Oil has been buried in the ground for thousands of years.
For all this time oil had not been of much value. It took the Industrial Revolution and machines to turn oil into a valuable commodity.
From that point on, oil became a cornerstone of foreign policy.
1. Venezuela has been shaped by the Caribbean, much more than by the interior of the South American continent.
In order to understand Venezuela’s energy policy, one must take a look at the history of Venezuela within the Latin American region. The country was shaped by Spanish dominance, and the Spanish colonial power played a central role in the Caribbean region at the beginning of the Spanish colonial period in South America. With the construction of a settlement in Cumaná, Venezuela’s history began as the rule of foreign powers.
Even then, Venezuela’s wealth of resources was important for the Spanish empire. Even today, foreign powers continue to shape the country’s foreign policy. The United States plays a central role in the minds of Venezuelan leaders. To a certain extent, American energy policy has had a central interest in the Venezuelan energy industry for some time.
2. The history of oil and hydrocarbons is in some ways closely linked to the economic orientation of the South American country.
100 years ago it was not obvious that Venezuela has the largest untapped oil reserves in the world. However, these are largely unconventional oil deposits. This means that Venezuela’s oil production requires substantial investments that have not been made in recent decades to effectively exploit the country’s hydrocarbon reserves.
This is astonishing, because one might be tempted to believe that Saudi Arabia has the largest untapped recoverable oil reserves in the world.
But Venezuela’s energy policy is far more complex. We have to consider that Venezuela, due to government intervention, produces far less oil than it could actually produce. After the intervention in privately owned oil production companies, there was an outflow of capital and a loss of investment in Venezuela’s technical infrastructure. To this day, there is still a high need for investment to maintain the entire oil infrastructure including upstream, midstream and downstream.
Venezuela has not fully recovered economically, partly due to a lack of investment in its hydrocarbon business. The recent drop in prices on the global oil markets demonstrated Venezuela’s lack of competitiveness vis-à-vis the large oil-exporting countries that have a modern oil infrastructure. The competitiveness of other oil-exporting countries is based on the fact that many of them export sweet crude, which has led to investments in the exploration of unconventional oil reserves.
We have previously written on this subject, highlighting the strengths and weaknesses of sweet oil producers such as Iran, Saudi Arabia and Russia. Russia has different types of oil. We have also focused on hydrocarbon production, particularly unconventional oil reserves, in countries such as the United States.
For a significant part of Venezuela’s history, the government was oriented toward the Cuban government. For a very long time there has been a cordial cooperation between the two nations. Among other things, Venezuela supplied Cuba with crude oil, which meant that Venezuela exerted a certain degree of influence on Cuba. However, Cuba exerted some influence on Venezuela through humanitarian activities, as it send well-trained doctors to Venezuela to help Venezuela further improve the local health care system. At the supranational level, Venezuelan and Cuban leaders have agreed on many policy aspects.
3. How the Venezuelan government uses the profits from its oil exports for national projects.
The Venezuelan government has used a portion of its oil revenues to implement its socioeconomic policy and provide the population with cheap fuel for transportation. It appears that Venezuela has now reached a critical mass where the affordability of government spending is being undermined. China is the most suitable importer of hydrocarbon fuels, but geographical distance limits China’s ability to purchase more of Venezuela’s oil supplies. This is one of the main reasons why Venezuela is in a financial crisis, although Venezuela is energy self-sufficient and could finance itself through its oil exports. It is precisely this self-sufficiency that may have enabled a much higher degree of political non-alignment with neighboring countries.
In geopolitical terms, the United States is the keyholder to the Caribbean Sea. It leverages its maritime supremacy, and – at least historically-speaking – has replaced the Spanish and British as the main geopolitical power in the Caribbean region. Venezuela, still one of the most important countries in the Americas, is independent and non-reliant to other nations in energy matters and is located on the southern edge of the Caribbean. At the same time, Venezuela needs capital and technical expertise to maintain its upstream, midstream and downstream hydrocarbon business.