At 7 a.m., the earth began to rumble. Suddenly, oil blew out of its well in a massive eruption that towered 200 feet in the air and sprayed the fearful villagers of La Rosa.
The most productive oil well on the planet had just been discovered. With it, Venezuela’s transformation to a petroleum supergiant had begun — for better or worse.
Venezuela had been known to possess some crude — 15th-century Spanish explorers noticed indigenous people using oil for fires and asphalt to patch their canoes. But Venezuela’s wealth of oil had been in dispute until foreign petroleum companies grew serious about the region during World War I, when fuel was in high demand and Western nations began to fear supply shortages.
Surveyors from Venezuelan Oil Concessions (VOC), the local Royal Dutch Shell affiliate, spent much of the 1910s exploring the region with only moderate success. But on July 31, 1922, they made a decision of significant consequence: VOC decided to drill deeper into Los Barrosos-2, an oil well in the Maracaibo Basin they had drilled four years prior but had since abandoned, according to American Association of Petroleum Geologists’ Orlando Méndez, a Venezuelan oil field historian.
VOC would continue to drill Los Barrosos-2 for months. By the second week of December, the driller reached a depth of 1,450 feet and struck oil sands. Oil and gas began to flow, and on December 14, the ground shook, the gusher came pouring out of the ground, and the geyser couldn’t be stopped for more than a week.
It was a major ecological disaster. But it set Venezuela on a century-long course of stunning wealth, significant crashes, and political turmoil. That path ultimately led to the extraordinary capture of President Nicolás Maduro by US forces on Saturday, a stunning operation that could ultimately restore America’s oil dominance in the country.
President Donald Trump said a core objective of the recent military operation in Venezuela was to place the country’s oil sector under US control, and give US oil companies the ability to rebuild there.
“The oil companies are going to go in and rebuild their system,” Trump said Sunday night. “It was the greatest theft in the history of America. Nobody has ever stolen our property like they have. They took our oil away from us. They took the infrastructure away and all that infrastructure is rotted and decayed, and the oil companies are going to go in and rebuild it.”
If that happens, it will be expensive, complex and potentially dangerous.
“It will be a long road back for the country, given its decades-long decline under the Chávez and Maduro regimes, as well as the fact that the US regime-change track record is not one of unambiguous success,” said Helmia Croft, head of global commodity strategy at RBC Capital Markets.
Croft said accomplishing Trump’s goal will effectively require US oil companies to play a “quasi-governmental role” to build out capacity and develop the infrastructure. That could cost $10 billion a year, oil executives contend, according to Croft.
That’s consistent with estimates from Petróleos de Venezuela, SA, better known as PDVSA, Venezuela’s state-run oil company. PDVSA acknowledges its pipelines haven’t been updated in 50 years, and the cost to update the infrastructure to return to peak production levels would cost $58 billion.
Another complication: PDVSA has been military-run for decades, and Venezuela’s economy is solely dependent on its success. Trump acknowledged the US military may need to maintain a long-term presence on the ground to secure Venezuela’s oil infrastructure.
In recent weeks, Trump administration officials engaged US oil companies to gauge interest in returning to Venezuela, but the energy companies were wary to commit, especially given the major questions about the country’s future stability, according to two sources familiar with the engagement.
For now, the Trump administration says it is working with Delcy Rodríguez, who had served as Maduro’s vice president and energy minister, to help the United States run the country – despite Venezuela’s opposition movement briefing the Trump administration several times on its plans to privatize the oil industry if it were to take control of the government, sources said.
“It is impossible to just bring US companies into Venezuela without an agreement with the government,” said Homayoun Falakshai, lead crude research analyst at Kpler. “Once this is done (and it may take months at the minimum), US companies will have a stronger footprint and will ship most of their equity production back into the US Gulf Coast, which craves sour crude.”
If everything goes right — and that’s a big if — the US oil industry could restore its most important partner that it’s been doing business with for over a century. But, to Trump’s point, it hasn’t always been an easy partnership.
By 1929, Venezuela had fully transformed from an agricultural exporter to an oil-based economy. More than 100 foreign oil companies were doing business in the country, which had become the world’s No. 2 oil producer behind the United States, according to the Council on Foreign Relations.
Venezuela’s dictator at the time, General Juan Vicente Gómez, welcomed the influx of business. But Venezuela’s government and people weren’t reaping the rewards of the largest corporations in the world — Standard Oil, Shell and Gulf — effectively taking over the country’s economy.
Gómez died in 1935, and his successors sought reform. Venezuela passed the 1943 Hydrocarbons Law, which forced foreign oil companies to hand over half of their oil profits, according to the Center for Strategic and International Studies.
It was a price oil companies were willing to pay. That’s because Venezuela held the upper hand.
For one, Venezuela was oil rich, sitting on a massive 303 billion barrels worth of crude — about a fifth of the world’s global reserves, according to the US Energy Information Administration (EIA). But, more importantly, its heavy, sour crude is extraordinarily cheap, nearby to the United States and able to be refined into key derivatives for US industry, including asphalt, heating oil and diesel. The light, sweet crude from Texas is good for making gasoline — and that’s about it.
Democracy and state control
The United States thought it got a stroke of good fortune in 1953, when Venezuela became a democracy — and a significant ally of the United States. The democratic, oil-rich country became a counterweight to Communist Cuba. In 1963, President John F. Kennedy called Venezuelan President Rómulo Betancourt “America’s best friend” in South America.
But Venezuela became a founding member of OPEC in 1960, along with Iran, Iraq, Kuwait and Saudi Arabia, giving Venezuela more sway in global affairs and more power to wield over the companies that did business in its state.
That year, Venezuela established the state-run Venezuelan Petroleum Corporation and jacked up the price of doing business in the country to 65% of companies’ profits. Nevertheless, Venezuela remained the United States’ largest and most important oil source. By the 1970s, America’s refineries were purpose-built for Venezuelan oil, according to Phil Flynn, senior market analyst at the Price Futures Group.
President Carlos Andrés Pérez in 1976 established PDVSA to manage the country’s oil industry. PDVSA partnered with foreign oil companies at a steep cost — a 60% equity stake in their joint ventures.
Given the strategic importance of its Venezuelan relationship, the United States had no meaningful reaction to the effective nationalization of its oil assets. It also helped that PDVSA paid America’s oil companies $1 billion for the equity.
But Venezuela fell on hard times in the 1980s, when oil prices crashed. The country also went into serious debt when it bought half of American refinery company Citgo in 1986 (and the rest in 1990). Pérez instituted austerity measures that proved immensely unpopular — and ultimately led to the rise of Hugo Chávez.
Chávez, Maduro and the decline
Chávez took office in 1999 and transformed Venezuela into a socialist state.
He nationalized the assets of foreign oil companies, including ExxonMobil and ConocoPhillips. The Chávez government took direct control of PDVSA and effectively used PDVSA’s profit as an ATM machine for the military, leading skilled workers to head for the exits. Venezuela’s oil infrastructure festered and crumbled.
Maduro took control of the country in 2013 after Chávez died. Oil prices crumbled again a year later, sending Venezuela into economic calamity, with hyperinflation and mass migration out of the country.
International sanctions on the Venezuelan government also contributed to the decline of the country’s oil industry, according to the EIA. The US government has imposed sanctions on Venezuela since 2005, and the first Trump administration in 2019 effectively blocked all crude exports to the United States from PDVSA. Then-President Joe Biden in 2022 granted Chevron a permit to operate in Venezuela as part of an effort to lower gas prices — a license Trump revoked in March but later reissued on condition that no proceeds went to the Maduro government.
The demise of Venezuela’s infrastructure and the lack of resources for PDVSA prevented oil companies in the country from producing as much crude as they were capable of.
Today, Venezuela produces just over 1 million barrels of oil per day — only about 0.8% of global crude production. That’s less than half of what it produced before Maduro took control of the country in 2013 and less than a third of the 3.5 million barrels it was pumping before Chávez took over.
– CNN’s Kylie Atwood contributed to this report.
