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Like your mom holding onto her old jeans hoping that she can wear them again, Chevron has been holding onto Venezuelan oil assets hoping to produce from them again. And like mom jeans, Venezuelan assets are back.
What happened: The US eased its sanctions on Venezuela, allowing Chevron to produce again… at least for the next six months.
- The approval came after the Venezuelan government agreed to provide $3 billion in humanitarian aid to its people in a fund that will be overseen by the United Nations.
Chevron is the last large US oil company continuing to operate in Venezuela and has four joint ventures with Petróleos de Venezuela, Venezuela’s state-owned oil company. Their oil fields produce ~200,000 barrels per day.
A history:
- Venezuela has the largest oil reserves in the world and used to be the largest exporter of oil to the US.
- In 2018, a socialist government led by Nicolas Maduro was re-elected in a controversial election, seen by most nations as without democratic legitimacy.
- In 2019, strict sanctions were imposed by the US and other countries in an effort to remove the government.
- Venezuela now produces ~700,000 barrels of oil per day, a fraction of the 3 million daily barrels it produced in the 1990s.
- Since Maduro was first elected in 2013, Venezuela’s GDP per capita has plummeted to a quarter of its 2012 value.
Venezuela GDP per person, 1980-2022
US dollars
Courtesy of the International Monetary Fund
Chevron was granted the production rights, but with some strings attached.
The approval conditions:
- Chevron sells its oil from Venezuela on the US market
- Profits from the sales will be used to pay off Chevron’s debt
- No payments of taxes or royalties are to be made to the Venezuelan government
- After 6 months, the license will be reviewed and renewed monthly
- Unlike the “no backsies” rule in tag, the US government said it will happily revoke the license if Maduro doesn’t hold good to his promises
What’s next: It will take some time before Chevron’s production in Venezuela can ramp back up to 200,000 barrels per day due to the under-maintenance of its oil fields over the past three years.
The limits on this approval and the existing sanctions are part of an effort to make the Venezuelan government accountable to ensure free and fair elections in the future.
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