Finance Desk

Late on Friday night, Donald Trump announced what he called “the biggest oil deal in world history.” Under the terms described publicly so far, the US would obtain a controlling interest in a new venture involving 17 Venezuelan oil fields containing more than 65 billion barrels of proven reserves, with an effective 55 percent share of production and preferential access to crude at cost. The Trump administration says the arrangement could mobilize around $100 billion in private investment and eventually generate more than $200 billion in Venezuelan tax revenues. Much about the deal, including its precise legal structure, remains unclear.

There is nothing inherently objectionable about American companies making money from Venezuelan oil. Venezuela desperately needs foreign capital, technology and markets. PDVSA cannot rebuild the industry on its own, and reconnecting Venezuela to the American energy system would be preferable to another generation of dependence on Russia, China or Iran. 

The problem is not that Washington wants investment. The problem is that it seems determined to make that investment possible without first solving the political and institutional problem that made Venezuela uninvestable in the first place.

Recalculating

The original expectation after Nicolás Maduro’s removal seemed straightforward enough. American oil majors would pour tens of billions of dollars into the country and restore production. Nine days after Maduro was captured, Trump gathered oil executives at the White House and invited them back to Venezuela. ExxonMobil CEO Darren Woods responded with an inconvenient assessment: under the existing legal and commercial conditions, the country remained “uninvestable.” ConocoPhillips was interested but similarly cautious. Chevron, which never fully left, has continued expanding and is now preparing another significant restructuring of its Venezuelan operations. So far, the broad stampede of supermajors Washington appeared to expect has not come.

So Washington widened the search. Delcy Rodríguez traveled to India in June to court energy investment and deepen ties with Reliance and other Indian companies, in a trip conducted with remarkably explicit American encouragement. India had once again become a major buyer of Venezuelan crude, and Asian capital offered another potential source of the money Venezuela needed.

Under the conditions we have been apprised of so far, it is difficult to imagine a future democratic Venezuelan government simply accepting an arrangement of this magnitude as a fait accompli.

At the same time came operators with a different tolerance for Venezuelan risk. Hunt Overseas Oil and Crossover Energy signed preliminary agreements to develop projects in the Orinoco Belt. Smaller American firms have explored opportunities that Exxon and Conoco have so far declined to pursue. SLB, an oilfield-services company rather than a producer, has now been brought in to reconstruct and analyze PDVSA’s degraded reservoir data, the sort of basic technical infrastructure that should tell us something about how much of an oil industry still needs to be rebuilt.

And then there are the intermediaries. Bloomberg recently reported that Alejandro Betancourt, who rose spectacularly during the Chávez years, emerged as an important facilitator for Washington’s effort to bring smaller American companies into Venezuela. His usefulness is not difficult to understand. Companies entering a market where formal institutions remain weak need people who know the terrain, the networks, the officials and the informal rules through which business actually gets done. 

Betancourt has denied past allegations of wrongdoing and has not been charged with a crime, but his return as an influential gatekeeper hardly advertises the arrival of a transparent, rules-based Venezuelan economy.

Now comes the ultimate recalculation. If investors are still reluctant to absorb Venezuelan political risk, the US government may absorb some of it itself.

Risk instead of certainty

That is what makes Friday’s announcement so revealing. Washington began the year with the proposition that political change would make Venezuela attractive to capital. Now, the Trump government appears increasingly willing to create more and more elaborate mechanisms to insulate investors from risk rather than address the conditions that make the country risky in the first place. At every stage, it has changed the investor, the financing, the intermediary or the allocation of risk. The one variable it has been remarkably reluctant to change is the Venezuelan government.

There is also the small matter of Venezuelan law.

The Constitution establishes that hydrocarbon deposits belong to the Republic and are inalienable. It also requires National Assembly approval for public-interest contracts involving foreign states, foreign official entities, or companies not domiciled in Venezuela. Delcy’s reform of the hydrocarbons law has undeniably widened the space for private operators, granting companies much greater control over production and commercialization. But nothing disclosed so far explains how an arrangement giving the US government a controlling economic position over 17 fields, reportedly with rights potentially stretching for a quarter of a century, has obtained the constitutional authorization necessary to bind Venezuela over anything resembling that period. Reuters itself notes that the legal and financial structure remains unclear and that the proposal faces constitutional questions.

Delcy’s strategy is to survive Trump himself, so that the next American administration treats her as the person guaranteeing oil production, investment contracts and political stability.

Perhaps those questions will eventually receive convincing answers. Perhaps the current National Assembly will be asked to provide whatever approvals the agreement requires. But under the conditions we have been apprised of so far, it is difficult to imagine a future democratic Venezuelan government simply accepting an arrangement of this magnitude as a fait accompli. At a minimum, it would have every reason to subject the contracts to comprehensive legal review and democratic ratification; significant portions could well have to be renegotiated.

That produces a remarkable contradiction. An agreement supposedly designed to provide investors with certainty may create its own enormous source of political risk. 

A future government could inherit century-long commitments negotiated by an unelected predecessor whose authority it contests, with the US itself financially invested in preserving those commitments. Venezuela’s first genuinely democratic administration would then begin its life choosing between endorsing decisions it never authorized or entering an immediate dispute with Washington.

There is a perfectly respectable argument for what the Trump administration is attempting. Venezuela cannot place reconstruction on hold indefinitely while it builds pristine institutions. Oil infrastructure continues to deteriorate. Investment can create jobs, revenue, and constituencies interested in stability. Delcy controls the ministries, PDVSA, much of the security apparatus and the bureaucracy; somebody has to sign the contracts today. Connecting Venezuelan economic interests to American companies could itself help pull the country away from the geopolitical networks that sustained Maduro.

But that argument confuses the need to restart the economy with the need to give an interim government the power to determine its structure for generations.

Washington could have pursued investment while limiting the duration of interim arrangements, requiring future democratic ratification for the largest commitments, creating sunset clauses, tying concessions to institutional milestones or ensuring that Venezuela’s democratic forces had genuine ownership of the framework. Democratic legitimacy is not an obstacle to investment certainty. Properly understood, it is one of its foundations.

The US seems unwilling to own the fact that no amount of financial engineering, political brokerage or well-connected intermediaries can substitute for a democratic government.

Instead, the emerging arrangement gives Delcy Rodríguez an increasingly powerful incentive to make herself indispensable. The more American capital, energy security and political prestige become attached to agreements signed under her government, the more valuable continuity becomes. Delcy’s obvious strategy is no longer merely to survive the transition. It is to survive Trump himself, so that the next American administration treats her not as the temporary caretaker Washington inherited in January but as the person guaranteeing oil production, investment contracts and political stability.

Unreliable partners

There have been meaningful changes since Maduro’s removal. More than a thousand political prisoners have reportedly been released. The government and representatives of the opposition have reached an agreement to renew the Supreme Court. But if the objective on January 3 was a genuine democratic transition, it is increasingly difficult to argue that Venezuela has moved very far from square one. Delcy still governs without democratic legitimacy. Much of the chavista State remains intact. María Corina Machado remains outside the country and outside the US-backed negotiating mechanism. Even senators from both parties in Washington have begun pressing the administration for a clearer path toward elections.

If anyone in Washington believes that another legally dubious agreement negotiated with the cronies who continue to usurp the Venezuelan State—particularly through figures like Alejandro Betancourt, now being mentioned as a facilitator for oil investment—will inspire substantially more confidence than anything Washington has tried since that glorious January 3 night, then they have learned remarkably little about the problem they inherited. Washington took responsibility for managing Venezuela’s transition that night. Eight months later, it still seems unwilling to own the central fact that no amount of financial engineering, political brokerage or well-connected intermediaries can substitute for a Venezuelan government with democratic and legal legitimacy.

There is a broader cost to that refusal. Machado is not merely another Venezuelan politician Washington happens to dislike. She is one of Latin America’s most recognizable democratic figures, with an audience extending across the region’s Right, democratic center and beyond. The administration’s repeated willingness to sideline her while embracing Rodríguez is therefore being watched outside Venezuela too.

If billions begin flowing through institutions and business networks that have never been subjected to democratic accountability, Washington may discover that it has helped recapitalize the very system it intended to replace.

It is particularly telling to see rightwing figures such as Emmanuel Rincón, Orlando Avendaño and Hermann Tertsch—voices that have spent much of the past eight months looking for the glass-half-full interpretation of Washington’s most questionable decisions—struggling to interpret the latest developments as anything other than the US installing a friendlier face atop the chavista state.

That matters for American power. The Trump administration has never pretended that its diplomacy would be delicate. Allies understand pressure, bargaining and the occasional arm-twist. But there is a difference between being a demanding partner and being an unreliable one. Latin American political leaders who have aligned themselves with Washington against authoritarian movements would be perfectly rational to study Venezuela and conclude that the US remains an excellent partner for a business transaction while being considerably less dependable as the guarantor of a political project.

Oil production can rise without democracy. Private investment can coexist with authoritarianism. Venezuela can become much more capitalist without becoming substantially more free. If billions begin flowing through institutions and business networks that have never been subjected to democratic accountability, Washington may discover that it has helped recapitalize the very system it intended to replace.

Chavismo spent a quarter century destroying the institutional ecosystem in which long-term investment could survive. Changing an oil law does not rebuild it. Removing Maduro did not rebuild it. Finding more adventurous investors will not rebuild it either.

Democratic legitimacy is not the prize Venezuela receives at the end of a successful transition. It is part of the infrastructure required for the transition to succeed.

The United States takes its turn chairing the G20 finance track this week under distinctly awkward conditions.

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US Treasury Secretary Scott Bessent and Federal Reserve Chair Kevin Warsh are hosting counterparts in the North Carolina mountains, following a deputies meeting held over the weekend, with the formal agenda covering economic growth, global imbalances, sovereign debt restructuring, banking regulation and energy security.

Asheville was chosen deliberately.

The city was devastated by Hurricane Helene in September 2024, a storm that killed more than 250 people and caused close to $80 billion (€69bn) in damage from Florida to the Carolinas, and Bessent has cited its rebuilding as a fitting backdrop for talks about economic growth.

“We want the rest of the world to come along with our growth agenda, whether it’s deregulation, the energy independence […]” he said, adding that “the world has this mountain of debt, and we do have to grow our way out of it,” confirming public debt will feature prominently in the discussions.

The setting may prove easier than the substance.

Trade friction between the US and Canada escalated after negotiations broke down, hostilities with Iran have resumed through economic rather than military means, and Warsh arrives days after a hawkish first Jackson Hole address that sharply raised the odds of a US rate rise this month.

Both meetings serve as groundwork for the leaders’ summit at Trump National Doral in Miami on 14 and 15 December, and come weeks before Xi Jinping is expected in Washington on 24 September.

Bessent’s push on Iran

The US Treasury Secretary intends to use bilateral meetings to build support for squeezing Tehran, and stated that Washington will sanction another bank this week, though he declined to name it.

“This is going to be financial violence if we have to,” Bessent told AP.

“We are showing people that we know who you are, you know who you are, and this has got to stop,” he added.

The campaign’s opening move came on Friday, when the US Treasury proposed a rule that would cut the Emirati branches of Banque Misr, Egypt’s second-largest lender, off from the American financial system.

By stopping short of full sanctions, the US administration appeared to signal reluctance to punish major trading partners that still deal with Iran, notably China and India.

On Beijing specifically, Bessent said “all options are on the table” over its continued oil purchases, while dismissing suggestions of hesitancy as “a completely false narrative that the media picked up on.”

The meetings are also being held under unusual media restrictions, after the US Treasury barred certain reporters from the New York Times, Wall Street Journal and Bloomberg from covering them.

The New York Times called the move “not just another disturbing effort by the administration to undermine independent journalism, but a blatant attempt to evade public scrutiny.”

The department has not explained its decision, though Bessent told the AP that “it has nothing to do with point of view.”

Who speaks for Europe at the G20

The EU is represented by Ireland’s Tánaiste and Finance Minister Simon Harris, who holds the role by virtue of Ireland’s EU presidency since 1 July, alongside ECB President Christine Lagarde and Economy Commissioner Valdis Dombrovskis.

Harris said he was looking forward to “the first Ministerial meeting of the G20 Finance Ministers and Central Bank Governors since Ireland assumed the Presidency of the EU,” describing the forum as a place where the largest economies “can exchange views and work towards international economic and financial stability.”

The Irish minister’s stated priority reflects the conflict shaping much of the agenda at this G20 meeting.

Among the EU’s concerns, Harris listed “energy security and ensuring we have secure and resilient energy supplies at a time of severe volatility caused by the conflict in the Middle East.”

He will also hold bilateral meetings with counterparts from G20 member states as Ireland has also been invited as a guest for the December leaders’ summit in Miami.

Additional sources • AP

Asian stocks fell on Monday as hawkish comments from Federal Reserve boss Kevin Warsh saw investors ramp up bets on a US interest rate hike, while oil prices spiked after a fresh flare-up in the US-Iran war.

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With inflation remaining stubbornly high – largely on the back of elevated energy costs – the US central bank has come under pressure to act, and Warsh’s refusal to provide guidance has stoked uncertainty.

But in a highly anticipated speech at the Jackson Hole symposium of central bankers and economists in Wyoming, he left traders with few doubts that he was ready to increase borrowing costs.

Warsh said: “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

He called the spike in inflation – currently at 3.7% and nearly double the Fed’s 2% target – “concerning”, and said he would be “hard-pressed” to describe current financial conditions as “restrictive”, a potential hint that rate hikes could be on the horizon.

However, he stopped short of saying he would support a hike, adding: “I stand here today committed to a discipline, not to a decision.”

All three main indexes on Wall Street fell Friday. Yields on short-term US Treasury bonds – which reflect monetary policy expectations – jumped, and the dollar rallied against its peers. Gold, which benefits from lower interest rates, fell.

And Asia followed suit, with tech firms – which rely on borrowing to fuel their huge AI investments – leading the way down.

Tokyo, Seoul, Hong Kong, Shanghai, Taipei and Jakarta were all down, though Singapore and Wellington edged up.

Investors eye crucial data releases

Focus will now turn to a string of crucial data releases over the next two weeks before the Fed makes its decision, with jobs up this week and the consumer price index (CPI) next week.

“Should we get an inline payrolls print that does not give the Fed too much to work with, next week’s core CPI report will become the major decider for the market’s Fed belief system,” wrote Chris Weston at Pepperstone.

“The volatility priced around that outcome across rates, forex and equities could therefore be significant.”

Oil prices spike on US-Iran tensions

The Fed’s battle against inflation has been hobbled by the Iran war, which has pushed oil prices higher.

And after a run lower for most of last week, they spiked again on Monday, a day after the United States said it had attacked Iranian rocket launchers on a small island in the Strait of Hormuz, its first strikes on the country in a month.

The attack prompted Tehran to retaliate by hitting US military targets in Jordan. Both main crude contracts rose more than 2% on Monday.

The exchange came shortly after the US-Iran war hit the six-month mark, and at a time when hostilities had been subsiding.

The news revived concerns about the conflict, with attempts and peace talks appearing to be going nowhere and the strait – through which a fifth of global crude and gas passes – largely closed.

US officials this month vowed the “economic asphyxiation” of Iran to make it open the waterway.

“Hormuz is once again threatening to put a floor under oil just as Warsh is putting a ceiling on how much inflation patience markets should assume from the Fed,” said Quintex Intel’s Stephen Innes.

“For oil traders, (the) move is another reminder of how quickly the geopolitical premium can return.

“Physical flows through Hormuz have improved materially from their worst levels, which is precisely why crude had started giving back some of the fear premium, but the latest exchange shows how fragile that progress remains and how quickly the shipping story can be pushed back onto the trading desk.”

Additional sources • AFP

In 1995, issue 34 of Revista Bigott, a Venezuelan publication dedicated to anthropology and popular culture, discussed a resurgence of national sentiment after the 1992 coup attempts. One of its articles argued that a certain “llanero emboldening” of the coup leader, his decision to assume responsibility for what had happened, and the evocation of Simón Bolívar and the tricolor armband had restored appeal to a deeply rooted idea of ​​national identity. The government at the time tried to capitalize on this momentum to save the system, which, in light of what happened afterward, also amounted to saving democracy. But the country was already exhausted. It was burdened by the discrediting of political parties, the hangover from the “Saudi Venezuela” era, the depression that followed the 1983 devaluation known as Black Friday, widespread corruption, low oil prices, and an institutional framework that failed to modernize.

As the reader knows, Hugo Chávez ended up winning the election in 1998, and the joropo, the flags, and the constant singing of the national anthem were reborn, transcending the political debate. Everything then became known as Bolivarian, from the schools to the republic itself. Each campaign was presented as a patriotic epic, a battle, or a slogan borrowed from popular sayings. But with Chávez, the national identity was fractured. The country, the idea of ​​nationhood, and its symbols were hijacked. They belonged solely to his supporters. Just as an attempt was made to create a parallel institutional framework, something similar happened with the symbols: two flags, two coats of arms, and two ways of referring to everything. While the struggle against U.S. imperialism was presented as a heroic feat, the country was mortgaged to other powers and groups in exchange for political favors. Sovereignty was lost, both in terms of territory and the capacity to maintain a functional State serving its citizens.

These parallel structures (one crumbling, the other with feet of clay but relentless in its repression) blurred the boundaries of the republic. The country drowned in corruption and the disappearance of its shared identities. What could it defend? What could a country that expelled millions of its inhabitants and squandered its demographic dividend sound, smell, or taste like? Amid political violence, insecurity, and abuses, the economy shrank by more than half and came to be governed by the law of the strongest or the most connected, while individualism intensified. The country and its virtues became a source of nostalgia for better times or a promise of an uncertain future. The present, meanwhile, faded with bitterness.

Chavismo, in its eagerness to cling to power, also hijacked popular sovereignty. The excuse was that, although the opposition represented the majority, it should not be recognized because it was subservient and unpatriotic. After the theft of the 2024 elections and the US intervention of January 3, it became clear that the only sovereignty that truly matters to Chavismo is that which guarantees its own survival.

With the country dismantled, its people divided, and mired in neglect and impoverishment, Venezuela became the perfect prey for whoever is currently in power. One conclusion emerges from the “mega-agreement” announced by US President Donald Trump and vaguely explained by Delcy Rodríguez: details do matter. As presented, it appears to be a cruel and sad surrender of sovereignty, decided in the dead of night, like so many of the measures announced in recent decades.

The winner and his tyrant take everything—resources and concessions—as if it were a contemporary version of the handover of the Congo to Leopold II. A forced and macabre gift.

But having access to reserves is one thing; knowing how those barrels will be extracted is quite another. The question is what guarantees investors will have and, above all, what the country will receive in return. 

Between what has been announced and its implementation, a vast gap still exists, marked by illegalities and profound incompetence. There is also the risk that Venezuela will continue to replicate the “bolichicos” model, increasingly similar to that of Russia in the late 1990s: a small class of millionaires facing a country mired in impoverishment.

It will be up to oil experts and economists to study the implications of what has been announced, and to historians to review the precedents of similar agreements: the Rojas-Pereire Protocol of 1879, the concessions granted under Gómez, the Rockefeller Plan, or the concessions granted by the Pérez Jiménez dictatorship in 1956. For now, all we know is that the US administration is determined to embody everything its harshest critics have always held against it. Chavismo, for its part, is determined to become everything it claimed the opposition would be, whose rise to power it said it would prevent to “protect” Venezuela, even at the cost of violating human rights and disregarding popular sovereignty.

The situation compels us to reach agreements as a society, promote genuine democratization, and reclaim our sovereignty, understood as the collective exercise of autonomy and freedoms. If we fail to do so, we will remain subject to the circumstances and interests of others, instead of acting in accordance with our own interests. 

The outlook is not promising, but two questions remain: What future validity will any agreement signed with the regime currently governing Venezuela have? And what will the state of the planet be when Trump’s term ends on January 20, 2029?

As August gives way to September, next week brings a tech-heavy earnings slate, with investors focused on AI infrastructure, cybersecurity, enterprise software, and semiconductor demand as the market heads into the final stretch of the third quarter. Broadcom (AVGO

Marking his 100th day in the job, Federal Reserve Chair Kevin Warsh told the Kansas City Fed’s symposium in Wyoming that the US economy has strengthened rather than weakened under recent shocks, that the labour market is consistent with full employment, and that inflation remains the central bank’s dominant concern.

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Warsh declined to say what he would do next month, but he removed most of the arguments against acting and bolstered the ones in favour of a rate hike.

“For my part, today I am impressed by the overall performance of the economy, which appears to have strengthened,” Warsh stated.

“One indicator of strength is how well an economy holds up to shocks. On that score, both Main Street and Wall Street have been remarkably resilient,” he added.

On inflation, Warsh noted that the PCE index stood at 3.7% over twelve months and 4.1% over six, and 54% of the basket’s components rose by more than 3% over the past year, against 32% in the two decades before the pandemic.

Summer readings that beat expectations “do not tell me that underlying trends have meaningfully improved,” Warsh stated.

The Federal Reserve Chair’s conclusion was blunt: “the Fed’s predominant focus right now should be on prices.”

The standard set was equally direct. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh declared.

That assessment matters because it eliminates the case for supporting growth with further stimulus and potentially opens the door for restrictive measures as markets moved in response.

At the time of writing, the 10-year Treasury yield has fallen 0.5% from its Friday high to 4.67% and the 30-year dropped around 0.9% to 5.16%, while the dollar index rose 0.4% from the intraday low to roughly 99.4 points.

Traders raised the implied probability of a 0.25% hike at the 15 and 16 September Fed meeting to 55%, from around 35% before Warsh’s speech.

Performance of the US economy

Warsh opened his speech with what he called a hinge point in history, arguing that artificial intelligence has advanced faster than even its advocates predicted.

Annualised AI token sales at the two leading labs alone exceed $100 billion, he said, up more than 500% in a year.

AI is “a new variable, potentially a new factor of production,” raising questions the Fed cannot answer yet such as whether it will lift productivity and when, whether it complements or replaces labour, and where the returns will ultimately land.

A new Federal Reserve task force on productivity and jobs is examining it, though he stressed its recommendations will have no bearing on current policy decisions.

Warsh then listed extensive evidence for his positive outlook on the US economy.

Business investment in equipment and intangibles growing at around 9%, its fastest since 2021, with more than half of this year’s capital expenditure growth attributable to the AI buildout.

S&P 500 profits went up more than 20% over the year, credit spreads are near historic lows and banks are easing lending standards. Housing and agriculture are strained, Warsh acknowledged, but on balance he “would be hard pressed to describe broad financial conditions as restrictive.”

Unemployment at 4.1% is low by historical standards, with jobless claims near their lowest in decades, leaving inflation as the outlier.

No forward guidance

The Federal Reserve Chair devoted a substantial section to defending his refusal to signal future moves, a stance that has drawn criticism since he took office in May.

Forward guidance was adopted during the 2008 crisis by colleagues including himself, he said, and was essential then, but “the practice has overstayed its welcome” and now “risks creating ambiguity in the name of clarity.”

Warsh warned of a hall-of-mirrors problem in which markets read the Fed while the Fed reads markets, leaving both blind to new developments.

“We should not indulge a regime in which market participants are looking primarily to the Fed for their next trade,” he said, adding that the costs of such errors fall not on “financial high-fliers” but on households facing high inflation or insecure jobs.

Warsh also rejected calls to publish an explicit reaction function, arguing economic knowledge does not permit a mechanical rule.

Instead he set out six principles: interrogate incoming data rather than trust stale figures, accept that judging supply against demand is imprecise; treat the 2% PCE target as firm and fixed; pursue both mandates without treating them as a trade-off; rely on short-term rates rather than unconventional tools; and remember that money itself matters.

“I stand here today committed to a discipline, not to a decision,” Warsh said in closing.

The decision comes on 16 September at the next Fed meeting.