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The Faustian Bargain For Venezuela’s Oil
The most important consideration when evaluating a given country for investment is the rule of law.
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Venezuela is a complex country with imbedded government corruption, random military type units providing ‘stability’ and a population tired of authoritarian rule with its attached endless inflation. It certainly doesn’t make for a no-brainer investment environment. And how much pushback will there be from the rest of Central and South America that they don’t want to be US vassals. Seems like it wouldn’t take much of a match to make the investment plan go up in flames.
I realize it sounds distasteful to us, but sometimes its easiest to get things done in a totally corrupt system when they want to be paid off for cooperation and easily recognize the threat, and the consequences of not cooperating. So there is a system there actually, not anarchy. It’s just not a transparent legal structure that we would prefer. Also, here we aren’t dealing with young radical jihadis in the Sunni triangle, who actually believed with deep conviction that the glory of heaven awaits them and God/Allah himself is definitely on their side . Still there may be a military strongman who believes instability is his golden opportunity to be the El Jeffe, the power broker and deal directly with the Americans rather than thru Delcy’s civilian govt.
H-Man, you remove the king and replace the king with your king (who happens to be a queen). You tell the king/queen you will pay me X or 3X or whatever and if you don’t, well there will be a new king/queen in short order. The new king/queen says “I’m in”. The king/queen says we only have oil. You say that will work, and you then haul home 20% of the world’s oil reserves back to the US on captured oil tankers and designate the money as you see fit. And you tell the king/queen that will be deal for the next 50 years. Venezuela is now the 14th colony with the best income stream payable to the the good old USA. Much better than a “tariff”.
It’s going to take a decade and tens of billions of dollars to rebuild Venezuela’s production capacity. That’s a lot of risk without any certainty.
This will likely work out to be as profitable as the Ukrainian minerals deal.
I wonder if John Hess has, or will have, a role in any of this? He seems to sit at the crossroads of every thing and every one needed to pull off whatever these shenanigans are.
I also wonder how large China’s loan exposure to Venezuela is, who’s on the hook and what the repayment terms are? The figure I heard was $106 billion that we know about.
Lastly, what’s going to happen to Machado, the political prisoners and the media? Are Venezuelans just going to accept a continuation of the exact same regime? https://www.bbc.com/news/articles/cd6w4y0eq70o
This whole thing, to borrow a Rumsfeld, is filled with known unknowns and unknown unknowns but the only known knowns seem to be that Congress was not involved and that Maduro was taken.
See Paul Singer and his timely Citgo buy.
Oil, Gold in the ground, wasting away. Even an increase of just 1 million Gals. would bring relief the that misbegotten nation!
AI response to “Who proved Venezuela oil reserves?”
No single person “proved” Venezuela’s massive oil reserves; rather, Venezuela’s state oil company (PDVSA) reclassified huge amounts of heavy oil in the Orinoco Belt as “proved” in the late 2000s/early 2010s under President Hugo Chávez, officially making it the world’s largest, though these reserves are difficult and costly to extract. While early exploration involved geologists like Ralph Arnold for foreign companies (e.g., General Asphalt/Royal Dutch Shell in the 1910s), the scale-up to 300 billion barrels was a self-declared reclassification by PDVSA, not an independent scientific validation of new discoveries.
Isn’t there a decent chance that Chavez pulled yet another con job and Venezuela, while of course having a lot of oil, doesn’t have anywhere near the amount of oil reserves that Trump is salivating over?
Thanks. I wondered about this point.
The answer to your question is absolutely and unequivocally Yes.
Sweet, light crudes demand the highest price because they are mostly oil with little sulfur and other undesirable impurities… this makes them easier and cheaper to refine into typical petroleum products. Vz has a few tens of billions of barrels of sweet crude, but the vast majority of what Vz has is heavier crude oil and asphalt.
Think of it this way, which is almost true: A really nice light oil is only a little darker and more viscous than kerosene. As that light oil sits around, especially in shallower oil reservoirs (less than 1000m burial), oil-hungry bacteria get into the oil and start metabolizing the lighter bits, leaving behind the heavier bits. Gradually the oil turns heavier and more viscous as it loses the lighter bits. Left long enough, it will go all the way to tar and asphalt. There are places in Vz (and elsewhere, I visited one such place in Texas) where the oil reservoir is so close to the surface and is such heavy crude that the rock hosting the oil can be mined, and ground up and used as road-quality asphalt. On a hot day, the ground is sticky with goo… plan your visit for cooler weather if possible.
The expansion by Chavez of the “proven” reserves was a paper one, by counting much of the heavy oil as recoverable, proven reserves. The rest of the world more or less considers “proven” reserves to be those well-delineated reservoirs that have oil recoverable by conventional means (drill well, pump out oil) economically at projected oil prices… so one part delineation, one part oil quality, one part economics. If advanced means are required (e.g., steam-heating the heavy oil in situ so that it can flow to an extraction well), generally that makes it hard to meet the economic factor of a “proven” reserve.
The US doesn’t have a really good estimate of the actual recoverable proven reserves in Vz, not something the USGS was tasked with in recent decades. Vz doesn’t really know either. It’s very clearly less than 300 billion barrels in any practical discussion. And that would be far less if the price of oil remains depressed.