This Energy Explained post represents the research and views of the author(s). It does not necessarily represent the views of the Center on Global Energy Policy. The piece may be subject to further revision.
Contributions to SIPA for the benefit of CGEP are general use gifts, which gives the Center discretion in how it allocates these funds. More information is available here. Rare cases of sponsored projects are clearly indicated.
Early on 3 January 2026, the United States launched a military operation to arrest President Nicolás Maduro and remove him from Venezuela. This operation also involved the arrest and removal of his wife, Cilia Flores. Maduro and Flores have now arrived in New York for arraignment on charges of drug and arms trafficking. The situation in Venezuela is fluid, as is the US policy response. Venezuela, once one of the top suppliers of oil to the United States, has seen production decline over the past 25 years, first under President Hugo Chávez but more rapidly under his successor, Maduro. That drop in production severely damaged Venezuela’s oil-reliant economy.
In this piece, senior research scholars and fellows Luisa Palacios, Richard Nephew, and Daniel Sternoff from the Center on Global Energy Policy shared their thoughts on the energy-related implications of this development.
Q: What’s happening in Venezuela?
Richard Nephew: The United States removed Maduro from power, but beyond that, it is not really clear what is next. During his press conference on the operation, US President Donald Trump restated the root objective of countering narcotics trafficking in the US operation. However, the president then described a shift and an expansion in US objectives. He noted that the United States would be “running” Venezuela while a transition takes place, implying that Vice President Delcy Rodriguez was now working with Secretary of State Marco Rubio in this regard and that US military forces would be available as “boots on the ground”. He left significant confusion about the role the leader of the Venezuelan opposition and Nobel laureate, María Corina Machado, would play.
The president also said that this transition would involve US access to Venezuela’s substantial oil reserves. Rodriguez rejected both of these positions in a subsequent public address. She also condemned the operation in sharp terms, stating: “We will never again be slaves, … we will never again be a colony of any empire, whatever its nature.”
So, at this point, we know that Maduro has been removed from Caracas and that the Venezuelan government has condemned the operation. Beyond that, it is not at all clear what will come next, either in terms of political transition, the involvement of the US military, or the Venezuelan oil industry.
Q: What’s the significance of oil to Venezuela, and how has the Venezuelan oil industry fared under the Maduro regime?
Luisa Palacios: Oil represents more than 90 percent of Venezuelan exports and a significant share of the country’s fiscal revenues. Under the Maduro administration, oil production fell by more than 1.5 million barrels per day (b/d) due to mismanagement of the industry, expropriation of oil assets, default of the country’s external debt, and severe deterioration in the industry’s governance and operational standards, in addition to oil sanctions. As a result, oil production currently stands at around 1 million b/d.
With the collapse of the oil industry, the Maduro regime also saw a significant deterioration of its oil exports and thus its ability to generate critical foreign exchange. For decades, Venezuela was a reliable oil exporter to the United States, supplying more than 800,000 b/d when Maduro took office in 2013. Venezuela’s oil exports to the United States currently stand at 120,000 b/d. Most of Venezuela’s oil exports now flow to China through shadow fleets and black-market routes at highly discounted rates, limiting even further the government’s ability to generate foreign exchange revenues.
The collapse of the oil industry has had a devastating impact on the country’s economy, feeding a humanitarian crisis in the country and compelling millions to flee as refugees.
Venezuela’s future economic recovery depends on its ability to ramp up oil production and oil exports, especially if there is a transition of government to the opposition.
Q: President Trump has said that this operation is intended to recover stolen oil from the United States. What does he mean by that?
Palacios: Venezuela and the United States have a long oil history given the country’s proximity to the US Gulf Coast and its vast oil reserves. US oil companies, along with other major European companies, were major investors in Venezuela’s oil industry during its liberalization in the 1990s, which allowed the country to ramp production to a peak of 3.5 million b/d.
Under Chávez, the Venezuelan government expropriated a number of industries, affecting US and other international oil companies, many of which sought compensation in international arbitration courts. Around 60 arbitration proceedings have been recorded against Venezuela since the 2000s with several of these companies securing awards for their expropriated claims. The value of these liabilities is estimated at $20-30 billion or about 10-15 percent of the almost $200 billion in international debt obligations Venezuela owes. Venezuela could pay off these claims by inviting investors back to the country. That could be done through debt-for-equity swaps or by linking future oil production to repayment of current debts. However, restructuring the country’s foreign obligations will likely be needed for Venezuela to fully realize its oil potential.
Q: What would it take for US or other international oil companies to invest in Venezuela? Would Venezuela need to change its laws? Would foreign companies want to re-enter Venezuela, and under what terms?
Palacios: Foreign companies are looking for an improvement in governance, the restoration of the rule of law, and an easing of US oil sanctions. If the Venezuelan government were to commit to these reforms in a serious way (and the United States was therefore prepared to remove sanctions), an increase in oil production of 500,000 b/d-1 million b/d within a 2-year horizon, while optimistic, seems plausible. Such an increase would raise output to pre-2019 sanctions production levels of around 1.5 million b/d. Current international operators still present in the country (e.g., Chevron, ENI, Repsol, Maurel et Prom) could increase spending within their existing licenses, as they are currently operating below capacity.
However, a more consequential increase in oil production would require a change in the oil law to allow significant participation by private investors in the oil industry. Such a change could promote a return to Venezuela’s peak production levels of 3.5 million b/d within a 7 to 10-year horizon. As mentioned earlier, the participation of private investors would also require Venezuela to regain access to international financial markets and restructure its international debt obligations.
Daniel Sternoff: International oil companies with existing Venezuelan operations such as Repsol and Eni may be willing to increase investment if an arrangement could be made to allow them to resume repayment of past debts with current output, and companies like ConocoPhillips seeking to recover debts from past expropriations could have an interest in re-entering the country under the right political and legal conditions. But greenfield investment to raise Venezuelan production is a long and tough slog.
There is no precedent whereby regime change in a major oil producer has led to a rapid increase in output. In most cases (such as Iraq, Iran, Libya, and the Soviet Union), oil output fell significantly, often for years, before returning to prior peaks.
Even if Venezuelan above-ground risks were to stabilize, rehabilitating dilapidated Venezuelan oil infrastructure would require tens of billions of dollars in investment over multiple years alongside legal and political stability. Adding between 500,000 b/d and 1 mb/d is likely to require more than $10 billion in investment over two to three years, and returning to early 2010s output levels near 2.5 million b/d is estimated to require $80 to $90 billion over six or seven years.
Q: How quickly could sanctions be removed, and how would they be removed?
Nephew: It is honestly too soon to tell if sanctions are going to be removed, let alone how. If it is true that the United States will soon be governing Venezuela to some degree (perhaps working through and with Venezuela’s interim president, Delcy Rodríguez), then it follows that sanctions against the Venezuelan economy could and would be removed quickly. The vast majority of US sanctions against Venezuela are derived from executive orders and, consequently, can be reversed by the sitting president. There are no major statutes that would require termination by Congress.
Internationally, there are few sanctions regimes of consequence. There are some European sanctions against Venezuela, but they are mainly aimed at specific Venezuelan officials or the arms trade. Therefore, the sanctions outlook for Venezuela remains largely in the hands of the president.
But, if the United States is not “running Venezuela,” then presumably the pressure campaign would continue against its current government, now with the background of a demonstrated willingness to use force to augment sanctions. Venezuela’s economy has been in a poor state for many years, with sanctions exacerbating the problems that were fundamentally created by mismanagement and corruption under the Chávez and Maduro governments. However, as is evident by the US decision to use force, sanctions did not result in the sorts of changes to Venezuelan policy sought by multiple US presidential administrations. Sanctions can make the Venezuelan economy worse, to be clear, but it is not apparent that they alone will be sufficient to compel major governance changes in Venezuela.
Q: What would be the impact on global oil markets if sanctions were lifted or the oil industry were to resume at greater volumes?
Sternoff: As Luisa noted, Venezuela is currently producing just around 1 million b/d, only 45 percent of its early 2010s levels near 2.5 million b/d and barely 30 percent of peaks near 3.5 million b/d seen in the 1990s. Given ample reserves and negligible geological risks, the prospect that Venezuelan output could return toward historic peaks has contributed meaningful downward pressure on the back end of the oil futures curve (for delivery in the 2027-2029 time frame).
But projecting a return of Venezuelan output is putting the cart well in front of the horse. In the short term, political turmoil in Venezuela could meaningfully disrupt oil production in multiple ways, including strikes, serial coups d’etat, looting, opposition protests, further US pressure on Maduro’s successors, an ongoing US oil blockade, the loss of imported diluent needed to stabilize output, or failed statehood.
A total collapse in Venezuelan production and exports would tighten the supply of heavy crudes to both the US Gulf Coast and Asia, but oil markets could manage such losses given oversupplied conditions following the return of some 1.5 million b/d in OPEC+ production in 2025.
There is plenty of room for OPEC’s Gulf producers (principally Saudi Arabia and the United Arab Emirates) to continue raising output by reversing past production cuts. It is worth noting that OPEC+ production policy, which has kept markets well supplied and oil prices moderate, may have given Trump flexibility for more aggressive policy and sanctions enforcement against Venezuela, Iran, and Russia. It is an open question whether Trump would have bombed Fordow, sanctioned Lukoil and Rosneft, or seized Venezuelan oil cargoes if oil markets were tight and prices were above $90 per barrel.
If output remains stable in the short term, Venezuelan crude exports could be meaningfully redirected away from China and towards the US Gulf Coast, depending on US policy adjustments. That would be good news for US refiners competing for limited supplies of heavy crudes from Canada, Mexico, and Venezuela, and could tighten heavy crude supply in Asia, particularly to Chinese teapot refiners. Such flows would have important impacts on regional light-heavy differentials, refining margins, and shipping rates, but minimal effects on the flat price of crude.
All of that said, a realistic path to higher medium-term Venezuelan oil production could keep pressure on the back end of the crude curve, which, in turn, could have a dampening effect on investment and production in higher-cost US shale. Ironically, successful US action to significantly rehabilitate Venezuelan oil production could impede Trump’s US energy dominance goals.
Q: What do the developments in Venezuela reveal about the US approach to economic statecraft and sanctions under the Trump Administration?
Nephew: These developments tell us something about US plans and intentions, even if we still do not know how effective they will be. For starters, we have an even clearer sense than before that Trump is serious about securing natural resources on a dedicated stream to the United States. Trump has said since his first term that he believes it is legitimate to use US military force to seize natural resources, arguing at the time that this should have been the US approach in Syria. Though it is certainly possible that Trump’s Venezuela policy has multiple objectives, his swift change in focus from Maduro’s narcotics trafficking to securing Venezuela’s oil resources is suggestive of his own prioritization.
Alarmingly, Trump’s focus on Venezuelan oil also grants credence to those who argue that the sum total of US foreign policy has and will always be on resource extraction. I do not agree with this contention as pertains to previous US presidential administrations, but it is hard to argue against this line of argument when the president says it as baldly as Trump has. Taken together with Trump’s approach to other sanctions and economic tools like tariffs, US economic statecraft is likely to be perceived as far more aggressive, avaricious, and nationalistic than it has been in the past.
