Venezuela reforms its socialist oil policies, and production soars with Trump’s help

Venezuela, as an oil-producing country, appears to be making its comeback as the Trump administration’s efforts to reform the country’s oil law come to fruition. 

The South American country appeared to take another big step in that effort this week when acting President Delcy Rodriguez signed regulations reforming Venezuela's main oil law. 

Under the new regulations, the country’s national oil company, Petróleos de Venezuela SA (PDVSA), effectively loses control of Venezuela’s vast oil resources. 

Under the former communist regime, the country’s oil industry floundered. In May 2021, Venezuela was producing less than 600,000 barrels of oil a day, despite having the world’s largest oil reserves. This past May, it was producing nearly 1.2 million barrels of oil per day. 

Venezuela nationalized its oil industry in the 1970s. Then in 2007, former President Hugo Chávez forced foreign oil companies to surrender majority stakes to the state, which resulted in the departure of ExxonMobil and ConocoPhillips. Of the big players, only Chevron acquiesced to the communist leader’s demands. 

Hesitation gives way to interest

Ever since the capture of former Venezuelan President Nicolás Maduro in January, the Trump administration has been guiding the country toward reforms that would unleash these resources, and the new regulations are a significant step in dislodging the centralized control of the industry that has scared off foreign investment. 

The new regulations, according to Bloomberg, lay out rules for how the private sector will operate, from the wells to the retail points, as well as taxes that reflect the risk profile of assets, including offshore oil operations. 

The rules make no mention of PDVSA, which had ceded managerial control over oil production to Chevron and other private-sector companies starting in 2022. The new regulations further open up the country’s industry, including oil refining, marketing and distribution. 

In January, President Donald Trump met with more than two dozen oil executives and companies involved in infrastructure development and project finance to discuss ramping up production of Venezuelan oil. 

At the time, experts cast considerable doubt on the prospects of investing in Venezuela. The country’s oil infrastructure, neglected and abused under years of socialist rule, would need billions of dollars to refurbish or replace – Trump threw out $100 billion as the figure – and companies were seeking security for their assets from socialist expropriation and protection for their equipment and personnel from criminal violence.  

Exxon CEO Darren Woods told Trump that Venezuela would need to reform its laws before it could be an attractive investment opportunity, and he expressed a lot of skepticism about the company’s prospects there. Trump wasn’t happy with the CEO’s doubt and suggested he might “keep Exxon out” of the boom he was sure to come. 

A few months later, the industry had changed its tune. Engineers, lawyers and other representatives from America’s oil industry met at the J.W. Marriott in Caracas, Venezuela’s capital, in May, according to the Wall Street Journal. At the heavily guarded hotel, the participants pitched to the people in Venezuela’s oil industry plans to revive its rundown oil fields. The meeting even included one small Texas operator. 

In an earnings call the same month, Woods acknowledged that Venezuela has opened up, and he said Exxon, with its experience in Canada, is uniquely positioned to tap into Venezuela’s oil. Like Canada, Venezuela’s oil is particularly heavy, requiring specialized knowledge to produce, transport and refine.

War in Iran could help Venezuela

The improved regulatory environment in the South American country is enticing more interest from America’s producers, but so is the global energy market in the wake of the war in Iran. The blockades of the Strait of Hormuz sent oil prices into triple digits, and though they dropped to pre-war levels following the signing of a temporary agreement, that agreement appears to be crumbling with renewed hostilities. 

Even if peace does come between the U.S. and Iran, global interest in oil resources that aren’t dependent on the Strait of Hormuz won’t go away anytime soon. It’s possible, though not certain, that Venezuela will become a major player in the world energy market, and U.S. companies appear likely to play a big role in that future.