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US forces intercept and seize a sanctioned oil tanker off the coast of Venezuela, in a video released by the US Department of Justice on Dec. 10.Source: US Department of Justice
The US has ratcheted up pressure on the government of Venezuela with a series of measures designed to stifle the country’s vital oil exports.
Tankers have been u-turning away from the Latin American nation after Washington imposed sanctions on vessels transporting Venezuelan oil and US forces intercepted and seized a ship. President Donald Trump then announced a blockade of Venezuela’s crude exports, saying the country was now “completely surrounded by the largest Armada ever assembled in the History of South America.”
Oil exports are Venezuela’s main source of revenue. Trump administration officials say their ultimate objective is to stem the flow of illegal narcotics from the country. US forces have carried out a series of air attacks on small boats in the region that American officials allege were operated by drug cartels. Venezuelan officials see a different motive: They say the US’s actions signal plans to eventually seize Venezuela’s oil reserves, the world’s largest.
Here’s what’s important to know about Venezuela’s oil industry as the US operation plays out.
What’s the impact of the US’s recent actions?
Even before the embargo, the seizure of the oil tanker and the ship sanctions were set to make it much harder for Venezuela to export its crude. Shippers are now likely to be more reluctant to load the country’s cargoes over fears of detentions by the US, and buyers are expected to demand deeper discounts. Rapidan Energy Group estimated in a report that about 30% of Venezuelan oil exports were already put at risk by the sanctions. That accounts for about 300,000 barrels a day.
Read more: US Seizure of Venezuela Oil Tanker Risks Amping Up Economic Pain
Is the US likely to attack or seize Venezuelan oil assets?
“The true reasons for the aggression against Venezuela have finally been revealed,” Venezuela’s government said in a statement after the US seizure of the oil tanker. “It was always about our natural resources, our oil.”
Trump has suggested the Pentagon may conduct strikes on land. However, there is no indication from US officials that oil or gas facilities are targets for strikes. The current military campaign in the Caribbean aims to “disrupt narcotics trafficking and degrade and dismantle Transnational Criminal Organizations,” Defense Secretary Pete Hegseth said on Nov. 11. The administration says that seizing sanctioned tankers and penalizing oil shippers cuts off revenue streams that fund drug-trafficking groups.
Two criminal groups of Venezuelan origin are the primary targets of the US operation: the Cartel de los Soles and Tren de Aragua, both designated as terrorist groups. Drug-related assets, including illegal airstrips, laboratories and warehouses allegedly managed by the Cartel de los Soles are likely to be the next target of US attacks, according to a Washington Post report in November.
The tanker seized by US forces does not belong to Venezuela’s state oil company, Petróleos de Venezuela SA (PDVSA). The vessel purportedly sails under the Guyana flag, but the country’s Maritime Administration has denied any connection with the tanker. The oil carrier was sanctioned by the US in 2022 for supporting Iranian oil exports.
What condition is Venezuela’s oil industry in today?
Crude production in Venezuela has plunged more than 70% since its peak in the late 1990s, when it pumped over 3.2 million barrels a day. Venezuela is now only in 21st place among world producers; its production is poised to be overtaken in the coming years by neighboring rising star Guyana, as well as Argentina, which has historically been a minor producer.
Despite the sector’s condition, oil exports are still Venezuela’s main income generator — though President Nicolás Maduro has focused on diversifying its economy in the last few years. At least 95% of the country’s overseas revenue comes from oil sales.
What caused Venezuela’s oil industry to deteriorate so much?
Venezuela’s oil collapse traces back to the early 2000s, when Hugo Chávez’s socialist revolution brought the industry under tighter state control, driving out foreign investment and entrenching corruption and mismanagement. Major western companies, including ConocoPhillips and ExxonMobil, were expropriated after a legal overhaul made PDVSA a majority shareholder in their ventures. Others, including TotalEnergies, left the country voluntarily.
Chávez’s reforms included the dismantling of PDVSA’s meritocracy system and over-staffing the company with party loyalists. A string of accidents plaguing pipelines and oil facilities ensued, including a 2012 explosion at the Cardon refinery complex, one of the largest in the world, causing production to crater and forcing the OPEC nation to import fuel for its needs. Though crude oil prices spiked to more than $100 in the mid 2000s, the industry was further rocked by money laundering cases and international indictments of officials.
There is also the role of US pressure. Over 100 years of US involvement in the country’s oil industry made Venezuela one of Washington’s strongest regional allies. But the US imposed financial sanctions on PDVSA in 2017 and operational sanctions in 2019. The sanctions bar most oil trade and financing with PDVSA while permitting a few licensed exceptions. The restrictions have further deteriorated PDSVA’s facilities, which are highly dependent on US technology the company is now banned from importing.
Are there any foreign oil companies still operating there?
Yes. Houston-based oil major Chevron Corp, which holds a US license permitting limited joint operations with PDVSA to produce oil and ship it to US Gulf Coast refineries, is the last American company still operating after the departures of other majors, including Conoco, Exxon, Total, Shell PLC and Equinor ASA. Spain’s Repsol, Italy’s Eni SpA and France’s Maurel et Prom SA are also present and partner in oil and gas ventures with PDVSA.
US sanctions have discouraged Venezuela’s longtime political allies Russia and China from expanding their partnerships with PDVSA. Russian state oil producer Rosneft transferred its assets in the country to an alternate firm that was not under sanctions — a legal workaround — and China’s state-owned CNPC has kept a minimal presence in the country in recent years.
What nations are the biggest buyers of Venezuelan crude?
China is by far the largest buyer of Venezuelan crude. Venezuela exports oil to the country with so-called ghost ships that disguise the oil’s origins to avoid sanctions. China buys Venezuelan oil via independent refiners, known as teapots, mostly clustered in China’s Shandong province.
In addition, Venezuela’s heavy grades satisfy specific demand for thick “asphalt” crude in the US, where some refineries are tailored to process its oil.
Will oil prices soar if the US attacks Venezuela?
Probably not. “Isolated attacks to drug trafficking assets such as airstrips or laboratories would have minimal impact on prices,” said Francisco Monaldi, the director of Latin American energy policy at Rice University’s Baker Institute for Public Policy. “The market would quickly absorb it.” This likely absorption is due to Venezuela’s minimal contribution to the world market — it accounts for less than 1% of the world’s output — and a looming worldwide crude glut anticipated by analysts.
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