Trump’s attempt to commandeer Venezuela’s oil sector faces obstacles, experts say | Business and economy

US President Donald Trump has promised to “take back” Venezuela’s oil reserves and put them on the global market. kidnapping Venezuelan President Nicolas Maduro.

But operator The Latin American country’s vast reserves would face many daunting obstacles, from decrepit infrastructure and legal hurdles to leadership uncertainty in Caracas and an oversupply of oil on the global market, experts say.

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Venezuela has the world’s largest known oil reserves – estimated at some 303 billion barrels – but currently produces only a tiny fraction of global output. Its estimated production was 860,000 barrels per day (bpd) in November, less than 1% of the world total, compared to 3.7 million bpd during peak production in 1970.

The oil sector’s decline has been blamed on the combined effects of U.S. sanctions and years of underinvestment, mismanagement and corruption under Maduro and his left-wing predecessor, Hugo Chavez.

Although the Trump administration could increase supply in the short term by lifting sanctions, returning Venezuela’s production to near peak levels would require huge investments and likely take years, energy sector analysts say.

“Venezuela’s oil infrastructure is in poor condition”

Oil prices moved only slightly on Monday, as the market expected production to remain largely unchanged for the foreseeable future.

“Venezuela’s oil infrastructure is in poor condition overall, due to lack of maintenance of equipment and oil wells,” Scott Montgomery, a global energy expert at the University of Washington, told Al Jazeera.

“State oil company PDVSA is known to suffer from corruption and lack of expertise – many well-trained people have left the country to work elsewhere – and has been unable to invest in the country’s oil sector,” Montgomery added.

Thomas O’Donnell, an energy and geopolitical analyst based in Berlin, Germany, estimates that Venezuela could return to peak production within five to seven years under the “absolute best circumstances,” including a peaceful transfer of power.

“In the longer term, if things are sorted out, yes, Venezuela can become one of the largest oil producers in the world. In terms of how long that will take, that has everything to do with the transition and what is put in place to manage that – both the security of the country and also to manage investments,” O’Donnell told Al Jazeera.

Mixed messages from the Trump administration

The Trump administration has provided mixed messages about Washington’s exact plans regarding Venezuela and its oil reserves.

On Saturday, Trump said the United States would “run” Venezuela and that U.S. oil companies were prepared to invest billions of dollars to build up the country’s dilapidated infrastructure and “keep the oil flowing.”

In interviews with US media on Sunday, US Secretary of State Marco Rubio sought to downplay Trump’s remarks about controlling the country, saying the president was referring to “implementation policy” and his plans to boost private investment, “not securing oil fields”.

Trump said later Sunday that Washington was “responsible” for the country and “dealing” with members of the acting administration, without providing details.

Under international law, the United States has no ownership rights to Venezuela’s oil reserves, as sovereign states possess the right to control and use their natural resources under the United Nations-endorsed principle of permanent sovereignty over natural resources.

Foreign investors can, however, claim compensation when authorities seize their assets.

ExxonMobil and ConocoPhillips were awarded $1.6 billion and $8.7 billion, respectively, in international arbitration following the Chavez government’s nationalization of the oil sector in 2007. Caracas paid in neither case.

U.S. oil giants including Chevron, ExxonMobil and ConocoPhillips have not commented directly on Trump’s claims about planned investments in Venezuela.

Chevron is the only major U.S. oil company currently operating in Venezuela, the result of an exemption from U.S. sanctions first granted by former President Joe Biden’s administration.

Oslo, Norway-based consultancy Rystad Energy estimated that Venezuela’s oil sector would need about $110 billion in capital investment to return to its mid-2010s output of about 2 million bpd.

Patrick De Haan, an analyst at GasBuddy, an energy price tracker, said companies may be reluctant to commit to big investments in the country as global oil prices hover around $60 a barrel due to oversupply.

“It will take longer than many think. Oil companies, in the current low price environment, would probably be prudent to invest billions when oil prices are already low,” De Haan told Al Jazeera.

“Furthermore, if Trump took over Maduro, loyalists could sabotage efforts to increase production. It would take a lot to achieve the most optimistic timelines.”

U.S. companies will likely carefully evaluate political developments in Venezuela following their experiences with the Chavez government’s expropriation of their assets.

“Oil companies are unlikely to rush into a situation where the state is in turmoil, security is lacking and there is no clear path to political stability,” said Montgomery of the University of Washington.

Maduro to appear in New York court

Acting President Delcy Rodriguezwho was Maduro’s deputy, now leads the country following a ruling by Venezuela’s Supreme Court.

Maduro is due to appear in a New York court on Monday to face charges related to allegations of drug trafficking and collaboration with criminal gangs.

The Venezuelan government condemned the Trump administration for Saturday’s bombing and the toppling of Maduro, calling his capture a “cowardly kidnapping.”

Russia, China, Iran and Brazil, among other countries, have accused Washington of violating international law, while countries including Israel, Argentina and Greece have welcomed Maduro’s forced removal.

OPEC, which sets limits on production for its 12 members, including Venezuela, is another determining factor in the Latin American country’s potential oil output.

“Venezuela is a member of OPEC and, like many countries, it could become more actively subject to quotas if production increases,” De Haan said.

Phil Flynn, market analyst at Price Futures Group, said reviving Venezuela’s oil production would face “significant challenges”, but he was more optimistic about the near-term outlook than other analysts.

He said the market could potentially see a few hundred thousand additional barrels per day come online in the coming months.

“We haven’t had a free Venezuela, and sometimes the U.S. energy industry has the capacity to do much more than people give it credit for,” Flynn told Al Jazeera.