Trump’s decision could have a critical impact on future of the oil industry in Venezuela
Published: 27 Feb 2018 By Matt Cook
President Trump has recently threatened to impose an embargo on Venezuelan oil, which causes significant damage to the nation. Analysts, however, suggest that Venezuela, the world’s biggest area of crude reserves is destroying its industry without including the impact of the embargo.
One of the extensive sites near Punta de Mata regularly produced over 400,000 barrels of oil a day, but now the site is desolate. Lying east of Caracas, the site has now been idle since the summer of 2017. Most of the drilling equipment is now broken due to lack of maintenance or functioning parts.
Industry analysts believe the oil sector has been in continuous decline for years and in a recent month has decreased dramatically due to rising economic and social disruption across the nation. Analysts explain how the crime levels and lack of security are impacting oil and drilling sites. A rig operator at the Punta de Mata site explained the area was ‘dying’ and in ruins.
A recent report by OPEC suggested that the decline in oil production in Venezuela hit a ‘three-decade’ low of around 1.6 million barrels a day. This is a significant decline of nearly 20% since January last year. The significant decrease is having an impact on the global market, with experts suggesting a fall in output is accelerating the rise in global oil prices. Severe production problems are causing the Government of Venezuela to start importing gasoline.
Financial and investment businesses in the nation suggest that Venezuela has been increasing the oil prices through its inability and incompetence. The state oil business is currently operated by the military and lacks any industry experience after industry executives were removed due to not being viewed as being supportive to President Maduro, who is pushing ahead for a second term in power. US officials have suggested that a study is currently being undertaken to analyse the potential of imposing restrictions on Venezuela and what impact this will have. If Maduro does not change his current stance on the upcoming vote or agree to a transparent election, then an embargo is very likely, according to US officials.
Maduro, however, remains defiant stating that the National still has an international market for its oil and would be able to replace the US with another country. Maduro emphasised it would be ‘very sad’ if the US did impose the embargo, suggesting it would be a mistake at having a decisive impact on the future of Trump’s career.
Other nations in Latin America believe that an embargo would deepen the current humanitarian situation in Venezuela and affect regional supplies of oil. At present, just under half of the production in the nation goes to Russia and China. A US embargo would potentially place oil production sites further into the control of China and Russia. The sites at Punta de Mata are in so much debt that creditor has been securing shipments of Venezuelan oil offshore. Economic analysts believe that if the US government broke ties with Venezuela, then the debt issue would become even more severe.
Venezuela recently reported to OPEC that there had been a slight improvement in production between December and January. However, further analysis delivered by OPEC with collaboration from US sources displayed a further decline.
PDVSA, Petroleos de Venezuela SA has been in decline for years with many experts suggesting its decline starting in 2002 after Chavez came to power. Chavez planned to politicize the company, fuelling a general strike and ultimately leading to the removal of half of the existing staff at PDVSA. Under the plans of Chavez, profits from the company were focused back into social programs and foreign oil interests were nationalised.
The decline in global oil prices brought the company into a crisis which Maduro recently suggested was heightened by the mismanagement of the PDVSA. A former PDVSA manager who is working on a recovery plan for the business suggested as much as $100 billion would be needed in investment to return production levels back to figures of 2009.
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