Oil Sanctions: Why the US Will Lose More Than Venezuela
Published in Analítica
(Venezuela) on 14 March 2025
by Víctor Álvarez R (link to original)
Donald Trump harshly criticized Joe Biden's oil licensing policy on Venezuela, and now he wants to break the impasse and claims to be correcting mistakes he inherited. In his aggressive way, he attacks hard and then he negotiates; that is why he suspended Chevron's license.
This about-face in oil licensing was fueled by [Trump-appointed special envoy] Richard Grenell's reassurance that “Donald Trump is somebody who doesn’t want regime change,” a statement considered politically controversial by Mario Díaz-Balart, Carlos Giménez and María Elvira Salazar, Republican representatives from Florida, who are leading the hard line against Cuba, Nicaragua and Venezuela.
The Republican majority in the House of Representatives has been reduced to four votes, and the Florida delegation includes votes that are quite sensitive to any concession made in favor of regimes they want to overthrow. Those representatives hinted that they could salvage the votes Trump needed to pass the Republican spending bill. Given the urgency, Trump posted a revision of the oil licenses on social media and the spending bill was approved by a narrow margin of 217-215. And that explains Trump's surprising about-face.
For now, it doesn’t represent any change in the strategy of direct negotiations between the White House and Miraflores, but merely a strategic maneuver to circumvent internal disagreement among Republicans in Congress who support Trump. It would be premature to define this as the Trump administration’s new policy on Venezuela. If revoking Chevron's license is followed by suspending the memoranda of understanding under which those European companies not subject to licenses operate, Trump’s second administration would be reinstating the policy of maximum pressure to force political change in Venezuela.
Migratory Impact of Suspending Oil Licenses
The initial impression was that Trump would not return to the policy of maximum pressure or reissue the reciprocal concessions Biden granted. Trump would seek something different, more in line with his priorities, including helping the Venezuelan economy recover. Generating sources for well-paid jobs would, in turn, reduce Venezuelan migration to the U.S., a migration that has multiplied in size and whose migrants benefit the most from temporary protective status. More than 600,000 Venezuelans have temporary protective status and 117,000 have humanitarian permits — “significant public benefit parole” — granted by Biden.
An early visit by Presidential Commissioner for Special Missions Grenell led people to expect a massive deportation of Venezuelan migrants in exchange for the continuation of oil licenses. Trump took office on Jan. 20, and on Jan. 31, Grenell traveled to Caracas to meet with Nicolas Maduro at the Miraflores Palace. It was the first time in years that a U.S. diplomat was photographed with the Venezuelan leader, who agreed to receive deportees and open avenues to work to reach more significant agreements. But those avenues are about to be closed. If the suspension of the licenses is definite, then it will impede the immigration agreement again and affect Trump's plans to deport Venezuelan migrants.
Geopolitical Impact: Venezuela Will Strengthen Ties with US Rivals
With the suspension of oil licenses, the Venezuelan government will take control of joint ventures under Chevron's control, passing operations on to new partners. Who would these be? Mike Wirth, Chevron's CEO, told Financial Times, “In Venezuela, in particular, what you have seen when countries from the West leave, you’ve seen companies from China, from Russia, increase their presence as a result.”
In February, Venezuelan Vice President Delcy Rodríguez met in New Delhi with India's Minister of Petroleum and Natural Gas Hardeep Singh Puri “to review the map of joint cooperation.” For his part, Maduro affirmed that “our energy future will be increasingly linked to India.”
Apart from Chevron's official withdrawal, the U.S. Office of Foreign Assets Control may ban the operations of U.S. oilfield service companies located in Venezuela, such as Halliburton, Schlumberger, Baker Hughes and Weatherford. Trump’s turnaround may also affect the Venezuelan operations of Repsol, ENI and Maurel & Prom.
If licenses to U.S. and European oil companies are permanently suspended, Venezuela will offer better participation conditions to companies from Russia, China, Iran and India that are willing to buy more Venezuelan crude and expand their participation in the national oil industry. Officially suspending the licenses may generate geopolitical effects that work against one of Trump’s priorities: isolating his Asian rivals.
Damage to US Energy and Economic Interests
"We don't have to buy their oil. We have plenty of oil for ourselves,” Trump threatened, claiming to have 50 times more oil than Venezuela. But there are powerful technical, economic and geopolitical reasons that complicate his decision.
While it is true that the U.S. has become a major oil producer because of fracking technology, its lighter oil is not the most suitable for U.S. refineries that were designed to process heavy Venezuelan crude. Maintaining fracking operations requires prices exceeding $60 billion to be profitable. If prices fall below that, it will be cheaper for the U.S. to import oil than to consume its own. And prices may fall if the war in Ukraine ends and the threat of a war between Israel and Iran is averted. Therefore, it is not a question of the U.S. producing more oil than Venezuela, but of technical and economic restrictions that hinder the substitution of Venezuelan heavy crude for the light and high-cost fracking crude.
U.S. strategic oil reserves have been reduced to avoid demands that would increase prices. Corporations such as Chevron have a key problem to solve to guarantee their mid-term and long-term viability. They are suffering a drop in oil reserves, aggravated by a low replacement rate. One of Trump's campaign promises was to restore the Strategic Reserve level to 700 million barrels. To achieve this, Trump would need to inject 320 million barrels of oil. Buying such an amount would put upward pressure on oil prices, thus defeating Trump's election promise to reduce fuel and energy costs.
Oil production in the U.S. is around 13 million barrels of oil per day. At that rate, its reserves should last 6.4 years. If the U.S. consumes almost 20% of global demand on a daily basis and Venezuela has almost 20% of the world's reserves, it is in the United States’ interest to restore Venezuelan oil supplies.
In fact, according to the Department of Energy, reserves rose from 346 to 380 million barrels as of October 2023, when Chevron received a license to reactivate its operations in Venezuela, but the substantial oil reserves under Venezuelan soil can be extracted only if sanctions are lifted. The U.S. needs to secure new reserves to guarantee its future operations; Venezuela represents a secure source to replenish those reserves. However, if Russia, China, Iran and India occupy the space the U.S. leaves vacant, it will be very difficult to recover those resources.
Donald Trump Is Not a Kamikaze
In World War II, Japanese suicide pilots would crash the plane they were flying loaded with explosives to destroy a target. Undoubtedly, by suspending Chevron's license, Trump made a surprise U-turn. However, there is an expectation that given the counterproductive and damaging effects for the U.S. of prolonging and tightening oil sanctions, Trump will finally opt for a pragmatic relationship that is mutually beneficial for both nations.
Among Trump's priorities are mass deportations, securing U.S. access to oil reserves, insulating Venezuela from U.S. geopolitical rivals and restoring Venezuelan democracy. Which of these priorities is Trump willing to compromise with Maduro for?
How will he negotiate those priorities without conflicting with Florida’s Republican representatives who support his administration? Will Trump be willing to negotiate directly with Maduro to align the easing of sanctions with U.S. energy security, immigration, and geopolitical interests?
Despite Trump's disconcerting about-face, the U.S. policy toward Venezuela is not yet clearly defined. A new day will dawn and we shall see.
This about-face in oil licensing was fueled by [Trump-appointed special envoy] Richard Grenell's reassurance that “Donald Trump is somebody who doesn’t want regime change,” a statement considered politically controversial by Mario Díaz-Balart, Carlos Giménez and María Elvira Salazar, Republican representatives from Florida, who are leading the hard line against Cuba, Nicaragua and Venezuela.
The Republican majority in the House of Representatives has been reduced to four votes, and the Florida delegation includes votes that are quite sensitive to any concession made in favor of regimes they want to overthrow. Those representatives hinted that they could salvage the votes Trump needed to pass the Republican spending bill. Given the urgency, Trump posted a revision of the oil licenses on social media and the spending bill was approved by a narrow margin of 217-215. And that explains Trump's surprising about-face.
For now, it doesn’t represent any change in the strategy of direct negotiations between the White House and Miraflores, but merely a strategic maneuver to circumvent internal disagreement among Republicans in Congress who support Trump. It would be premature to define this as the Trump administration’s new policy on Venezuela. If revoking Chevron's license is followed by suspending the memoranda of understanding under which those European companies not subject to licenses operate, Trump’s second administration would be reinstating the policy of maximum pressure to force political change in Venezuela.
Migratory Impact of Suspending Oil Licenses
The initial impression was that Trump would not return to the policy of maximum pressure or reissue the reciprocal concessions Biden granted. Trump would seek something different, more in line with his priorities, including helping the Venezuelan economy recover. Generating sources for well-paid jobs would, in turn, reduce Venezuelan migration to the U.S., a migration that has multiplied in size and whose migrants benefit the most from temporary protective status. More than 600,000 Venezuelans have temporary protective status and 117,000 have humanitarian permits — “significant public benefit parole” — granted by Biden.
An early visit by Presidential Commissioner for Special Missions Grenell led people to expect a massive deportation of Venezuelan migrants in exchange for the continuation of oil licenses. Trump took office on Jan. 20, and on Jan. 31, Grenell traveled to Caracas to meet with Nicolas Maduro at the Miraflores Palace. It was the first time in years that a U.S. diplomat was photographed with the Venezuelan leader, who agreed to receive deportees and open avenues to work to reach more significant agreements. But those avenues are about to be closed. If the suspension of the licenses is definite, then it will impede the immigration agreement again and affect Trump's plans to deport Venezuelan migrants.
Geopolitical Impact: Venezuela Will Strengthen Ties with US Rivals
With the suspension of oil licenses, the Venezuelan government will take control of joint ventures under Chevron's control, passing operations on to new partners. Who would these be? Mike Wirth, Chevron's CEO, told Financial Times, “In Venezuela, in particular, what you have seen when countries from the West leave, you’ve seen companies from China, from Russia, increase their presence as a result.”
In February, Venezuelan Vice President Delcy Rodríguez met in New Delhi with India's Minister of Petroleum and Natural Gas Hardeep Singh Puri “to review the map of joint cooperation.” For his part, Maduro affirmed that “our energy future will be increasingly linked to India.”
Apart from Chevron's official withdrawal, the U.S. Office of Foreign Assets Control may ban the operations of U.S. oilfield service companies located in Venezuela, such as Halliburton, Schlumberger, Baker Hughes and Weatherford. Trump’s turnaround may also affect the Venezuelan operations of Repsol, ENI and Maurel & Prom.
If licenses to U.S. and European oil companies are permanently suspended, Venezuela will offer better participation conditions to companies from Russia, China, Iran and India that are willing to buy more Venezuelan crude and expand their participation in the national oil industry. Officially suspending the licenses may generate geopolitical effects that work against one of Trump’s priorities: isolating his Asian rivals.
Damage to US Energy and Economic Interests
"We don't have to buy their oil. We have plenty of oil for ourselves,” Trump threatened, claiming to have 50 times more oil than Venezuela. But there are powerful technical, economic and geopolitical reasons that complicate his decision.
While it is true that the U.S. has become a major oil producer because of fracking technology, its lighter oil is not the most suitable for U.S. refineries that were designed to process heavy Venezuelan crude. Maintaining fracking operations requires prices exceeding $60 billion to be profitable. If prices fall below that, it will be cheaper for the U.S. to import oil than to consume its own. And prices may fall if the war in Ukraine ends and the threat of a war between Israel and Iran is averted. Therefore, it is not a question of the U.S. producing more oil than Venezuela, but of technical and economic restrictions that hinder the substitution of Venezuelan heavy crude for the light and high-cost fracking crude.
U.S. strategic oil reserves have been reduced to avoid demands that would increase prices. Corporations such as Chevron have a key problem to solve to guarantee their mid-term and long-term viability. They are suffering a drop in oil reserves, aggravated by a low replacement rate. One of Trump's campaign promises was to restore the Strategic Reserve level to 700 million barrels. To achieve this, Trump would need to inject 320 million barrels of oil. Buying such an amount would put upward pressure on oil prices, thus defeating Trump's election promise to reduce fuel and energy costs.
Oil production in the U.S. is around 13 million barrels of oil per day. At that rate, its reserves should last 6.4 years. If the U.S. consumes almost 20% of global demand on a daily basis and Venezuela has almost 20% of the world's reserves, it is in the United States’ interest to restore Venezuelan oil supplies.
In fact, according to the Department of Energy, reserves rose from 346 to 380 million barrels as of October 2023, when Chevron received a license to reactivate its operations in Venezuela, but the substantial oil reserves under Venezuelan soil can be extracted only if sanctions are lifted. The U.S. needs to secure new reserves to guarantee its future operations; Venezuela represents a secure source to replenish those reserves. However, if Russia, China, Iran and India occupy the space the U.S. leaves vacant, it will be very difficult to recover those resources.
Donald Trump Is Not a Kamikaze
In World War II, Japanese suicide pilots would crash the plane they were flying loaded with explosives to destroy a target. Undoubtedly, by suspending Chevron's license, Trump made a surprise U-turn. However, there is an expectation that given the counterproductive and damaging effects for the U.S. of prolonging and tightening oil sanctions, Trump will finally opt for a pragmatic relationship that is mutually beneficial for both nations.
Among Trump's priorities are mass deportations, securing U.S. access to oil reserves, insulating Venezuela from U.S. geopolitical rivals and restoring Venezuelan democracy. Which of these priorities is Trump willing to compromise with Maduro for?
How will he negotiate those priorities without conflicting with Florida’s Republican representatives who support his administration? Will Trump be willing to negotiate directly with Maduro to align the easing of sanctions with U.S. energy security, immigration, and geopolitical interests?
Despite Trump's disconcerting about-face, the U.S. policy toward Venezuela is not yet clearly defined. A new day will dawn and we shall see.
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