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Can Venezuela tame global energy prices?

Warda Imran
March 13, 2022

In a bid to cushion the impact of the US ban on Russian oil imports, Washington is aiming to help increase production in countries like Iran, Saudi Arabia and even heavily sanctioned Venezuela.

Oil refinery in Venezuela
It's unclear yet whether Venezuela will really see an increase in oil output anytime soonImage: picture-alliance/dpa/A. Sosa

Getting other nations to produce more oil could be the only way for the US to bring global prices down, including prices at home, according to David Mares, chair of Inter-American affairs at the University of California San Diego.

He told DW energy prices in the US were rising "because the world market is short of oil. It's not because the US market is short of oil."

Mares explained that the US economy needed the oil to reach the global market so that it could influence inflation and hence prices.

Possible solution?

Venezuela has large oil reserves and before the sanctions levied against the country and domestic corruption eroded production, it was producing almost 3 million barrels per day. But the past few years have seen the equipment and machinery needed to produce large amounts of oil rusting away, says Jorge Pinon, an energy expert at the University of Texas at Austin.

OPEC stats show Venezuela currently produces up to 688,000 barrels per day. Most of this oil goes to China, a small amount to Russia and to Iran to pay outstanding debt, Pinon told DW. About 60,000 barrels go to Cuba and to cash customers like India.

Current production is a far cry from what it used to be. Hence, Venezuelan oil supplies are only a fraction of what Russia exported to the US and the world.

"I don't understand why the US delegation went to Venezuela when the country does not have the capacity to increase production," Pinon said.

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Debt-ridden country

Energy experts from Latin America told DW that even if a deal is struck, there is a lot of debt that Venezuela still owes the US as well as international companies. So, if there's a deal, the first step will be an oil-for-debt trade, argued Mares.

He thinks there will be no motivation for the Maduro regime to agree on a deal that does not give them money.

"I don't think this is likely to happen. But key supporters of Maduro see this as an opportunity to start over and declare bankruptcy and build a new relationship," Mares said. "That's the only way I could see things going forward, but I don't think that's a deal Maduro wants.".

Venezuela is one of the few Latin American countries with strong ties to Russia.

Pinon believes though that the prospect of US oil companies returning to Venezuela once again and bringing expertise and technical assistance would be a strong incentive for Maduro to agree on a deal.

Companies such as Chevron, Schlumberger and others have a vested interest in going back to the Latin American country.

"The reality is that Venezuela does indeed have the reserves, and companies are interested in going back there and they have kept this interest over the years," said Benigna Leiss, an expert on energy in South America and the former general director of Chevron Energia de Mexico.

The corporate logo of state oil company PDVSA in Venezuela
Oil production infrastructure in Venezuela has seen better times and huge investments would be needed to modernize itImage: Reuters/I. Urrutia

Rekindling trade with Venezuela?

A deal could involve lifting some specific sanctions that were imposed on Venezuela.

But so far, there's no agreement in the US on how to proceed. There hasn't been any official confirmation from the administration. A high-level delegation met with Venezuelan officials, with energy security issues high on the agenda of talks.

In a recent interview, Juan Gonzalez, senior director of Western Hemisphere affairs for the US National Security Council, said the Biden administration was focused on negotiations and not on toppling the government.

Another alternative that Leiss points to is Brazil. She says Brazil has the equipment and capacity to increase oil production. That should be something worth looking into, she argues.

Last week, US President Joe Biden announced that the US and its allies would release 60 million barrels from its oil reserves, adding that a huge part of this release would come from the US itself. But it's a drop in the ocean as 60 million barrels is what the US consumes in just three days, based on an average daily consumption of more than 19 million barrels, according to the US Energy Information Administration.

Edited by: Hardy Graupner

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