Like the endless contests of conservatives and liberals in the novels of Gabriel Garcia Marquez, Latin American petroleum is a tale of political struggle. It is the field for nationalisation and privatisation, sovereignty and colonialism, foreign multinationals and state oil monopolies, to fight it out. Now the US claim on Venezuelan oil reserves is a deliberate red cape to a bull.
The plan was announced on Friday by US President Donald Trump, who wrote, “secured majority US control of more than 65 billion barrels of proven oil reserves in Venezuela, at no cost to the American taxpayer”. He suggested this “more than doubles American oil reserves”.
The proposed deal seems to involve the Office of Strategic Capital (OSC), part of the US Department of Defence, partnering with Alejandro Betancourt, a controversial Venezuelan investor and middleman. It covers up to 17 fields in the Maracaibo area, the country’s traditional oil heartland, as well as extra-heavy oil in the Junin region, part of the massive Orinoco Belt.
It targets 1.5 million barrels per day of output over 25 years at investment of $100 billion. Venezuela would receive an estimated $209 billion in taxes, or about $19 per barrel at an assumed oil price of $65.
There are also rumours that Caracas might leave Opec, following the UAE’s departure in May.
The major Latin American oil producers’ petroleum resources were discovered and developed by foreign capital, mostly American and British, in the early twentieth century. Juan Vicente Gomez, the corrupt, nepotistic dictator of Venezuela from 1908 to 1935, built his regime on oil, welcoming international companies.
US investment often brought political influence, coups, splintering Panama from Colombia to control the Canal in 1903, and even invasion as seen in Mexico in 1916-17. The 1932-35 Chaco War between Paraguay and Bolivia was inspired by the competing designs of Standard Oil, Shell and Union Oil on potential oilfields.
This became politically intolerable; governments, usually but not always left-wing, nationalised the fields, then sometimes reprivatised them from the 1990s onwards. A further wave of resource nationalism then expropriated or severely limited international investments at various times in the 21st century.
This pattern played out first in Mexico from its 1938 nationalisation, and later in Brazil, Argentina, Ecuador and Bolivia. The swing was most violent, though, in Venezuela, which has the continent’s largest oil reserves and was an Opec founder in 1960.
It veered from nationalisation in 1976 to the “Apertura” reopening to international companies in the late 1990s. The attempt to boost production to 3.5 million barrels per day triggered a damaging price war with Saudi Arabia. The wounded economy led to the election of President Hugo Chavez, former paratrooper and coup leader, in 1998.
Chavez presented former US president Barack Obama with a book by the Uruguayan journalist Eduardo Galeano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent, showing his opinion of the merits of foreign investment. He and his successor Nicolas Maduro, along with US sanctions, nearly destroyed the nation’s oil industry and state corporation Petroleos de Venezuela SA.
Mr Maduro was, of course, removed by the US raid in January. His vice-president, Delcy Rodriguez, now runs the country under the tutelage of US secretary of state Marco Rubio. The son of Cuban immigrants, Mr Rubio is strongly against Latin America’s inclinations for state control of industry, or what he would label “socialism” or “communism”.
There are several obvious problems with the latest US scheme. The OSC does not have the legal mandate to take equity stakes in projects. Investing in foreign projects does not entitle one to add them to one’s national reserves. If international companies have dragged their feet on re-entering Venezuela, perhaps they know something the US government does not.
But the more fundamental objections are political and strategic.
Mr Trump repeatedly talked of seizing Iraq’s oil as a reward for the US invasion long before he became president. He has threatened to seize Greenland, lured by its possible natural resources. He conditioned military aid to Ukraine on its giving access to rare earth and other minerals to American ventures.
Any Venezuelan leader, Ms Rodriguez or another, will quickly be seen as a US stooge if they hand over oil rights. That could encourage a comeback of Chavismo. Granting foreign ownership of oil reserves is contrary to the Venezuelan constitution.
Coercing Venezuela to leave Opec would be a political win for Washington, which has long disliked the organisation. But it is not in Caracas’s interest, certainly not now. Venezuela’s output has recovered this year to about 1.1-1.2 million bpd. This is still far below its last Opec quota, of two million bpd in 2011.
That is anyway ancient history. The country has been exempt from output limits under the Opec+ arrangement. It will take years and tens of billions of dollars of investment to reach even two million bpd. By that point, Caracas could push for a higher Opec allowance.
It does not want to fight a price war or unleash a free-for-all between the major producers. That would rerun the disastrous script of the late 1990s, undermining Venezuela’s own high-cost production more than that of its main Opec+ colleagues, Saudi Arabia, Russia, Kuwait and Iraq.
Two million bpd is not material to the US, which produces 14 million bpd. If the objective is to increase Venezuelan output to bring down oil prices and replace supply interrupted from the Middle East, that can be achieved by normal commercial negotiations.
Western oil companies were already increasingly welcome in the country. Chevron is stepping up its oil activities, while Shell and BP are developing offshore gas, alongside Adnoc’s international unit XRG. The Russian and Chinese investors invited in by Mr Chavez have lost most of their projects.
The attempt to snatch, in sequence, Mr Maduro, and 65 billion barrels of oil, will inspire Iran to continue resisting the US. Iranians have long memories of the CIA-engineered 1953 coup, following the nationalisation of Iran’s oil and nebulous fears of a Communist takeover. China will appear to many resource-rich nations as a more respectful partner, the precise opposite of Mr Rubio’s rhetoric.
The mega-deal may succeed in its short-term aim of opening Venezuela to American oil interests. Despite Mr Trump’s claims, it will not bring down pump prices promptly. Instead, it will seed a new round of political and ideological struggle over natural resources around Latin America. Leftists can disguise their own failings by denouncing the opening of the nation’s veins to capitalist plunder.
