Barreling Blindly Ahead: The Seizure of Venezuela’s Oil

In a fact sheet released January 7, the Trump administration confirmed that it is taking over the marketing and selling of Venezuelan crude oil, and that all proceeds will “first settle in U.S. controlled accounts.” The statement notes that the administration will start with the sale of 30-50 million barrels, continue indefinitely, and that “the only oil transported in and out of Venezuela will be through legitimate and authorized channels consistent with US law and national security.” The clear message here is that the US will continue to seize Venezuelan vessels that don’t comply with this directive. US sanctions will also be “selectively rolled back” to allow for increased sales. To date, the Administration has provided almost no information on how oil proceeds will be managed, aside from the vague assertion that they will be done “for the benefit of the American people and the Venezuelan people at the discretion of the U.S. government.”

The notion that the US can restore “prosperity, safety and security” to Venezuela through threats and coercion directed at its government as well as reluctant US oil executives is the height of folly. In addition to the considerable legal and political perils and security risks, there are significant economic pitfalls including the impact on Venezuela’s budget (and by extension, its citizens), the challenges of refurbishing Venezuela’s derelict energy infrastructure and the dynamics of the global oil market.

Limiting the government’s access to oil revenue could further devastate Venezuela’s fragile economy

Venezuela’s economy has suffered enormously from decades of economic mismanagement, culminating in a devastating bout of hyperinflation in the mid and late 2010s, which peaked at 135,000 percent in 2018. GDP plummeted by an estimated 75-80 percent between 2012 and 2020— a shocking contraction that usually happens only in the context of major wars. Positive growth resumed in 2021, but the IMF estimates that GDP contracted again in 2025 by 3 percent. (See Figure 1.)

With the abandonment of price and currency controls, inflation subsided in 2019 but still remains very high: the IMF estimate for 2026 is 682 percent. Increasing access to dollars, especially through the black market and crypto exchanges, has made it easier for some Venezuelans to manage in an otherwise volatile economy, and Acting President Delcy Rodriguez is credited for making the economy more hospitable to the private sector. But dire economic conditions have driven nearly eight million people out of the country, and according to the UN, about a quarter of the remaining 26 million people are in need of humanitarian assistance. In 2025, the UN raised only 17 percent of its $600 million request for Venezuela, making it one of the least funded country appeals in the world.

Venezuela is not in good standing with international financial institutions like the World Bank and IMF that track major economic indicators, so reliable data can be hard to find, but estimates suggest that over 80 percent of the population lives below the poverty line, with half the population facing extreme poverty. Unemployment rates are somewhere between 35-65 percent, making remittances a lifeline for many.

Oil revenues are a major source of government spending, accounting for between 50-60 percent of federal budgets and up to 20 percent of GDP. In December, the government asked Parliament to approve $19.9 billion for its 2026 budget, down from $22.7 billion in 2025. Acting President Rodriguez has asserted that nearly 78 percent of the budget would fund social programs.

The fate of the 2026 budget is in flux now that the US has asserted control over oil revenues, with Secretary of State Rubio stating that "we will control how [the money] is dispersed in a way that benefits the Venezuelan people — not corruption, not the regime.” But if the US controls and directs the proceeds of Venezuelan oil sales, this critical source of revenue will vanish, precipitating a domestic budgetary crisis.

The US could aim to funnel oil proceeds to Venezuelan citizens outside of government channels, an option that would present enormous legal and logistical challenges that would be hard to overcome under any circumstances but prove especially tough in a country that would no doubt be hostile to such schemes.

A further complication is President Trump’s claim that Venezuela will buy only American products with the revenues from its oil sales.

Venezuela’s ailing energy infrastructure will cost billions and take years to fix

Although Venezuela has the largest proven oil reserves in the world, insufficient investment in Venezuela’s energy infrastructure has precipitated a dramatic decline in production from over 3 million barrels a day in the mid-1990s to 1 million barrels a day now, or about 1 percent of global supply, most of which is consumed by China. (See Figure 2.)

Estimates vary of the amount needed to rebuild the industry. Rystad Energy suggests that it will cost more than $50 billion over the next 15 years just to keep Venezuela’s crude oil production flat, while bringing production levels up to 3 million barrels a day would cost around $180 billion between now and 2040. Amrita Sen, founder and director of market intelligence at Energy Aspects, estimates that “if you were to go and increase production back to two and a half million barrels per day, it would take seven to ten years and hundreds of billions of dollars.”

The US could direct proceeds of oil sales to finance the rehabilitation of Venezuela’s ailing infrastructure. Secretary Rubio has pledged to sell Venezuelan oil at “market rates, not at the discounts Venezuela was getting,”(i.e., around $50 a barrel versus $22), implying a significant revenue boost. But even under high oil price scenarios, we find that proceeds would fall short of what is needed to upgrade Venezuela’s energy infrastructure. Notably, these scenarios do not take into account domestic oil consumption and other potential uses for the income. (See Table 1.)

Moreover, Trump is publicly aiming to reduce oil prices to appease his American constituency.

The administration has expressed confidence that US oil companies will be eager to invest in Venezuela, with Trump stating “We're going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country.” But this rosy scenario is unlikely to materialize.

Currently, Chevron is the only major US firm still operating in Venezuela through joint ventures with state oil company PDVSA. The two other major US companies- ConocoPhillips and Exxon- were forced out of the country after the oil industry was nationalized beginning in 2007 and are still trying to recoup their losses, which total at least $12 billion.

US Energy Secretary Chris Wright quickly dampened expectations that proceeds from Venezuelan oil sales could be used to compensate US oil companies, saying that “the huge debts that are owed ConocoPhillips and Exxon, those are very real and need to be recompensed in the future, but that’s a longer-term issue.” During a meeting with oil executives on January 9, President Trump went further, saying: “We’re not going to look at what people lost in the past, because that was their fault.”

US companies have yet to make any public commitments. In the January 9 meeting with President Trump, the CEO of Exxon said this: “We’ve had our assets seized there twice, and so you can imagine to re-enter a third time would require some pretty significant changes….Today it’s uninvestable” (italics ours). This comment so incensed Mr. Trump that he has threatened to exclude Exxon from investment opportunities in Venezuela. The CEO of ConocoPhillips called for a restructuring of the debt and the country’s entire energy system, including PDVSA, which is insolvent.

Moreover, US oil company claims are only one part of Venezuela’s external debt, which is about $150-$170 billion, including about $60 billion in bonds. (Venezuela does not report its debt obligations.) Venezuela defaulted on most of this debt in 2017, and its creditors include governments, like China and Russia, as well as private investors. With a GDP of only $80 billion, Venezuela needs a major debt restructuring, a process that could take years.

A notable risk is that claimants—especially those pursuing restitution through US courts—could attempt to “attach” their claims to Venezuelan oil proceeds if they flow through US financial entities. Anticipating this risk, President Trump issued an executive order banning such attachments, but absent enabling legislation, this does not have the force of law.

Oil market dynamics are a further disincentive to investment

Another challenge is that Venezuela’s oil is expensive to extract and process. While several US companies have the capacity to refine Venezuela’s oil, the process raises costs and reduces profitability. Therefore, a critical calculation is whether oil prices will be sufficiently high over the medium and long term to justify large capital investments—setting aside major legal and political hurdles. Prices are currently around $60 per barrel for light crude, while some estimates put the extraction and refining of Venezuelan oil as high as $80 a barrel, making Venezuela a losing proposition. Market response to potential access to Venezuela has been muted (see Figures 3 and 4).

In addition, while the US Administration remains an enthusiastic supporter of fossil fuels, other major countries are committed to reducing their dependence on oil and gas, especially sources with the greatest negative environmental impacts, like Venezuela. Finally, there are good alternatives for such investments, including in neighboring Guyana.

Conclusion

The notion that the US takeover of Venezuela’s oil sector will benefit the people of Venezuela strains credulity while introducing more risk and uncertainty into an already perilous economic and political context. Even a carefully designed economic strategy led by a legitimate government with support from the usual suspects—namely the IMF, the World Bank, and the Inter-American Development Bank—would be a high-risk proposition. Sound economic governance is difficult to incentivize under the best of circumstances, and Venezuela—a classic petrostate—is closer to a worst-case scenario, thanks to its entrenched elites, depleted human capital, and weak institutions.

In this case, the US intends to use threats and coercion to compel the Venezuelan regime and US oil executives to bend to its will, suggesting a breathtaking level of naivete and hubris. This is a generational commitment, at best, that could only succeed in the form of a strong and effective partnership. But that is not what is on offer. Instead, it’s gunboat diplomacy—a policy that may work for short-term aims but has no prospect of achieving positive and lasting change.