On the third night of the new year, the Caracas skyline was dotted with explosions. US military helicopters whisked the first couple of Venezuela from their comforts for a midnight ride to New York—in an operation eerily similar to a sequence from the 2001 movie Spy Game, in which Brad Pitt and Catherine McCormack’s characters are flown out of a Chinese prison. The intent and outcome differed in real life. It was about oil altering world dynamics—again.
Venezuela has figured for long on the US presidential radar. A growing Chinese and Russian influence in the South American country’s oil industry triggered a conflict of egos.
During a 2010 visit to the Venezuelan capital, Vladimir Putin, then the Russian prime minister, was gifted a symbolic ‘Key to Caracas’ as Hugo Chávez strengthened ties with Russia. A 20-year cooperation plan between Iran and Venezuela signed in 2022 included recovery of the latter’s oil industry. Despite sanctions, China continued as the largest customer of the state oil company Petróleos de Venezuela (PDVSA).
As oil was the common denominator, the strategic capture of Venezuela strikes at the base of this growing nexus. Moreover, to stymie West Asia’s dominance in oil, the 303 billion barrels of Venezuelan reserves remain a pièce de résistance. With US and Canadian participation, a formidable competitor to Opec seems to be on the anvil.
This column had earlier mentioned the capability and inclination of the US’s Gulf Coast refineries to process Merey, a popular Venezuelan blend favoured by Chinese teapot refineries, and heavy crude from the Orinoco belt preferred by select Asian refiners.
In 2001, a report by the Baker Institute and the Council on Foreign Relations—later presented to US Vice President Dick Cheney and titled National Energy Policy 2001—mentioned the “fear of energy vulnerability” caused by an erratic Saddam Hussein keen on catapulting his pan-Arab image as a power centre and emerge as a key “swing producer” of oil. This presented a growing danger to the world’s capitalist economy and a “possibility that Hussein may remove Iraqi oil from the market for an extended period”.
What ensued was ‘Saddam’s weapons of mass destruction’ narrative. No weapons were ever discovered. Big Oil reaped significant gains, securing access to large reserves, as did major oil services subcontractor Halliburton, of which Cheney was the CEO before assuming the V-P’s office.
This brings to mind Libya in the early 1980s during Muammar Gaddafi’s regime, and how its pristine Mediterranean coastline and Italianate façades were forever altered by US intervention.
Libya’s suspected involvement in the 1986 bombing at a West Berlin discotheque frequented by Americans led the US to retaliate by bombing Tripoli and Benghazi. The December 1988 Pan Am flight 103’s explosion over Lockerbie in Scotland was another defining crisis.
As Gaddafi acceded to a billion dollars in compensation to the victims, a gradual rapprochement led Libya to officially abandon its own weapons of mass destruction programme, including the surrender of its nuclear missile development in December 2003 and shipping of nuclear materials to the US in March 2004 under the watchful eyes of US and UK officials. This was followed by a 2008 meeting between Condoleezza Rice and Gaddafi in Tripoli, the first with a US secretary of state in 50 years. But within three years, the Libyan strongman was assassinated in an uprising, leaving Africa’s top oil-rich nation fractured.
In Venezuela, an infrastructure run down in the absence of investments and maintenance has led production to plummet and a sanctioned oil industry, once responsible for 96 percent of government revenues, in a state of decay. The 13,000-sq-km Lake Maracaibo, situated in a region that holds 15 percent of the Venezuelan reserves, is a nightmare of spills and contamination. With thousands of kilometres of eroded pipelines lying at its bottom, leaks and logistical failures are common.
Though Chevron remains active in Venezuela on an extended reprieve, it would be a long haul for oil majors to commit large capital expenditures in the prevailing political situation. This recalls another moment in history—the 1981 Algiers Accord that provided for compensations after the 1979 nationalisation of Iran’s oil industry. With the release of hostages and frozen assets, the US had pledged non-interference in Iran’s internal matters. Similar guarantee mechanisms would be a prerequisite for the billions of dollars needed to resurrect the ailing PDVSA.
As the global media showcases a blindfolded Maduro, the message insinuated by Trump is that he means ‘business’. Moscow is watchful, though any reaction would be calibrated against the Ukraine war. China is refraining from overt defiance, with Taiwan in its backyard. However, with huge outstanding oil-linked loans to Caracas, a mute Beijing is hard to imagine.
The failed nuclear talks with Tehran stand out in sharp contrast. While the situation differs vastly, a cue is conveyed nevertheless. Iran and its oil could bolster a sagging US hold in West Asia as much as Venezuela and its resources could in Latin America. Though Tehran stood isolated in the Israel conflict last year, by virtue of its oil wealth, Beijing’s patronage and Moscow’s proximity remain its bargaining chips. The Islamic state enjoys a good ‘working relationship’ with other Opec members. More adventurism in West Asia could be counter-productive.
Learning from history, a pragmatic US should refrain from interfering in Caracas’s internal politics or from seeking more geopolitical realignments. On the other hand, a collaborative provision for infrastructure and technological support would encourage Iran and North Korea to begin trusting America.
Ranjan Tandon | Senior markets specialist and author
(Views are personal)