Venezuela: The Next Threat to American Energy Security?
Venezuelans are suffering under the largest man-made humanitarian crisis in our hemisphere and their flailing petro-economy may be their only hope. While a U.S. response may be tempting, bilateral relations would complicate any effort to intervene, and the cold hard facts of Venezuela’s security impact on the United States just do not warrant it.
Venezuela’s economic downward spiral began in 2003, when then-President Chavez fired 19,000 employees of the state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA). Since then, Venezuela has expropriated foreign investments, mortgaged PDVSA for credit, and given away its oil. Underfunded and seriously underperforming, it is no surprise that PDVSA’s production has declined by 40 percent (from about 3.4 million barrels per day in 2000 to about 2 million bpd in 2017).
That remnant of a once robust oil industry is now Venezuela’s lifeline to an economic recovery, and this is troubling to U.S. industry: as Venezuela has this year fallen behind on payments on its 55 billion debts to Russia and China, the likelihood of Russian and Chinese control of Venezuelan petroleum reserves grows, as does the possibility of legal conflict between their parastatals and U.S. companies still seeking recuperation of expropriated assets. In January, Venezuela mortgaged 49.9 percent of Citgo, its U.S. subsidiary, for a loan from Russia. Yet, companies currently in arbitration against Venezuela (and there are at least 43), particularly ConocoPhillips, are all eyeing Citgo as the most likely way to recover assets once Venezuela finally goes bust. That possibility is at risk as Venezuela increasingly uses Citgo as collateral, but it is ultimately up to the companies and the courts to work out.
Politically, Russia’s CITGO deal was a coup for Putin. Besides possibly acquiring significant refining capacity at a low cost, he now is close to acquiring a strategic presence in the United States. While Russian control of the company would mark a perceived tactical advance on U.S. territory, the actual impact on U.S. energy security would be minor. Citgo is not even in the top ten of U.S. refiners, so any Russian attempt to halt its refining would at most result in an oil price blip as larger refineries would quickly pick up the slack. Nevertheless, Congress proposed legislation in May to prevent Russia from seizing the PDVSA subsidiary and avoid the challenge to national security optics.
Beyond the geopolitical concerns, and despite PDVSA’s current suffering, Venezuela is still our third largest source for imported oil. It has the largest proven oil reserves in the world and used to count on significant U.S. investment before Chavez expropriated private assets. Although oil prices are currently low, the crisis in Venezuela could lead to higher ones if speculators decided to put a risk premium on the price per barrel or if social unrest spread to Venezuelan oil fields; however, next-door Guyana is set to begin producing oil from a major offshore discovery in 2020, which would certainly help off-set further Venezuelan declines. Even if it did not, the current supply glut is part of what got Venezuela into this mess in the first place.
If oil prices do rise in the short-term, Venezuela can gain additional leverage with creditors, only to draw out the country’s ongoing collapse. This brings us to the humanitarian crisis: Venezuelans are going hungry and dying in protest against a dictatorial kleptocracy. The more Venezuela cannibalizes PDVSA, the less likely future revenues will be able to support a fledgling economy, the more tenuous a new government’s hold on power will be, and the more international humanitarian aid Venezuela will require.
If Venezuela’s crisis does not impact national security, should the United States help its neighbor? Venezuela will spend years in economic recovery and the Yanquis’ best bet is to keep a low profile. Many Venezuelans have demonized the United States for the last twenty years as the cause of their woes. As Venezuela gets worse before it gets better (selling Venezuela’s patrimonial oil reserves off to American creditors, getting rid of massive gasoline subsidies), the Empire will be the easiest scapegoat- especially as Secretary of State Tillerson was at Exxon’s helm when Venezuela expropriated the company’s assets. To avoid this, let the International Financial Institutions, Venezuela’s creditors, and more welcome governments take the lead and keep U.S. support of off center stage.
Lindsay Singleton served at the U.S. Embassy in Caracas from 2010–2013 for the Department of State and has spent over a decade representing the Departments of State, Justice, and Energy in Latin America. The views expressed in this article are the views of the author and do not necessarily represent the views of the United States government.
