Venezuela is a founding member of OPEC and one of the world’s top oil producers. It holds some of the largest proven reserves of petroleum and natural gas, although its production of crude oil has dropped in recent years, largely due to mismanagement by the Venezuelan government.
While Venezuela is expected to have the largest amount of proven reserves in the world, it is only the 12th-largest producer because of both above- and below-ground difficulties. Venezuela’s Orinoco oil belt constitutes the majority of the country’s 298 billion barrels of proven oil reserves (and an estimated 513 billion barrels of recoverable oil), which are primarily heavy, sour crude. Venezuela’s extra-heavy crude must be processed by specialized refineries, making it costly to develop from an economic, environmental and technological standpoint.
Venezuela also has the second-largest natural gas reserves in the Americas, behind only the United States. However, its natural gas reserves remain underutilized, and a large portion of its current gas production is used to bolster the production of mature oil fields rather than sold to generate income.
Petróleos de Venezuela S.A. (PDVSA) is an important revenue source for the Venezuelan government. PDVSA was created when Venezuela nationalized its oil industry in the 1970s. The government gave the company a significant amount of autonomy until the 1990s, when it brought PDVSA under its direct control. The Venezuelan state, especially under Presidents Chavez and Maduro, has used the state oil company as a revenue stream to fund a variety of social programs by imposing a 40-45% levy on PDVSA. The Venezuelan regime’s political control over PDVSA has reduced reinvestment of profits into the company, contributing to declining petroleum production over the last decade.
In 2013, Venezuela was the world’s ninth-largest exporter of oil and the third-largest exporter to the United States. Historically, it has been reliant on the United States as one of its main oil export destinations, but its exports to the United States have declined recently. Instead, it has found new export destinations in India and China. Meanwhile, the United States has ramped up its own exports of petroleum products to Venezuela. The shift in Venezuelan exports away from the United States and toward China might lead some to think that Venezuela could now be more inclined to oppose or refuse to participate in U.S. foreign policy initiatives, and perhaps more likely to support China’s international goals instead. But oil trade is rarely the determining factor shaping a country’s diplomatic relationships. Furthermore, the modern U.S.-Venezuela relationship has been prone to tension since the beginning of Hugo Chavez’s presidency in the early 2000s, when both countries were highly dependent on each other for their oil trade.
The Venezuelan regime actively engages in a form of “petro-diplomacy” by providing its Caribbean neighbors with crude oil and refined products under favorable terms. This oil alliance, known as the Petrocaribe initiative, was founded in 2005 to promote regional economic cooperation and serve as a counterbalance to U.S. influence in the area. However, the death of Hugo Chavez and subsequent economic instability in Venezuela has already started to undermine the long-term viability of Petrocaribe as a functioning agreement.