How Venezuela's Election Unrest Will Impact Global Oil Markets
Last week, Venezuela's sitting President Nicolás Maduro was declared the winner of the country's presidential vote, plunging the nation into widespread protests amid glaring election irregularities. Despite exit polls showing the opposition candidate Edmundo González Urrutia garnering 65% of the vote, Maduro claimed victory, intensifying the already volatile political landscape.
González Urrutia, a relatively unknown figure, was selected as a last-minute stand-in for opposition leader Maria Corina Machado, who was barred from running by the Maduro-controlled Supreme Tribunal of Justice. Machado, a charismatic former lawmaker, had previously won the opposition's October primary with over 90% of the vote. The opposition has since claimed fraud, with the U.S. and EU foreign policy chiefs, along with various regional neighbors, expressing disapproval. Conversely, Maduro's allies in Russia, China, Iran, and Cuba quickly congratulated him on his victory.
Despite the political upheaval, Maduro's latest power grab is unlikely to significantly impact global oil markets. Last month, the United States Office of Foreign Assets Control (OFAC) eased some sanctions on Venezuela but retained sanctions on the state-owned oil company, PDVSA. OFAC issued a new license allowing certain transactions related to the export or re-export of liquefied petroleum gas (LPG) to Venezuela until July 8, 2025. However, transactions with Petróleos de Venezuela, S.A. (PDVSA) remain prohibited under various executive orders.
The United States maintains that Venezuela's President Nicolás Maduro and his representatives have failed to fully meet the obligations outlined in the electoral roadmap signed with the opposition in Barbados in October 2023. The U.S. is now considering fresh sanctions on Venezuela following the disputed presidential election. However, U.S. officials are not currently considering changes to Chevron Corp.'s (NYSE: CVX) license or other individual authorizations. Chevron's license allows it to export Venezuelan crude to recover debt, a model that other companies with operations in the country also follow.
Since early 2023, Chevron has increased deliveries of Venezuelan crude to the United States. However, its approximately 200,000 barrels per day (bpd) of heavy crude represent less than 1% of the more than 20 million barrels of crude processed daily by U.S. refineries. According to Reuters, the post-election protests have not affected Venezuela's oil flows. PDVSA had instructed joint ventures and its operational areas to work with reduced staff and increased security due to the electoral process, which typically requires military mobilization. However, the company has relaxed this order in recent days, with most executives and staff working normal shifts.
Venezuela's crude oil production averaged 922,000 bpd in June, a 15% year-over-year increase. However, this figure remains well below the 3.2 million bpd peak in 1997 before late President Hugo Chávez took office. Over the past decade, Venezuela has lost about two-thirds of its crude production capacity due to a lack of investment, an exodus of skilled workers, mismanagement, and corruption at PDVSA.
The country's gas industry faces similar challenges and remains severely underdeveloped. After peaking at 1.12 trillion cubic feet (Tcf) in 2001, Venezuela's natural gas production halved to 563 billion cubic feet (Bcf). Current production is not enough to meet domestic demand despite Venezuela having the largest gas reserves in Latin America. Consequently, producers have resorted to flaring, or burning off, a large portion of production. Venezuela holds 196 trillion cubic feet in proved reserves compared to the United States' 432 trillion cubic feet.
It's hard to foresee a meaningful revival of Venezuela's energy industry under another Maduro government. Falling oil production has severely impacted the economy, with GDP currently a third of what it was a decade ago. As Robin M. Mills, CEO of Qamar Energy, observed, the combination of repression, military backing, Russian assistance, and distribution of dwindling petrodollars is likely to keep Maduro in power. Sanctions and Washington's meddling provide convenient excuses for the country's dysfunction.