US Oil Capital's Interests in Venezuela?

Depressed oil prices plus extremely costly-to-produce oil mean it's likely not even profitable.

Oil markets work through commodity cycles of boom and bust. When prices are high, oil capital is keen on investing in new drilling. When prices are low (like today — see the chart, above), less so. While the current price level is somewhere in between, prices are overall depressed, and have been for most of the last decade (apart from the boom associated with the Russian invasion of Ukraine in 2022). Given Venezuela’s “heavy” bituminous crude oil is very difficult and costly to extract, I suspect it might not even be profitable to produce with oil prices below $60/barrel (I can’t easily find what the ‘break even’ price is for Venezuelan oil in particular, likely because of data problems, but it’s worth noting one industry estimate on the break even price for similar Canadian oil sands is $65/barrel). You’ve probably heard that Venezuela has the largest “proven reserves” in the world, but note that category hinges on whether or not the “reserves” are economical to produce (and it’s not clear they are).

Therefore, apart from Chevron, who already has much capital ‘sunk’ into Venezuela, I can’t imagine there will be much interest among the major US oil companies to invest in new drilling (What is more disturbing is how Trump’s “gangster imperialist” ploy will affect Chinese companies who have already invested some $2.1 billion since 2016).

There has been much discussion of Trump’s contradictory goals of solving “affordability” problems by bringing the price of gasoline down (it is down, for what its worth), and his desire to “drill baby drill” in the United States. It is also well known that shale producers in the US use high-cost and complex hydraulic fracturing techniques, and thus need high prices to remain profitable. To “drill baby drill” Statista gives estimates of a variety of shale plays in the US — and all require prices above $60/barrel to break even. In other words, if Venezuelan production were to increase it could depress the global oil price further and damage the US oil capitalists (and workers) at the core of the MAGA coalition. But, again, I’m skeptical oil production will increase in Venezuela anytime soon anyway.

One of my favorite quotes on the political economy of oil comes from the leftist collective “Retort” and their 2005 book Afflicted Powers:

“The history of twentieth-century oil is not the history of shortfall and inflation, but of the constant menace…of excess capacity and falling prices, of surplus and glut” (p. 59).

Originally, this menace was combatted by a capitalist cartel — “The Seven Sisters” oil companies — who carefully divided oil production and markets among themselves on a world scale, but this role was subsequently taken up by OPEC countries interested in maintaining high prices that translate into high rents/taxes. Regardless, despite popular narratives, the oil industry is not always chomping at the bit to extract any and all oil. Their more keen interest is in maintaining and reproducing the scarcity needed to keep prices high enough for profitable accumulation (this is also a core and important argument of Timothy Mitchell’s Carbon Democracy). In the context of depressed prices today, they would be far more interested in pumping the oil they have and recouping previous investments, as opposed to drilling new wells.

The other key factor here that is likely to dissuade oil companies from investing is “political risk.” I wrote a paper on this almost two decades ago, but mining and oil companies in particular much prefer to invest in countries where the political situation is stable and, hopefully, favorable to private investors (i.e. low royalty and tax rates). Obviously, that is not the case in Venezuela since it is literally not clear who is in charge at the moment.

Raymond Vernon’s 1971 Sovereignty at Bay: The Multinational Spread of U.S. Enterprises articulates a powerful theory of the “obsolescing bargain.” In short, when prices are low, extractive enterprises have leverage and can make favorable deals with low royalty and tax rates in host countries. However, when prices (inevitably) rise, the “bargain” becomes obsolete, and host countries can renege on their previous agreements, raise royalty and tax rates, or, even, expropriate them altogether. This is indeed what we could say happened with Chavez in the 2000s — a leftwing socialist environment combined with an oil price boom.

Regardless, if oil companies were going to invest in Venezuela on favorable terms today, there would need to be much more certainty on the political situation. For that, I suppose we will wait and see. One caveat to this analysis, is the question of whether Trump himself will grease the wheels of investment (make it clear to specific companies that investing in Venezuelan oil will yield other political favors). It’s possible, but the historical record of oil capital’s reticent investment patterns during low price periods will be a lot to overcome (especially in the degraded infrastructural context of Venezuela).

Finally, what I’m aiming for in this piece is to push back against an overly “instrumentalist” account of the capitalist state where this invasion was undertaken on behalf of US oil capital. I really doubt it. I agree with Adam Tooze’s description that Donald Trump is more interested in, “feckless reality TV Cosplay resource imperialism.” The fact that after the invasion, the White House posted a meme with the term “FAFO” (“Fuck Around and Find Out”), illustrates how interested he and the administration is in the depraved theatrics of it all.

If I had to guess, I wouldn’t be surprised if no (zero) oil company executives or investors were directly pushing for this invasion. Marxist state theorists talk a lot about the “relative autonomy” of the state, but Trump’s form of narcissism-as-governance really does raise the question of whether or not we’re talking about the absolute autonomy of the state. This is not the first time where this administration appears to be acting in ways that do not align with what one might imagine as the executive committee of the bourgeoisie. What this means for global capitalism at large, and the centrality of the American empire in overseeing it, is really unclear and up for grabs.