The broad easing of U.S. oil sanctions on Venezuela is not expected to result in a quick expansion of the country’s oil production. However, it could enhance profitability by allowing foreign companies to return to its oilfields and widening the customer base for its crude, according to experts.
Venezuela, a South American OPEC producer, received comprehensive waivers from the U.S., setting the stage for a six-month period aimed at revitalizing oil and gas operations that have been significantly hampered by sanctions and decades of underinvestment.
The easing of sanctions is a response to an agreement between Venezuelan President Nicolas Maduro and the country’s opposition regarding the 2024 presidential election. The U.S. administration, under President Joe Biden, seeks to increase global oil flows to alleviate high prices resulting from sanctions on Russia and OPEC+ production cuts. However, experts suggest that Venezuela’s overall exports are unlikely to offset those global cuts without sustained investments.
The new license exempts energy companies worldwide from the need for individual licenses or “comfort letters” to collaborate with the state-run oil firm PDVSA, facilitating its return to traditional oil markets and the possibility of offering its crude at higher prices. It may also alleviate the company’s challenges in raising capital, importing rigs, refinery repairs, project advancement, and forming key partnerships.
Nevertheless, experts predict a gradual recovery in Venezuela’s oil production, as it will take time for the now-idled production and export operations to have a substantial impact on global supplies. The country’s production has averaged around 780,000 barrels per day (bpd) so far this year, surpassing the 716,000 bpd of 2022 but remaining significantly below the official goal of 1.7 million bpd by 2024.
Before sanctions were imposed in 2017, Venezuela’s daily production averaged 2.4 million bpd. At present, only one drilling rig is active in the country, compared to more than 80 in 2014.
Although Venezuela has been exempt from OPEC quotas, providing it with leeway to increase production, the advanced deterioration of PDVSA’s infrastructure is expected to hinder a rapid recovery. Experts anticipate output growth of between 170,000 and 200,000 bpd over the next two years, primarily driven by increased production from joint ventures involving U.S. companies like Chevron, Eni, and Repsol.