Venezuela's Political Crisis Plays Out In Global Oil Markets

Feb 20, 2019
Originally published on February 20, 2019 7:20 am
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DAVID GREENE, HOST:

The political crisis in Venezuela and the U.S. response is affecting global oil markets. The U.S. has been that nation's largest oil export market, but Washington's new sanctions effectively ban U.S. imports of Venezuelan oil. Energy expert Francisco Monaldi of Rice University calls this a one-two punch.

FRANCISCO MONALDI: Pretty soon the U.S. will consume zero barrels of Venezuelan oil. I mean, it was consuming about half a million barrels by the end of last year. And it was, by the way, exporting around 120,000 barrels from the U.S. of refined products to Venezuela, which are important for the domestic market of gasoline plus to blend with the extra heavy oil that Venezuela produces.

So this is a double sort of whammy for Venezuela in the sense that, as you pointed out, it's the largest market - the other two large markets are India and China - and it was the one who generated the most cash for the national oil company of Venezuela because a lot of what it - goes to Asia is used to repay debts.

GREENE: Let's look at a couple different scenarios here. If one Juan Guaido becomes the president, I mean, he has promised a better future for Venezuelans. How easily and how quickly could he turn this around and make the oil industry beneficial for Venezuela's people?

MONALDI: It will take a while. But I think there is a significant chance that if there is some degree of political stability, the oil industry will recover relatively fast. That requires attracting a lot of foreign investment because the Venezuelan national company's bankrupt, and the country is heavily into debt.

But the impression that I have is that the international community will help Venezuela in the transition. The sanctions would be lifted at that point, and that would allow for significant investment to go back to Venezuela. But it will require an institutional environment that is conducive to that, and that's a very important challenge for the Guaido administration.

GREENE: Let's look at the other scenario, I mean, if the United States has put its bet on the wrong person here. Let's say Maduro stays in power. You've written about that the United States imposing sanctions on the current government could open the door for countries like Russia and China to gain more influence, you know, right here in the neighborhood. What exactly do you mean by that warning?

MONALDI: So today, the three largest partners of the national company of Venezuela are Chevron from the U.S., China National Petroleum and Rosneft from Russia. And a key element in the production are these companies work with service companies of the U.S., including Schlumberger and Halliburton, our major service providers.

If all these U.S. companies, plus possibly other Western companies from Europe, leave the country, basically the oil industry of Venezuela will be totally in the hands of Russian and Chinese companies, which already have been the largest lenders to Venezuela and, you know, are becoming the largest buyers. Because even though Russia doesn't need Venezuelan oil, they take it, and they sell it elsewhere - for example, in India.

GREENE: And let me just ask you one more question about Guaido. Were he to take over, is there a role for U.S. energy companies to play in helping with the transition and starting to get that production going more quickly?

MONALDI: Without a doubt. As I said, Chevron is already the largest player in Venezuela. And the service companies of the U.S. are the major service provider not only in Venezuela but, you know, throughout the world. So they are absolutely essential for their recovery. So without a doubt, Western oil companies will have a big role to play and probably will lead the charge in terms of the amount of investment, which is huge, that is required by the Venezuelan oil industry.

GREENE: Francisco Monaldi is a fellow in Latin American energy policy at the Baker Institute for Public Policy at Rice University. Thanks so much.

MONALDI: Thank you.

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