to refiners in the United States, Europe and Asia. As business conditions changed, ExxonMobil and ConocoPhillips, which had withdrawn following past asset nationalizations, also began exploring a possible return. ExxonMobil sent a technical team to the Cerro Negro heavy-oil project it previously operated to inspect the condition of the oil field and processing facilities. Both companies held discussions with Venezuela while reviewing the conditions needed to recover their investments and protect their operating rights.

Demand for Venezuelan crude has also increased as the war in Iran disrupts Middle Eastern crude supplies. With shipping through the Strait of Hormuz blocked, Indian refiners increased crude imports from Latin America, including Venezuela and Brazil, in April and May to cover shortfalls. Venezuela’s crude and petroleum product exports averaged 1.23 million barrels per day in April, up 14% from the previous month and the highest level since 2018. Exports reached about 1.25 million barrels per day in May, marking a third consecutive monthly increase and a 61% rise from a year earlier. The main destinations were the United States at 558,000 barrels per day, India at 427,000 barrels and Europe at 169,000 barrels, with all three increasing their intake from the previous month. Venezuelan export volumes handled by international commodity traders such as Vitol and Trafigura also rose from 691,000 barrels per day in April to 787,000 barrels in May.

Table 1. Venezuela’s Crude and Petroleum Product Exports

United States Takes the Lead in Venezuelan Crude Trading

As Venezuela’s export markets expand, the United States holds the upper hand in trading. Starting in January, before the outbreak of the war in Iran, the United States began arranging sales of Venezuelan crude and established a system for depositing the proceeds into U.S.-controlled accounts. U.S. Energy Secretary Chris Wright said at the time that the United States would first sell crude held in storage and then continue handling future production. European companies also sought U.S. authorization to resume operations in Venezuela. Spain’s Repsol, Italy’s Eni and France’s Maurel & Prom applied to U.S. authorities for crude export licenses in January, taking the steps needed to resume trading.

For the U.S. refining industry, the practical benefit is a stable supply of Venezuelan heavy crude. Many large refineries along the Gulf of Mexico coast are equipped to process heavy crude, and before sanctions were imposed in 2019, they imported and refined 800,000 barrels of Venezuelan crude per day. Easy maritime transport and long experience handling this grade of crude also favor increased imports. U.S. refiners equipped to process Venezuelan heavy crude have also pursued direct purchases to lower procurement costs. In February, Phillips 66 and Citgo discussed direct purchases with PDVSA, seeking to streamline supply routes that previously went through intermediaries.

European and Middle Eastern Capital Joins Venezuela’s Resource Development

While U.S. refiners pursue direct crude purchases from Venezuela, European and Middle Eastern companies are seeking development rights for oil and gas fields. France’s TotalEnergies signed a memorandum of understanding on energy cooperation with PDVSA on the 19th of last month, laying the groundwork for its return to Venezuela. The agreement provides for its subsidiary TotalEnergies E&P New Ventures to participate in energy projects. Middle Eastern capital has entered offshore gas development. Last August, Britain’s BP, XRG—the international investment company of the United Arab Emirates’ state-owned oil company ADNOC—and Qatar’s UCC Oil & Gas secured rights to the second phase of the Loran gas field project. The three companies hold equal stakes, with BP serving as operator. Recoverable gas resources in the area are estimated at about 4 trillion cubic feet (ft³).

European and Middle Eastern capital flows into Venezuela appear to reflect a strategy of diversifying production bases to prepare for wartime supply disruptions. XRG presented its entry into Venezuela as part of its strategy to expand its gas and liquefied natural gas (LNG) business in Latin America and the Atlantic region. It aims to expand its regional operations by securing the Loran gas field as an overseas production base. UCC, a fellow participant in the project, highlighted existing gas demand in surrounding areas and the availability of processing facilities. In other words, it examined not only gas field development but also the conditions for processing and selling the output. To assess the project’s commercial viability on this basis, the companies plan to evaluate subsurface resources, design facilities and review gas sales routes.

Companies entering the market are drawing up long-term investment plans that look beyond feasibility studies to facility construction and production. At an investment presentation in London last July, British investment firm Apertura Energy expressed its intention to remain involved in local operations over the long term. As a first step, it set a goal of establishing an operational base and closing an exploration and production deal within the following year. CEO Graig Gilbert explained that additional capital would be needed to restore production capacity because local oilfield service facilities were aging. This means investment in facility rehabilitation and development would have to continue even after entering the market. Given the time required to establish a production base and the companies’ long-term business plans, development funding could continue to flow in even after the war ends.

Despite Recovering Oil Exports, Restoring Livelihoods Remains a Long-Term Challenge

Even if long-term development funding flows in, however, domestic industry and livelihoods will need time to recover. Years of underinvestment have weakened Venezuela’s production base, while foreign currency shortages and currency depreciation helped push annual inflation to about 600% in February this year. Dollars earned from oil exports need to circulate smoothly through the economy to support businesses’ raw material purchases and household consumption. Supplies of electricity and fuel needed to raise production are also unstable. As of May, usable generating capacity amounted to less than 40% of total installed capacity, while power outages at the Paraguaná refining complex delayed the restart of gasoline production facilities and fuel deliveries. Power expert Miguel Lara estimated that stabilizing the electricity grid alone would require at least USD 15 billion (approximately USD 15.3 billion) over three years.

Given the enormous cost of restoring the industrial base, channeling oil sales revenue into reconstruction and securing support from international financial institutions have also become important. Some foreign power equipment suppliers that held discussions with the Venezuelan government in April proposed receiving payment for construction work directly from oil sales accounts overseen by the U.S. Treasury to guarantee payment. That same month, the International Monetary Fund (IMF) and the World Bank resumed relations with the Venezuelan government, opening a channel for discussions on reconstruction financing. Compiling the economic statistics needed for financial support and assessing repayment capacity remain follow-up tasks. The IMF maintains that an official government request, a commitment to implement policies and sufficient data must be in place.

Given the time required for financing procedures and actual restoration work, industrial operations are expected to return to normal over several years. In March, opaque government allocation of dollars forced Venezuelan companies to obtain foreign currency at higher prices on the informal market, increasing their costs. This means foreign currency distribution channels must first be improved if dollars earned from oil exports are to be used for investment in domestic facilities. Even after equipment is imported, installation and test runs take time, and normal operations require the restoration of electricity and fuel supply networks. As spending on equipment and infrastructure rises first in the early stages of reconstruction, a lag between increased investment and a recovery in production and employment appears inevitable.