The Plot to Steal Venezuela’s Oil

A scam that is both vile and deeply stupid

The United States has an ugly reputation in Latin America -- a reputation that, I’m sorry to say, is mostly well deserved. Our government has a long track record of supporting dictators, assisting in the overthrow of democratic governments, and sometimes even sending in the Marines, often on behalf of American corporations trying to pillage other nations’ natural resources.

Excluding the Trump II presidency, we have, I think, behaved better in the recent past. And this was largely due to the role of enlightened self-interest.

The fact is that old-fashioned, extractive imperialism doesn’t pay. In fact, it hasn’t paid for well over a century. In the modern world nations grow rich through innovation and productivity, not conquest. In 1909 Norman Angell’s book The Great Illusion argued that even victorious wars cost far more than they can possibly yield in tribute, documenting his case with what was already extensive historical evidence. His argument has even more force now.

Let me give you a recent historical example. Portugal was the last European nation to maintain a large overseas empire. As late as 1973 Lisbon still ruled vast African territories — some of them rich in natural resources — with many times the home country’s population. It was also the poorest nation in Western Europe, its resources drained by the endless wars it fought in an attempt to keep its colonies subjugated.

Finally, in 1974, junior officers in the Portuguese military, fed up with the fighting and dying, rose up in the Carnation Revolution and overthrew the fascist government. A newly democratic Portugal quickly abandoned its empire, eventually joining the European Union — and while it’s still poorer than some of its peers, it is far closer than before to the standard of living in, say, France.

In short, at this point only someone deeply ignorant of both the realities of modern economies and of the lessons of history can believe that there are big payoffs to seizing other nations’ natural resources. In other words:

For those who need a refresher, in January U.S. forces raided Venezuela and kidnapped Nicolas Maduro, the nation’s brutal, corrupt dictator. Maduro surely deserved his fate. But the Trump administration made no move to help Venezuela’s democratic opposition. Instead, it made a deal with former members of the Maduro cabal, effectively installing a new regime that may well be even more brutal and corrupt than its predecessor. (There’s widespread suspicion that the kidnapping of Maduro was in part an inside job, engineered by his fellow cabalistas.)

In return, Trump got an agreement — details are scarce — that apparently will allow U.S. oil companies to extract and sell large quantities of Venezuelan oil but only if they put tens of billions of dollars into investments in Venezuela’s decrepit oil infrastructure.

So the Venezuela venture had nothing to do with democracy or freedom. It seems safe to say that it had nothing to do with crime or terrorism, which were the other excuses the administration offered. What happened in Venezuela was simply an old-fashioned, 19^th-century-style resource grab, a sort of Caribbean version of the Belgian Congo.

In one stroke, Trump has just validated everything the Latin American left has ever said about U.S. imperialism. And we’ll be paying for that, diplomatically and strategically, for decades to come.

Now, it’s highly unlikely that this deal will hold. By all accounts, just about every faction in Venezuelan politics except the current ruling clique hates the deal. Since it will take years, maybe even decades, to realize the putative benefits of oil-company investments in Venezuela, how likely is it that whoever is running that country in the future will want to honor Trump’s terms? What are the odds that Venezuela will eventually expropriate U.S. oil-company investments? Or do we imagine a future in which the U.S. military maintains a permanent occupation of Venezuela, using force to prop up a puppet government the nation’s citizens hate?

Even if the deal holds, oil experts are extremely doubtful that Venezuela can significantly increase its oil production soon, if ever. It would take years to rebuild the oil infrastructure even if corporations are willing to sink in the necessary billions of dollars. There are also issues with the quality of Venezuelan oil. Venezuela appears on paper to have huge oil reserves. But much of these reserves are what I called a “black, sticky fantasy,” created by Maduro’s predecessor Hugo Chavez, when he reclassified oil in the Orinoco Basin that will be difficult if not impossible to recover as “proved” reserves.

But let’s suppose for the sake of argument that Trump really does manage to seize 65 billion barrels of Venezuelan oil. That sounds like a big number. Is it?

Venezuelan oil currently sells for around $70 a barrel on world markets. But as I said, getting that oil out will require huge investments in infrastructure. Nor does Venezuela oil come gushing out when you drill a well: As one expert put it, “it comes out of the ground with the consistency of cold peanut butter.”

So the profit margin on Venezuelan oil will be at most a small fraction of its market price. Surely $20 a barrel would be a highly generous estimate. So let’s go with that, in which case Trump’s deal might be worth $20*65 billion barrels = $1.3 trillion, a sum extracted over many years.

How big a deal would that be for the United States? Since this would be a many-year process if it happens at all, you want to compare it with U.S. wealth, not GDP (which is only the value created in a single year.) And total U.S. wealth is about $167 trillion.

So the chart at the top of this post shows how Trump’s triumphant Venezuela deal stacks up for the U.S. economy. Even if we make the most favorable assumptions — above all the assumption that the Venezuelan regime, unlike the Trump administration, can be trusted to honor its promises — the value of this deal to the United States is, to a first approximation … nothing.

Oh, and what about Trump’s claim that this will “substantially lower Gas Prices for all Americans”? Since any significant rise in Venezuelan production would take a long time, even crude oil prices won’t show any effects from this deal for years at best. And in any case the prices of gasoline and diesel — which are what people actually burn — have become increasingly disconnected from the price of crude.

So Trump’s Venezuela deal will do nothing for ordinary Americans, while solidifying our reputation for rapacious, short-sighted imperialism.

Thank you for wasting your attention on this matter.

MUSICAL CODA