• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 1 hour How Far Have We Really Gotten With Alternative Energy
  • 6 hours Bad news for e-cars keeps coming
  • 12 days What fool thought this was a good idea...
  • 10 days A question...
  • 7 hours The U.S. Is Determined to Revolutionize Its Microchip Industry
  • 15 days Why does this keep coming up? (The Renewable Energy Land Rush Could Threaten Food Security)
  • 15 days They pay YOU to TAKE Natural Gas
Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

More Info

Premium Content

Russia Is Winning The Battle For Venezuela’s Oil

Venezuela flag

In just over a year Venezuela, and the push to oust socialist leader President Nicolas Maduro, has gone from being one of the world’s hottest news headlines to obscurity. The popularity of Venezuelan opposition leader Juan Guaidó is waning. As the December 2020 election date for Venezuela’s National Assembly fast approaches it appears that Washington’s opportunity to initiate regime change in the pariah Latin American state is steadily slipping away. That is strengthening the hand of U.S. antagonists and their proxies in the region, notably Putin’s Russia. Moscow is in the process of achieving what the Soviet Union couldn’t accomplish over four decades during the Cold War, seizing control of Venezuela’s vast petroleum riches. The Latin American country possesses the world’s largest hydrocarbon reserves, estimated to total over 300 billion barrels or 12% higher than Saudi Arabia’s. Venezuela was once an important source of heavy crude oil for U.S. refineries with many, notably in the U.S. Midwest, being configured to process crude oil with an API of less than 40 degrees.

A combination of Caracas’ malfeasance, deteriorating infrastructure and a substantial lack of investment in critical maintenance and development activities caused Venezuela’s oil industry to collapse. Over the last decade, Venezuela’s oil production has tumbled precipitously to be less than a sixth of the 2.3 million barrels daily pumped during 2009. According to OPEC’s August 2020 Monthly Oil Market Report, Venezuela’s oil output had fallen to an average of 339,000 barrels daily during July, or less than half of the daily average for 2019. 

The collapse of the Latin American country’s economically vital hydrocarbon sector has caused the economy to essentially collapse. During 2019 Venezuela’s GDP contracted by 35%, according to the IMF, and is forecast to shrink 15% in 2020 and by another 5% for 2021. As a result, what was the most advanced country in Latin America is now one of the region’s poorest. It has seen Caracas, once regarded as the jewel of South America, fall on hard times and lose its status as the continent’s mecca for oil executives, businessmen and tourists. Related: Oil Rallies As Twin Storms Force Shut-Ins In Gulf Of Mexico

Venezuela’s economic woes will worsen because oil production remains in decline. Even the government’s efforts, with considerable support from Russia, have failed to tangibly boost petroleum output with July average daily production of 339,000 barrels less than 1% greater than a month earlier. By the end of July 2020, Baker Hughes data showed there was only one active oil rig in the Latin American country, compared to 25 for the equivalent period a year earlier. The economic dependence on oil will force the Maduro administration to seek further support from key ally Russia, particularly because formidable U.S. sanctions prevent Caracas from tapping mainstream international capital markets and selling crude abroad. Moscow has a long history of supporting Venezuela’s dictatorship, supplying arms, loans and now mercenaries to prop up its erstwhile South American ally since Chavez’s ascension to power. It also facilitates the sale of Venezuelan crude, allowing Maduro’s administration to skirt U.S. sanctions. China has become a key recipient of Venezuelan oil despite U.S. sanctions. Those sales were being expedited by Russian state-controlled oil giant Rosneft, which had lent over $6 billion to Caracas to be repaid in oil with around $800 million remaining to be paid according to some estimates.

To combat those breaches, the U.S. imposed sanctions on Rosneft but indicated that they would be lifted if the company were no longer involved in Venezuela. This saw Rosneft sell its Venezuelan assets earlier this year to a Russian government owned company to protect its shareholders. This underscores the closeness of the relationship between Caracas and Moscow. The alliance between the two countries will become stronger because of Washington tabling further sanctions in the wake of seizing Iranian fuel cargoes en route to Venezuela earlier this month. The Trump administration is also determined to choke off Caracas’ oil sales, the government’s only source of hard currency.

This relationship and its growing intimacy, gives Russia notable geopolitical benefits, including increased leverage in what has traditionally been considered the U.S.’s exclusive sphere of influence and control over the world’s largest oil reserves. Recent developments in Venezuela indicate that the bond will become even closer.

Related: German Scientists Find New Way To Extract Lithium

Venezuela’s December 2020 National Assembly elections are fast approaching. This is an important event for Washington and its attempts to secure regime change in Venezuela, blunt regional Russian influence and dominate the Latin American country’s vast oil wealth. The parliamentary body, where the opposition to Maduros’ holds a majority, endows opposition leader Juan Guaidó with his legitimacy. At the start of 2019, Guaidó declared himself Venezuela’s interim president and was backed by the U.S., Canada and many Latin American countries. Eventually, more than 50 countries around the world recognized the opposition leader as Venezuela’s legitimate leader by the end of 2019. That support, however, is evaporating domestically and internationally.

Guaidó’s failure to deliver on the many promises made during early 2019 has seen many Venezuelans who initially supported him become disillusioned with the self-declared intermediate president. His popularity is declining further as the ever-deepening economic crisis forces Venezuelans to set aside politics and focus on managing day to day problems just to survive. A 2019 poll showed that Guaidó’s popularity had waned and he was in a statistical dead heat with Maduro. Guaidò’s support spiraled even lower after his alleged involvement in the abortive May 2020 armed raid on Venezuela, where two former U.S. special forces soldiers were captured. This along with Trump flip flopping on Venezuela in recent months and the growing pressures on ordinary Venezuelans because of the economic impact of harsher U.S. sanctions. 

Washington appears to have lost the ability to spark regime change in Venezuela. Harsher sanctions and the Latin American country’s growing forced austerity has seen a hard-pressed Maduro seek closer ties with Russia, giving Moscow ever greater control of Venezuela’s vast oil reserves and potential productive capacity. This not only boosts Russian geopolitical standing but gives Moscow greater ability to influence oil prices by increasing its bargaining power with OPEC, with which Russia has partnered since 2016 in a series of petroleum production cuts to bolster prices.


By Matthew Smith for Oilprice.com 

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Mamdouh Salameh on August 24 2020 said:
    Unlike the United States, Russia never sells its allies short as its support of Syria and Venezuela has shown over the years. Long before the US sanctions, it has been extending loans to Venezuela to help an ally in need. After the intrusive US sanctions it helped Venezuela’s economy stay afloat by selling Venezuelan crude oil around the world. That is why Russia has now considerable control over Venezuelan crude oil reserves, the largest in the world. This is something the United States has failed to get its hands on.

    Still, Venezuela’s economic crisis predates US sanctions. The fact that this is a home grown crisis is not lost on the Venezuelan people. While extremely critical of the corruption and bureaucracy that pervade the Maduro government, people still express the willingness to rise up against the perceived threat of “Yankee imperialism”. After all, it was the Bolivarian revolution that liberated countries of South America from Spanish oppression.

    The only consolation for the hardship and suffering of the Venezuelan people is that the United States has failed miserably in imposing its puppet Juan Guaidó in a regime change, or getting its hands on their spectacular oil wealth.

    Venezuela and its oil industry are unbowed and they will rise again from the ashes like a phoenix under an inspiring and democratically-elected leadership.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News