Venezuela’s Oil industry May Never Recover

Despite President Maduro’s claims of a looming recovery for Venezuela’s economically crucial oil industry in early 2020 production keeps declining. Even measures aimed at revitalizing the industry and circumventing U.S. sanctions are failing to trigger any sustainable recovery. According to the latest OPEC Monthly Oil Market Report, August 2020 oil output remained flat compared to a month earlier at 340,000 barrels daily. This comes on the back of Maduro’s ongoing tussles with opposition leader, and U.S. backed interim president Juan Guaidó, for control of the opposition led National Assembly. Those are intensifying as the elections for the parliamentary body approach, which are scheduled to be held on 6 December 2020. The reasons for this conflict are quite simple; Maduros’ desire to control Venezuela’s last independent legislative institution, the National Assembly, which is the only government body that can legally approve oil-licensing deals. Venezuela’s worsening economic collapse makes it vital for the Maduro regime to revitalize the Latin American country’s oil industry, with petroleum being the only real source of income for the beleaguered government. The oil industry is responsible for more than a quarter of Venezuela’s GDP and 99% of all exports by value, making it a crucial economic driver. For this reason, the collapse of Venezuela’s oil industry has sounded the death knell for its economy plunging it into a deep crisis. This is highlighted by the IMF predicting Venezuela’s 2020 GDP will shrink 15%, even after contracting by a massive 25% during 2019. 

Source: OPEC Monthly Oil Market Report September 2020.

IMF World Economic Outlook April 2020.

* 2020 production is the daily average from January to August 2020 and the IMF GDP figure is an annual forecast.

The Latin American country’s ever deeper economic crisis is directly correlated to the collapse of its oil industry and declining petroleum production. Venezuela only pumped a daily average of 340,000 barrels during August, less than half of the 712,000 barrels daily produced for the same month a year earlier and lower than a fifth of the 1,711 barrels daily pumped during 2017. For the first eight months of 2020 Venezuela’s oil output has averaged 542,750 barrels daily, which is 32% lower than 2019 and well below the nearly three million barrels daily reported for 2000.

Source: OPEC Monthly Oil Market Report September 2020.


* 2020 production is the daily average from January to August 2020.

There appears to be little that Maduro can do to revive Venezuela’s oil industry and curtail the country’s complete economic collapse. U.S. sanctions have made it almost impossible for his regime to access global capital and energy markets, forcing Caracas to look elsewhere for the funding and expertise required to restart Venezuela’s oil industry. That saw Moscow become a lender of last resort as Putin seized the opportunity to exert greater influence in Latin America, but it comes at a cost. Moscow has its own national agenda which is focused on reinstating Russia’s recognition as a great global power, partly by extending Moscow’s international influence by gaining control over Venezuela’s vast oil reserves. The financial assistance provided by Russia, with outstanding loans thought to total at least $4 billion, has seen Moscow take control of Venezuelan oil fields and even consider taking a lien over PDVSA’s crown jewel, its Citgo refinery business.

Related: Oil Rises After EIA Confirms Crude Inventory Draw Moscow’s loans in exchange for oil are doing little to revive Venezuela’s economy or crucial oil industry. This is because there is a severe shortage of the capital required to conduct urgent maintenance while rampant corruption and management malfeasance redirects what little funding is available away from development and maintenance activities. Those issues are magnified by the massive outflow of skilled industry workers which was triggered by Venezuela’s economic implosion. In a devastating blow for the Maduro regime India in response to tighter U.S. sanctions, aimed at cutting the flow of Venezuelan oil exports, ceased importing crude from the pariah state. That comes after exports to China slowed because of the same sanctions, although Beijing and Moscow along with assistance from Iran have been assisting Caracas in transporting oil to buyers. 

As a result, Caracas is tightening its relationship with Teheran as it works on overcoming a wide range of obstacles and defeating U.S. sanctions. Recently, Venezuela flew gold to Teheran to pay for cargoes of fuel to stem fuel shortages caused by the breakdown of Venezuela’s refining industry. Caracas did the same in April to pay for Iran’s…

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