As Venezuela has collapsed into an economic crisis, Russia has extended a lifeline to the country by pumping billions of dollars into Venezuela’s oil industry. When the United States expanded financial sanctions against Venezuela, Venezuelan President Nicolás Maduro turned to Russia for support. New sanctions, which were applied by the Trump administration after Maduro’s attempt to rewrite Venezuela’s constitution to support a dictatorship, were aimed at the country’s oil industry. As of 2016 estimates, Venezuela holds around 300 billion barrels of crude oil, which are the largest known reserves of oil in the world – bigger than Saudi Arabia’s reserves, although Venezuela’s oil is dirtier and less desirable (Cohen, 2019). President Trump’s oil sanctions crippled Venezuela’s oil industry, which was the country’s main source of income. The sanctions halted exports and banned United States companies from dealing with Venezuela’s state-run oil company, Petróleos de Venezuela, or PVDSA. While the U.S. sanctions pushed the already suffering country into further economic agony, Russia provided the Venezuelan government with crucial support.
Following the announcement of the Trump administration’s sanctions, Russia worked with Venezuela to redirect oil exports to Asia that would have previously been sent to the United States. However, even with Russian assistance, PVDSA’s oil exports have declined by 35%, which has greatly restricted Venezuela’s cash flow (Kurmanaev, 2019). Russia’s state-run oil company, Rosneft, has poured $9 billion into Venezuelan oil projects since 2010 (Lowe & Sagdiev, 2019). Even though foreign policy experts claim that Russia is losing a fortune on Venezuela’s oil investments, it has continued to provide financial investment in order to show continued support for its South American ally. Furthermore, recent Venezuelan media outlets have reported that Rosneft is planning to take full control over PDVSA in exchange for a Russian debt relief offering (Cohen, 2019).
A Brief History of Venezuela’s Oil Industry
Even with sanctions placed on Venezuela’s oil industry, the country remains as one of the world’s largest oil producers. While Venezuela’s oil production reached an all-time high in the 1970s, it has continued to attract foreign investment in the decades since then. Venezuela’s existing oil reserves consist of extra-heavy crude oil located in an area known as the Orinoco Belt. Given the challenge of refining extra-heavy crude, Venezuela invited multinational oil corporations like ExxonMobil, BP, Chevron, and ConocoPhillips into the country during the early 1990s to develop new technology and infrastructure to refine the oil into an exportable product. When oil prices were high, the Venezuelan government poured billions of dollars from the oil profits into the country’s social programs (Rapier, 2019). However, when oil prices collapsed, the country’s economic crisis began.
As Russia has increased its influence within the Venezuelan oil industry, it has created a unique challenge for the Trump administration. While Russia’s actions do not appear to be in violation of U.S. sanctions, it directly contradicts the Trump administration’s maximum pressure strategy against Venezuela. The prospect of Russian control of PDVSA along with the world’s largest reserve of crude oil is also a huge concern for American interests. If the Kremlin took over control of PDVSA, Russia would also have a much greater influence on global oil markets. Even with full control of Venezuelan oil, Russia has yet to prove that it can turn a profit through its acquisition. PDVSA is worth approximately $186 billion, but currently holds foreign debt of over $1.1 billion (Cohen, 2019). Through the end of 2018, Russia had already spent over $1.5 billion more in Venezuela than it had earned through the country’s investments (Lowe & Sagdiev, 2019). If the Kremlin continues to lose money on its Venezuelan oil investments, then the Russian control of PDVSA may be short-lived.
Cohen, A. (2019). “Russia Attempts to Take Over Venezuelan Oil, Creating A Challenge For The U.S.” Forbes: https://www.forbes.com/sites/arielcohen/2019/10/22/russia-attempts-to-take-over-venezuelan-oil-creating-a-challenge-for-the-us/#7b1331d638ef
Kurmanaev, A. (2019). “Venezuela’s Collapse Frays Its Economic Ties with Russia.” The New York Times: https://www.nytimes.com/2019/06/17/world/americas/venezuela-russia-economy.html
Lowe, C., & Sagdiev, R. (2019). “How Russia sank billions of dollars into Venezuelan quicksand.” Reuters: https://www.reuters.com/investigates/special-report/venezuela-russia-rosneft/
Rapier, R. (2019). “Charting the Decline Of Venezuela’s Oil Industry.” Forbes: https://www.forbes.com/sites/rrapier/2019/01/29/charting-the-decline-of-venezuelas-oil-industry/#2f26efb84ecd