Venezuela oil industry in focus after US military action

A day after President Nicolas Maduro said Venezuela was open to negotiating a deal with the United States to combat drug trafficking, an allegation for which US President Donald Trump has provided no evidence, the US military carried out a large-scale air strike on Venezuela and captured President Maduro on Saturday. The developments have drawn renewed attention to Venezuela's oil industry, which holds the world's largest proven reserves but has struggled for years with falling production, sanctions and underinvestment.

Venezuela has the largest known oil reserves globally, estimated at 303 billion barrels as of 2023. Despite this vast resource base, the country's oil exports remain limited. According to the Observatory of Economic Complexity, Venezuela exported crude oil worth just $4.05 billion in 2023, far below other major producers such as Saudi Arabia, which exported $181 billion, the United States at $125 billion and Russia at $122 billion.

Most of Venezuela's oil reserves are concentrated in the Orinoco Belt, a vast region of about 55,000 square kilometres in the eastern part of the country. The belt contains extra-heavy crude, which is dense and highly viscous, making it far more difficult and expensive to extract than conventional oil. Production typically requires advanced techniques such as steam injection, as well as blending with lighter crudes to make the oil suitable for export. Because of its density and high sulphur content, extra-heavy crude usually sells at a discount compared with lighter grades.

Venezuela also exports smaller quantities of refined petroleum products, including petrol and diesel. However, its ability to increase these exports is constrained by ageing refinery infrastructure, technical challenges and international sanctions.

Venezuela was a founding member of the Organisation of the Petroleum Exporting Countries (OPEC), alongside Iran, Iraq, Kuwait and Saudi Arabia, joining the group on September 14, 1960. The country was producing as much as 3.5 million barrels per day in the 1970s, accounting for more than 7% of global oil output at the time. Production fell below 2 million barrels per day during the 2010s and averaged around 1.1 million barrels per day last year, or about 1% of global supply.

If regime change proves successful, Venezuela's oil exports could increase as sanctions are lifted and foreign investment returns, said Saul Kavonic, an analyst at MST Marquee.

However, others have urged caution.

"History shows that forced regime change rarely stabilises oil supply quickly, with Libya and Iraq offering clear and sobering precedents," said Jorge Leon, head of geopolitical analysis at Rystad Energy.

Trump told Fox News on Saturday that the United States would be "very strongly involved" in Venezuela's oil sector. Venezuela nationalised its oil industry in the 1970s, creating Petroleos de Venezuela SA (PDVSA). In the 1990s, the country moved to open the sector to foreign investment, but after Hugo Chavez was elected president in 1999, the government required PDVSA to hold majority ownership in all oil projects.

PDVSA entered joint ventures with several foreign companies, including Chevron, China National Petroleum Corporation, ENI, Total and Russia's Rosneft. The United States was once the main buyer of Venezuelan oil, but since the imposition of sanctions, China has become the primary destination.

Additional input from Al Jazeera