Key Takeaways
- Venezuela’s collapse in oil production stems from nationalizations that drove out technical expertise, sanctions that blocked investment and buyers, and having a heavy crude that’s expensive to extract.
- Rebuilding the industry would require a decade of work and $80 billion–$100 billion in investments, according to analysts—and that assumes political stability.
Venezuela holds the world’s largest proven oil reserves—303 billion barrels, about 17% of the global total and more than Saudi Arabia’s 267 billion. Yet Venezuela produces fewer than 1 million barrels per day, less than 1% of global output. That’s less than a third of what it pumped in the late 1990s and early 2000s, when production topped 3.5 million barrels daily.
So what happened? It’s the result of political decisions, economic sanctions, and the sheer difficulty of extracting Venezuela’s heavy crude.
Proven Reserves, Unproven Output
Having oil reserves doesn’t mean you can easily produce it for the world’s markets. Most of Venezuela’s crude is extra-heavy oil, closer in consistency to asphalt than gasoline. To produce it at scale, companies need the following:
- Specialized drilling equipment
- Upgraders to turn thick crude into exportable oil
- Constant maintenance to keep wells from clogging
- Special chemicals (often imported) to thin the oil so it can flow
Thus, while Venezuela still has massive amounts of proven reserves, it lacks a functioning system to extract, process and ship it. Over the past two decades, that system has all but fallen apart, based on decisions inside and outside the country:
The Expertise Exodus
In 2002–2003, a strike at the state oil company PDVSA led to the firing of almost 20,000 workers, about 40% of its personnel. These were the engineers and managers who knew how to handle Venezuela’s notoriously difficult crude.
According to the U.S. Energy Information Administration, that purge, “combined with a reported tendency to hire based on government loyalty rather than technical skill, continues to affect operations, resulting in a lack of high-level expertise.”
The Sanctions Squeeze
U.S. restrictions on Venezuela began in 2005, when the U.S. State Department determined Venezuela was failing to cooperate on anti-drug and counterterrorism efforts. President Barack Obama imposed further sanctions in 2015, targeting officials said to be involved in human rights abuses, corruption, and undermining democratic institutions.
The sanctions with the biggest bite came in 2017, when President Donald Trump cut off the Venezuelan government and PDVSA from U.S. financial markets. The restrictions removed access to capital markets, scared away potential investors, and forced Venezuela to sell through “shadow fleets” to China at steep discounts.
A 2021 Government Accountability Office report found Venezuelan oil production had already declined 47% from 2010 levels before the 2019 sanctions, then dropped another 59% in the 18 months after. China now receives about 80% of Venezuela’s exports and has lent close to $50 billion over the past decade in exchange for crude deliveries.
Industry Nationalization
Starting in 2006, former Venezuelan President Hugo Chávez forced foreign operators into minority positions or seized assets outright. Exxon Mobil Corporation (XOM) and ConocoPhillips (COP) withdrew entirely in 2007.
Only Chevron Corporation (CVX) maintained significant operations, and today it accounts for about a quarter of Venezuelan production.
Infrastructure Decay
The above factors have led to a long-term decline in the quality of Venezuela’s pipelines, many of which are more than 50 years old. PDVSA has estimated that updating pipeline infrastructure alone would require $8 billion just to return to late-1990s production levels.
Its Paraguana Refining Center—one of the world’s largest—was running at just 10% of its 940,000-barrel-per-day capacity as of late 2023. Overall, Venezuela’s refineries are functioning at about one-fifth of their capacity.
What Rebuilding Venezuela’s Oil Infrastructure Would Take
The future of Venezuela’s oil industry depends on political developments. After the U.S. military captured President Nicolás Maduro on Jan. 3, President Trump announced that the U.S. would “run” Venezuela and that American oil companies would “spend billions of dollars” to rebuild the country’s energy infrastructure. But it’s unclear what that means in practice or whether Venezuela’s current government will cooperate. Vice President Delcy Rodríguez, whom Venezuela’s high court named interim president, has publicly rejected U.S. control, declaring: “We will never again be slaves… we will never again be a colony of any empire.”
Given that uncertainty, analysts see a range of scenarios:
With a stable government and lifting of sanctions: This would mean that foreign companies would be far more willing to invest. JPMorgan analysts estimate Venezuela could boost production to 1.3 billion–1.4 million barrels per day within two years, a 50% increase from today. Over a decade, output could reach 2.5 million barrels per day, far more than 2025 levels. Columbia University’s Center on Global Energy Policy notes that international operators already in the country—Chevron, Italy’s Eni, and Spain’s Repsol—could ramp up production relatively quickly since they’re operating well below capacity.
If things in Venezuela remain tumultuous: A U.S.-led transition could make things worse in the short-to-medium term. JPMorgan analysts warn that political turmoil could temporarily cut production by half, given potential disruptions at PDVSA facilities.
The Bottom Line
No matter what happens politically, RBC Capital Markets and others argue there’s no easy path to returning Venezuelan production to the 1990 level of 3 million barrels a day. Even under the most optimistic scenarios, according to the Center on Global Energy Policy, a daily boost in oil production of 500,000 to 1 million barrels is the most plausible over the next couple of years. Returning to 1990 levels would take another seven to 10 years.
Oil industry mismanagement, old infrastructure, crippling U.S. sanctions and difficult geology have throttled Venezuela’s oil output, which often must be sent through back channels at discounted prices to reach the world market.
Even in the most optimistic scenario—with political stability, sanctions relief, and tens of billions in new investment—a return to 3 million barrels per day would add only about 2% to global oil supply.