The following analysis was written by Carolyn Kissane, a clinical professor at the Center for Global Affairs at New York University. Carolyn’s Substack newsletter (‘Energy Common Sense’) is an invaluable resource for understanding what’s happening in the energy industry, energy markets and what might be called “energy politics”. ‘Energy Common Sense’ is well-informed, well-written and well worth your time. And it’s free to read. There’s no paywall.
Carolyn contacted us on Thursday to say she had written an analysis of the “the biggest oil deal in world history” and asked if we would like to post it at News Items. How could we say no?
The answer is below.
‘Bolichico’.
It has been several days since President Donald Trump announced what the White House calls “the biggest oil deal in world history.” Maybe. Maybe not. There are questions.
Question One: Why was one little-known company given 100-year concessions to 17 Venezuelan oil fields? Question Two: Why is the US government serving as an active investor, backed by the Pentagon, in an overseas oil deal? Question Three: What exactly is the US gaining, and what is it putting at risk to get it? There are any number of other questions. For context, start with “the deal” itself.
The deal.
Secretary of State Marco Rubio and Secretary of Defense Pete Hegseth negotiated the deal on behalf of the United States. At the center of the agreement is North American Blue Energy Partners, or NABEP, a privately held company based in Barbados, controlled by Alejandro Betancourt, a controversial Venezuelan businessman with close ties to acting President Delcy Rodríguez. He is known in Venezuela as a “bolichico,” slang for a wealthy recipient of the big state contracts awarded under Hugo Chávez.
Venezuela’s interim authorities have granted NABEP 100-year concessions covering 17 oil fields with an estimated 65 billion barrels of proven reserves, approximately one-fifth of Venezuela’s total reserves. The U.S. government, acting through the Pentagon’s Office of Strategic Capital, will take a 35% equity stake in NABEP’s parent company. The State Department will have the guaranteed right to purchase 20% of the oil produced from the fields at cost and a right of first refusal on the remaining 80%. The United States will also have veto power over appointments to NABEP’s board, and most directors must be U.S. citizens. That is a lot of control.
For President Trump, commercial value is central to his vision of foreign policy. He has spent years criticizing his predecessors, George W. Bush chief among them, for going to war and coming back “empty-handed”. The “biggest oil deal in world history” is Mr. Trump’s idea of well-executed statecraft.
Intentions.
In January, after U.S. Special Forces in Operation Absolute Resolve captured President Nicolás Maduro and his wife, Cilia Flores, and moved them out of Venezuela, Trump stated his intentions for the post-Maduro era in a January 3 press conference. “We’re going to run the country,” he said. American oil companies would rebuild Venezuela’s infrastructure, get the oil flowing, and sell it around the world, he vowed. Later in that press conference, he was explicit: “We’re going to take back the oil.”
Some background.
Venezuela has the world’s largest proven oil reserves with 303 billion, 40 billion more than Saudi Arabia, but today produces only about 1% of global oil production. It also offers a clear example of why reserves and production are not the same thing. The country currently produces between 1.1 million and 1.2 million barrels a day. During the petro-state boom in the late 1970s, it produced more than 3 million barrels a day. Years of corruption, political interference, underinvestment in infrastructure, sanctions, and mismanagement hollowed out PDVSA, the state-owned oil and natural gas company of Venezuela, and decades of effectively stealing the state have left the country and its infrastructure in desperate need of everything.
Some of the fields in the agreement lack basic infrastructure, including access to electricity. Companies have to procure their own power and electricity per new oil regulations, all of which adds costs and time to any new project. Oil is a long-horizon business. Developing fields, especially heavy oil like that found in Venezuela, repairing and, in most cases, replacing infrastructure to increase production require billions of dollars, political stability, and years of sustained investment.
NABEP says it already produces approximately 200,000 barrels per day and plans to reach 1 million barrels per day someday soon.
Chevron:
Separately, Chevron, already an established player in the country for more than a century and producing more than 280,000 barrels a day, this week announced an increase in its stake and says it will be investing another $7 billion in Venezuela.
The Chevron investment is separate from the announced deal and represents a much more traditional model of foreign investment. Chevron’s century in Venezuela represents an important point of comparison. Think of Chevron as the tortoise: an energy company that has played the long game, enduring nationalization, political upheaval, and sanctions while maintaining a commercial presence. NABEP is more like the hare. It has been granted a 100-year concession, with pressure from the US, and its record is tainted by political patronage, very different from a century earned.
Assertions.
The White House says the deal “more than doubles” U.S. oil reserves. But barrels under Venezuela’s Orinoco Belt do not become American territorial reserves overnight, simply because Washington acquires influence over the company which is hoping to produce them. As you might imagine, it’s a bit more complicated than that.
For starters, Venezuelan heavy oil is not a good match for refilling the much-depleted US Strategic Petroleum Reserve, which requires a lighter type of crude. The reserves may “more than double” on paper. In practice, they do not.
Energy Secretary Chris Wright says new agreements will more than double Venezuelan production in the next few years. Unlikely. Venezuela’s extra-heavy crude is difficult and expensive to extract, move, and process. It often must be blended with lighter hydrocarbons or upgraded before export. It is among the more emissions-intensive crude oils to produce and refine. Even assuming it could be done, it would bring production to approximately 2.3 million barrels a day (2%), which is not anyone’s idea of a “game-changer”.
And despite what the administration imagines, this deal will not materially lower gasoline prices before the November midterm elections, as President Trump has suggested. Conflict in the Middle East is the principal reason American gasoline prices have risen so sharply. Mr. Trump can tout the largest oil deal in history as an answer to an energy shock his administration helped create, but Venezuelan oil cannot repair Gulf states’ infrastructure or fully reopen the Strait of Hormuz before Americans vote in November.
Details.
Drilling down, so to speak, one finds the terms of the full agreement have not been released. There was no competitive process to select NABEP, and it is unclear how a 100-year concession fits within Venezuela’s constitution, which preserves state ownership of its hydrocarbon resources.
In January of this year, the hydrocarbon law was amended to allow greater private participation in the sector’s development, providing a legal pathway, but the size of the agreement, the opacity surrounding the details of the deal, and lack of political legitimacy leave open many vulnerabilities to renegotiation, outright reversal, and refusal under a new government.
The White House says the deal will cost the United States nothing; the Pentagon will receive its interest through “penny warrants,” allowing it to acquire equity without a large upfront payment. No upfront payment does not, however, mean no cost. Political risk protection, loan guarantees, infrastructure commitments, legal disputes, and security obligations all carry potential costs as does becoming a shareholder in a company dependent on an unelected foreign government.
The White House says the company could invest as much as $100 billion. But it has not explained where that money will come from. That makes this an oddly retro deal, one built on extraction and access, at a time when the United States should be thinking about the durability of its relationship with Venezuela. The risk and ultimate gamble is that Washington sacrifices something more valuable: a long-term relationship with Venezuela that has legitimacy among the Venezuelan people and provides the political stability that energy investment requires.
Political details:
The agreement was negotiated with an interim government led by Delcy Rodríguez, Maduro’s former vice president. Her government has not received a democratic mandate to allocate one-fifth of the country’s oil reserves for a century. The arrangement was reportedly designed to make it difficult for a future government to unwind. But a contract can only provide so much protection against sovereign political risk. The history of oil is filled with governments that have renegotiated agreements, rewritten terms, or nationalized assets when the political calculus changes.
After decades of corruption and repression under Hugo Chávez and Nicolás Maduro, that omission matters. Venezuela’s oil wealth was already captured once by a political system that claimed to be using it for the people. This deal has neocolonial overtones: A powerful foreign government negotiates with unelected authorities, gains extensive control over a national resource, elevates a connected intermediary, and attempts to bind future governments for a century.
Future details.
Here at home, a future U.S. administration or Congress may question the Pentagon’s role. Already, Democrats have said that if elected in November, they expect the deal to be on the table for change and possible repeal. If Venezuelans come to see this not as investment but as an American seizure of their oil, the backlash could extend well beyond NABEP. A future government could face public pressure to cancel concessions, rewrite contracts and/or renationalize parts of the industry. Venezuela could move from nationalization to what appears to be an opaque privatization and then back toward re-nationalization. That would threaten not only this agreement but also the established companies and responsible investors the country needs.
This is the paradox. In trying to lock in investment for a century, Washington may be making all investment less secure. The best protection against another round of resource nationalism, which Venezuela knows how to do, is not a contract designed to constrain future governments but rather a transparent process that Venezuelans regard as legitimate.
A dangerous bargain.
The administration’s argues that Venezuela is not yet ready for full-fledged democracy. Trump has said this out loud: “I don’t think they are ready yet.” There is, however, a difference between gradual democratic reform and pushing it off indefinitely. The phased approach outlined by Secretary Rubio now looks less like a bridge toward political transition than a justification for postponing it while the US locks in access to the country’s oil.
It’s a dangerous bargain.
Energy investment requires what this expedited and opaque agreement may undermine: political legitimacy, stability, and confidence that the agreements will endure changes in government. The irony is that, in the name of securing Venezuela’s oil, the US may be creating the political conditions that make lasting access to it less secure. President Trump is placing extraction first, and reform a distant second. To insure success, the two need to go hand in hand rather than sequentially.
Omits the small detail that China, which gives not a hoot about emissions, will lose a source of super cheap oil.
The Obsolescing Bargain theory describes how bargaining power shifts from a foreign company to a host country government after a major investment is made. Once $billions of capital are invested in a host country, a “hostage” effect may come into play if contractual terms are considered fundamentally unfair. It is highly unlikely that today’s imposed contractural terms on Venezuela will stand the test of time.