What is Venezuela?

Venezuelan hydrocarbon law caps private oil agreements with PDVSA or a Venezuelan government entity at 25 years, renewable, directly contradicting the U.S. claim of a 100-year lease.

“The duration issue I think is also relevant because under the new hydrocarbon law, indeed you can engage with the national oil company of Venezuela, PDVSA, or a Venezuelan entity that is a government entity can engage with private companies under a joint venture agreement or a sort of production sharing agreement or contract, but only up to 25 years, although the 25 years can be renewed.”

Luisa Palacios on the legal vacuum at the heart of the reported 100-year oil lease claim.

“That figure does not exist in Venezuela's constitution or in the new hydrocarbon law that was passed. So there's no oil lease. There's not even, you can actually assume that the word means concessions. There are no concessions in Venezuela either.”

Venezuela is now the second-largest oil supplier to the US after Canada, and has entered the top five suppliers to India.

“Venezuela is now the second most important supplier of all exports to the US after Canada.”

Venezuelan oil exports to the US Gulf Coast reached 600,000 barrels per day, surpassing pre-2019 sanction levels.

“The 600,000 barrels per day of oil exports, Venezuelan oil exports flowing to the Gulf Coast are higher even than the pre-oil sanctions that took place in 2019.”

One million barrels per day of Venezuelan oil, previously outside free-flowing global markets, have now been integrated into them.

“That is one million barrels per day that were not in the market, at least not in the free-flowing global markets that we know of.”

Luisa Palacios on the historic significance of Venezuela eliminating PDVSA's monopoly across the value chain.

“They eliminate the monopoly position of PDVSA at all parts of the value chain. That is huge, Jason. It really is. This has never occurred since the nationalization of PDVSA of the oil industry in the 1970s.”

Oil companies operating in Venezuela are incentivized to boost production because production increases are the mechanism by which they recover accumulated unpaid arrears owed to them.

“The reason why the oil companies currently operating in Venezuela have a reason to increase production is because that's the way they pay themselves for the accumulated arrears in a long time.”

US sanctions on Venezuelan oil contracts create a legal ambiguity because they require US law governance and international arbitration, conditions Venezuela's new oil regulation neither prohibits nor clearly permits.

“US sanctions require that the contracts that private investors sign, they need to be governed by US laws and they need to have international arbitration. The regulation, while it doesn't prohibit those conditions, they don't clearly allow it either.”

The deal effectively de-risks only the private company NABEP, not Venezuela as an investment destination, leaving the country's broader oil sector risk unchanged.

“The only thing it is doing, it is de-risking NABEP, the North American company.”

Luisa Palacios on the total dependence of Venezuela's oil investment story on US sanctions policy.

“If there's any change in that sanctions policy, this story ends.”