Uneasy

New Israeli air and artillery attacks have hit Lebanon after soldiers were killed for the first time since a fragile ceasefire began in June.

The latest military assault comes despite Lebanese-Israeli talks in Rome, part of a US-brokered peace process.

So, where do things stand now?

Presenter: James Bays

Guests:

Maha Yahya – Director of the Carnegie Middle East Center in Beirut

Jennifer Gavito – Former US Acting Principal Deputy Assistant Secretary of State for Near Eastern Affairs

Rami Khouri – Distinguished Public Policy Fellow at the American University of Beirut

Many have commented on the recent reforms to the Venezuelan Hydrocarbons regime and its reach. Most people have focused on the irony of Delcy Rodríguez giving away the country’s resources after years of empty anti-US rhetoric and, of course, it is ridiculously tempting to do so. But the long-term questions beyond the political posturing of the US robbing Venezuelan oil linger: is the reform good for Venezuela? Was the previous regime really favorable to the country’s interest? Why has the reaction by major oil companies been rather slow or lukewarm, as the WSJ reported a month ago?

The debate over the adequacy of Venezuelan oil regulations predates January 3. A statist vision has prevailed among political elites for almost half a century. Contrary to the chavista narrative, the oil industry in Venezuela was nationalized by Carlos Andrés Pérez fifty years ago. Up until the 1990s, the State, through PDVSA, performed exclusively primary oil activities: exploration and production. Then, due to the sharp drop in oil prices, the cash-strapped Rafael Caldera government, using a provision of the 1975 nationalization law, had to allow for private investment in primary activities through service agreements with foreign oil companies. These contracts were branded as the Apertura Petrolera, which became a bête noire for the Venezuelan Left, who even tried to stop the process via the Supreme Court.

Chávez put an end to this with his 2001 Hydrocarbons Law reform, migrating from the service agreements to joint venture companies where the Venezuelan state was the main shareholder. The refusal of some companies, like Conoco and Exxon, to migrate to the joint ventures led to several of the arbitration claims against Venezuela. Another contentious aspect of the Venezuelan oil business was that only State-owned companies could directly export oil. Joint venture companies could only sell oil to another PDVSA subsidiary, which led to PDVSA running up huge debts with foreign partners.

The Chávez 2001 model ruled until recently. Only PDVSA directly, or the JVs where PDVSA was a majority shareholder, could perform exploration and production activities and export oil.

The Executive also retained very discretionary power over what is called the government take (the percentage of oil or profits taken as a consideration in agreements with foreign partners in the joint ventures and applicable taxes), which can be used by the government to drive down the profits of its private company partners, a major deterrent for private investment in oil.

Up until very recently, the Chávez 2001 model was ruling: only PDVSA directly, or the joint ventures where PDVSA was a majority shareholder, could perform exploration and production activities and sell oil in international markets.

A similar regime was implemented in Colombia. In 2003, that country reformed its hydrocarbon regime to its current iteration, where it removed the exclusive primary activities rights granted to Ecopetrol, and established that this State-owned company would compete with private companies for exploration through contracts granted by a newly minted hydrocarbons regulator, the ANH. The ANH grants exploration rights under competitive bids where Ecopetrol competes with private companies under the same conditions. The purpose was to simplify the existing bureaucracy and award contracts under competitive, transparent bids, instead of having an all-mighty State company that both drills and decides who drills under very discretionary powers, as is the current case with PDVSA.

This model was behind past reform proposals by the opposition and have been part of the expert discussion on oil reform in Venezuela, and it is also included in María Corina Machado’s oil sector proposal, which received hypocritical criticism from people who remained mum about Delcy’s sweeping reforms. This model is seen as a true break from the previous one, as it takes power away from omnipotent PDVSA and turns it into just another player who has to compete with private companies in competitive bidding before a national, impartial regulator.

The reforms do represent a momentous formal break with the statist oil policy that has prevailed in the country for over 50 years. Under the new Hydrocarbons Law, private companies can perform primary activities through contracts with PDVSA subsidiaries and joint venture companies, and can export oil directly to international markets, paying the government take. The law, enacted on January 29, 2026,  also establishes that these contracts can include arbitration clauses, which can provide more certainty and guarantees for potential investors than submitting them to Venezuela’s infamously corrupt and dependent courts. The law also worryingly removes parliamentary oversight over the oil sector.

But the catch is that abiding by the law has never been chavismo’s strong suit, and they had been violating the Hydrocarbons Law since 2018. Under the aegis of the disgraced oil czar/soccer player Tarek el Aissami, PDVSA started signing contracts granting primary activities rights to private companies, as well as the right to directly export oil. This was done on dubious legal grounds under presidential emergency powers. Thus, the 2026 Hydrocarbons Law is only a regularization of a de facto situation that already existed.

The new regulations give a lot of discretionary power to the government to control the performance of the new contracts and to set the government’s take unilaterally.

As with everything in life, the devil is in the details, and the new law is very scant on the details of the new contracts, it seems to have been drafted in a rush. It defines very broadly the terms and conditions of the contracts (the new contracts pertaining to joint venture companies are only mentioned in passing) while at the same time giving the government wide discretionary powers to interpret them, and the last thing any international investor wants is to give chavismo discretionary powers over anything.

Delcy Rodríguez also enacted new regulations of the Hydrocarbons Law (which have not been updated since 1943) and two additional resolutions establishing some parameters for the government take. A centralized regulation of the government take is a welcome change, but the reaction to it has been mixed, as it gives a lot of discretionary power to the government to control the performance of the new contracts and to set the government’s take unilaterally.

The law also fails to incorporate any change to the current structure of the Venezuelan oil architecture. Unlike the reform in Colombia, the new law does not remove the elephantine, vastly discretionary bureaucracy that chavismo created.  PDVSA remains the almighty administrator of Venezuelan oil with no independent technical supervision of its role.

So, are the reforms good? They do signify a break from the statist vision of the oil industry, one that does not correspond with the wretched state of the Venezuelan oil sector. However, it is obviously a patched-up, limited instrument enacted by Delcy’s multiuse minions more to appease Donald Trump (even the reaction from American oil companies has been lukewarm) than anything resembling a definitive vision for the Venezuelan oil industry in an era of decarbonization.

The most likely outcome, already playing out according to the WSJ piece, is that the major oil companies (already traumatized by the previous experiences with chavismo expropriation frenzy over 20 years ago) remain skeptical or limit its investment due to the lack of clear guarantees and conditions and smaller, less known and less risk-averse companies are the ones who end up signing these contracts for a short-term gain. Chevron, who is now the most powerful player in the Venezuelan oil business, publicly signaled that the law doesn’t go far enough for them, and, considering their leverage with the Trump administration, it is possible that the Rodríguez regime is forced to further liberalize and refine the text of the law. But under the current conditions of legal uncertainty and arbitrariness no company, whether big or small, will risk investing the vast amount of money needed  (about 183 billion dollars) to recover the Venezuelan oil industry after decades of destruction and pillage. Oil companies may be evil, but never stupid. 

All of these scenarios have a limited effect on the recovery of the Venezuelan oil industry without a democratic transition because for any law to have a meaningful impact on the economy you need actual rule of law and independent courts, and you also need actual experts drafting the new laws. Not the very few lackeys of the most incompetent government in our history who happen to be proficient in English.

Though ostensibly aimed at giving diplomacy another shot at ending the conflict with Iran, the Trump administration’s pause in attacking the Islamic Republic reportedly comes as concerns linger over the supply of munitions, especially air defense interceptors. It is a notion that the president again dismissed on Monday; however, the lack of sufficient magazine depth is an issue that TWZ has raised frequently for years, and especially in regard to America’s air and missile defenses, in particular. In fact, we laid out in detail these exact concerns and how they would be a major issue in war with Iran just prior to the conflict starting in a feature you can read in full here. Meanwhile, amid the lull in fighting between the U.S. and Iran, Saudi Arabia and Jordan say they are still being attacked.

The U.S. and Iran stopped firing at each other late last week, leading to a pause after 13 straight days of continuous tit-for-tat operations. There hasn’t been a U.S. strike on Iranian territory since last Thursday. On Monday, President Donald Trump claims the U.S. has sufficient weapons stockpiles.

“…we have a lot,” Trump proclaimed to reporters aboard Air Force One when asked if he is concerned about a shortage of high-end munitions like interceptors for Patriot and Terminal High Altitude Area Defense (THAAD) systems. “We have a lot of the mid-level stuff too. Maybe more than we could ever use, no matter what. But we have a lot. I’d like to have more, to be honest.”

After again blaming the Biden administration for giving away too many weapons to Ukraine, Trump said the U.S. is restocking.

“So we’re building it very rapidly,” he exclaimed. “Plants are being built. A lot of equipment’s being built. The Patriots, in particular, are being built. That system is going up. We have a lot. Every one of our contractors is building four to five plants right now, and we’re in very good shape. But for some of the more sophisticated stuff, we certainly like that part.”

Before Trump spoke, the Pentagon on Monday announced that it signed “two landmark seven-year framework agreements” with Lockheed Martin and L3Harris “to expand production capacity for key components of the Patriot Advanced Capability-3 (PAC-3) Missile Segment Enhancement (MSE) interceptor and the Terminal High Altitude Area Defense (THAAD) weapon system.”

“Under this agreement, L3Harris will accelerate the production of its advanced two-pulse solid rocket motor, Attitude Control Motors, and the Lethality Enhancer,” the Pentagon said in a media release. “The motors deliver the critical speed, extended range, and precise maneuverability the PAC-3 MSE needs to defeat advanced tactical ballistic missiles, cruise missiles, and enemy aircraft.”

Concurrently, “the THAAD interceptor propulsion agreement, signed by the DoW, L3Harris, and Lockheed Martin, will expand manufacturing of two critical components: the solid rocket boost motor that launches the interceptor and the highly responsive Liquid Divert and Attitude Control System (LDACS),” the Pentagon added. “The LDACS provides the vital in-flight maneuverability required to engage and neutralize ballistic missile threats both inside and outside Earth’s atmosphere.”

As we have noted in previous reporting, current production PAC-3 MSE “is around the baseline rate of 650 interceptors per year, with half the deliveries going to the United States and the rest to allies and partners,” CSIS postulated in a May report about the severity of the depletion of U.S. offensive and defensive weapons during the 39 days of Epic Fury. 

Under a contract with the Pentagon inked in January, Lockheed is committed to boosting Patriot annual production to 2,000.

Still, the supply of these weapons remains a major issue.

The Wall Street Journal on Sunday reported that questions about the supply of U.S. offensive and defensive weapons are a large factor in the Trump administration’s reasons for halting attacks on Iran.

“The U.S. military had been poised Friday to launch an intensive series of strikes against Iran, which could have lasted up to two weeks,” the Journal noted, citing officials.

But the operation was delayed “so diplomacy could proceed and as officials discussed the effect a major attack could have on the U.S.’s shrinking stocks of Patriot and other air defense interceptors,” the publication added. “The president could still order an attack, officials said, noting that the situation remains fluid.”

The White House “has been informed of the declining inventories of air defense interceptors by Gen. Dan Caine, the chairman of the Joint Chiefs of Staff,” the publication continued. “The issue is a concern for Caine, who believes that the low inventories wouldn’t preclude a resumption of major combat operations against Iran, but would add to the risk.”

Several officials said Adm. Brad Cooper, who leads U.S. Central Command (CENTCOM), “believes the U.S. can cope with the limited stocks of Patriot and other air defense interceptors because stepped-up U.S. strikes, if they are approved by Trump, would blunt Iran’s ability to launch large numbers of missiles.”

We reached out to CENTCOM for comment.

Questions about American stocks of high-end weapons also extend to Europe and Asia.

“U.S. officials now worry that President Vladimir V. Putin of Russia and Xi Jinping of China could be factoring the shortages into calculations of their next moves, in Ukraine and Europe for Mr. Putin and perhaps against Taiwan for Mr. Xi,” The New York Times posited on Sunday.

Trump also claimed that the Iranians are eager to reach a peace accord.

Iranian leaders requested a meeting and “the only reason they want to meet is because we’ve been hitting them very hard,” Trump told reporters.

Asked how much patience he has for negotiations, he said: “I have a lot of patience.”

“We’ll see what happens,” the president added. “I think there is a good chance that something could happen. If it doesn’t, we go back to doing what we were doing two days ago.”

Officials in Tehran scoffed at Trump’s assertion, saying there are no direct negotiations taking place.

The American leader also dismissed an assertion by Ukrainian President Volodymy Zelensky that Russia was providing Iran with satellite imagery used to help Iran strike U.S. an allied targets in the Middle East.

“We’ll find out if that’s true,” Trump told reporters. “I’ll ask Putin about it. It hasn’t had much impact, because we knocked the hell out of them.”