US bombing in Venezuela has created ripples across the world, with President Donald Trump saying on Saturday that his country planned to tap Venezuela’s vast oil reserves to sell to other nations.
Trump’s overthrow of President Nicolas Maduro in the oil-rich nation is however unlikely to translate into higher crude production, according to experts.
Venezuela may have the largest oil reserves in the world, but it may not mean vast oil production in the near horizon, as per reports by Reuters and CNBC quoting experts.
Venezuela’s vast oil potential has remained untapped for decades despite the reserves, as output has plummeted steadily. The decline in Venezuela’s oil production came about after the government took control of assets and led to the exit of giants like Exxon Mobil and ConocoPhillips amid disputes and legal battles.
A tale to tell later
Venezuela’s oil production potential might be a story for later, according to experts.
Just an investment, like Donald Trump touted, will not be enough. Any company that wants to operate with Venezuelan oil will need to deal with security concerns, dilapidated infrastructure, questions about the legality of the US operation to arrest Maduro and the potential for long-term political instability, according to analysts quoted by Reuters.
Energy industry consultant David Goldwyn, who worked as a top energy official in the Obama administration told CNBC that it was hard to predict if US companies will invest in Venezuela again, even though the country is a founding member of the OPEC.
“Everything we have learned about government transitions from Iraq, from Afghanistan, from other countries, is that transitions are hard. No company is going to want to commit to invest billions of dollars for a long-term operation until they know what the terms are. And they can’t know what the terms are until you know what the government is going to be,” he was quoted as saying by the outlet.
Mark Christian, director of business development at CHRIS Well Consulting, on the other hand told Reuters that US companies will not return to Venezuela unless they know for sure that there will be some security.
However, there is a chance that Venezuelan oil production may ramp up after a few years but there are conditions.
“If Trump et al can produce a peaceful transition with little resistance, then in five to seven years there is a significant oil-production ramp up as infrastructure is repaired and investments get sorted out,” Thomas O’Donnell, an energy and geopolitical strategist, told Reuters.
Will oil prices go up?
Like oil production in Venezuela, the price of crude oil is very unlikely to go up in the near future, according to experts who talked to CNBC.
According to Arne Lohmann Rasmussen, chief analyst and head of research at A/S Global Risk Management, the markets had already priced in the Venezuelan conflict. The lesser oil production of Venezuela, about 1% of the global output, is also a factor to be considered.
“Despite this being a huge geopolitical event that you would normally expect to be positive or push up oil prices,” Rasmussen said. He added that “the bottom line is there’s still too much oil in the market, and that’s why oil prices will not go ballistic.”
