Casual observers of the situation in Venezuela can be forgiven for listening to President Donald Trump’s State of the Union address and thinking that a country with a great deal of oil, ostensibly under U.S. control, will soon have increased oil production, oil flows to the U.S. and terrific opportunities for investment.
Why wouldn’t oil companies want access to Venezuela’s resources?
The answer is rooted in a fundamental truth of capitalism, one that can’t be papered over by pep-rally-type visits to Venezuela, such as the one Energy Secretary Chris Wright made recently.
In capitalist economies, companies work for their shareholders and owners, not for the government. Wright’s three-day visit won’t persuade publicly traded oil companies to move quickly into Venezuela any more than did the January meeting of oil executives that the president convened at the White House.
Venezuela has extensive natural resources and the potential for great oil wealth — one day.
In business, the chief rule of investment is to obtain a return on that investment. To do that, companies seek to operate in jurisdictions where the legal frameworks are strong, contracts are respected, government services work and there are clear rules for moving money into and out of a country. These fundamentals of security and stability are the anchors for investment to prosper.
None of these conditions exist in Venezuela.
The risks inherent in the absence of a recognized government call into question the long-term viability of any investment in the country.
Despite the president’s praise for U.S. relations with Venezuela’s interim leader, Delcy Rodríguez, we cannot lose sight of the fact that she recently asserted that Nicolás Maduro, the leader Trump removed in early January, is still Venezuela’s “legitimate president.” Not only do the conditions for safety and security not exist in Venezuela, but the risks inherent in the absence of a recognized government call into question the long-term viability of any investment in the country.
When I was U.S. ambassador to Venezuela, a role I held from 2018 to 2023, the U.S. government recognized the democratically elected National Assembly of 2015 and then, in early 2019, opposition leader Juan Guaido as interim president. Put another way, in Trump’s first term, the United States recognized a government that was not in power.
Today we are going even further through the looking glass. On the one hand, Secretary of State Marco Rubio has told Congress that the U.S. still recognizes the 2015 National Assembly and not the Maduro regime that has been in power since 2013. On the other hand, Trump has praised Maduro loyalist Rodríguez as a “terrific person,” saying she “has to say” Maduro is still president. “We have a very good relationship with the president of Venezuela,” Trump recently said, referring to Rodríguez.
Which is it?
There is some interest developing about the oil and mineral sectors in Venezuela, especially after the lifting of some sanctions and the new hydrocarbon law passed by the (unrecognized) National Assembly led by Jorge Rodríguez, brother of the interim president. But this is fruit from a poisoned tree. Exxon’s CEO angered Trump in January by saying a truth out loud: “If we look at the legal and commercial constructs and frameworks in place today in Venezuela —today, it’s uninvestable.” It matters to billion-dollar companies when the government of a potential investment site is not legitimately elected nor internationally recognized, there is no independent judiciary or contracts may not be worth the paper they are printed on. New field investments in Venezuela are simply not economical today, and without a democratic transition, it is impossible to see why companies would make bets in the hopes of huge returns. The fantasy of fast, institutional investment is further tested by the pure economics of the situation in Venezuela. Compare the break-even price of oil production and the robust government take in Venezuela to, say, Guyana, where the production costs and government take are lower. Why would anyone invest where their money gets a weaker rate of return? New field investments in Venezuela are simply not economical today, and without a democratic transition, it is impossible to see why companies would make bets in the hopes of huge returns without knowing that Venezuela is on a path to a functioning state. Finally, there are the expropriations and investment disputes that arose from the Maduro regime — the same government that remains in power. The International Center for Settlement of Investment Disputes has granted tens of billions of dollars in arbitration awards to international companies, including U.S. oil companies like Exxon-Mobile and Connoco-Phillips. What is their incentive to invest in Venezuela when there are better opportunities in other locations? Yes, some investments will be made from private capital. Some of these more marginal plays may even create a return for investors. But these are not long-term development deals on a scale that will transform the country; rather, they are focused investments with very high rates of return due to the risks outlined above. Of the major international oil companies, Chevron is the one U.S. company that stuck it out in Venezuela. However, even Chevron has said it would reinvest rather than bring in new funding. Not exactly a vote of confidence. After he stunned the world by ousting Maduro from power on Jan. 3, Trump made a tactical mistake: prioritizing Venezuela’s natural resources and economic recovery at the expense of democracy and liberty. Our president appears to believe that the “stability” created by leaving Maduro regime figures in power will lead to quick investments and returns for U.S. firms. But his desires are running up against the facts: This is the same government that stole from companies. No one really knows if new contracts will be honored, and it is easier and cheaper to get oil elsewhere. No amount of boosterism or U.S. officials photographed walking in hard hats is going to swiftly fix this situation. Capital will gravitate toward a less risky environment until the democratic transition is in full swing in Venezuela.
James Story was U.S. ambassador to Venezuela from 2018 to 2023. A retired U.S. diplomat who has served in posts around the world, he is a nonresident senior fellow at the Atlantic Council and founding partner of Global Frontier Advisors. Recommended
