US-Venezuela Oil Deal Faces Legal Hurdles
News Desk
Washington: A proposed US-backed expansion into Venezuela’s oil industry is raising questions over its legal framework, investment structure and ability to deliver lower fuel prices, despite President Donald Trump’s claim that the agreement could give American interests majority control of more than 65 billion barrels of proven reserves.
Trump announced the agreement on Friday, saying it was secured through a partnership with private companies and would require no cost to US taxpayers. However, the administration has yet to reveal the companies involved, the oilfields covered by the arrangement or how majority US control would be exercised.
The deal could significantly expand Washington’s presence in Venezuela’s energy sector as the Trump administration seeks to increase crude production, secure additional supplies for US refineries and ease pressure on domestic fuel prices ahead of November’s midterm elections.
Venezuela possesses the world’s largest proven oil reserves but produces only around 1.25 million barrels per day. Its output has remained well below potential following years of underinvestment, mismanagement, sanctions and deterioration of energy infrastructure.
Billions in investment expected
US Secretary of State Marco Rubio has described the agreement as a potential benefit for both countries, saying it could provide the United States with a more stable supply of lower-cost crude and contribute to reduced gasoline prices.
Rubio said the initiative could attract nearly $100 billion in private investment in Venezuela and create thousands of jobs.
Venezuelan interim President Delcy Rodriguez said the plan would focus on developing 17 strategic oilfields and could generate approximately $209 billion in tax revenue for the government.
Venezuelan authorities are expected to award new exploration and production rights to several companies, with US firms expected to play a prominent role. According to sources familiar with the discussions, a lease-based model has been considered under which individual oilfields could be offered to US producers.
A list reviewed by Reuters identified potential fields in the Orinoco Belt and Lake Maracaibo regions, two of Venezuela’s major oil-producing areas.
Uncertainty over legal framework
Despite the scale of the proposed investment, analysts say significant questions remain over how the arrangement would operate under Venezuelan law.
The Venezuelan state has historically retained control over key activities in the oil sector. Analysts therefore say the final legal and financial structure will be critical to determining whether the proposed investment can move forward on a large scale.
David Goldwyn, president of Goldwyn Global Strategies, said there was no established precedent for the US government entering into a lease to operate Venezuelan oilfields.
He also identified political uncertainty, inadequate electricity infrastructure, limited export capacity and extensive government discretion over the energy sector as longstanding barriers to investment.
The impact on US fuel prices is another uncertainty. Venezuela primarily produces heavy crude, meaning additional infrastructure and refining capacity would be needed to significantly increase production and exports. Analysts say such projects could take years to develop, limiting the likelihood of an immediate reduction in gasoline prices.
A major shift in Venezuela’s oil policy
The proposed agreement comes as Washington seeks to secure a steady flow of Venezuelan crude to US refineries while encouraging American companies to invest in the country’s energy sector. The United States is also exploring ways to replenish its Strategic Petroleum Reserve.
Venezuela nationalised its oil industry decades ago and placed state-owned PDVSA at the centre of production. Under former President Hugo Chavez, the government further tightened its control over the sector, requiring foreign producers to operate through state-led joint ventures and later expropriating some foreign-operated assets.
The latest US-backed initiative would therefore represent a significant change in Venezuela’s approach to foreign participation in its oil industry.
However, the success of the plan will depend on its legal foundation, financing arrangements and the ability of investors to overcome Venezuela’s ageing infrastructure, political uncertainty and long-standing production constraints.
