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As the demand for power surges across the US, the debate over how to build energy infrastructure has reached a fever pitch. And while both sides of the...
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Venezuela’s oil production rose by 150,000 barrels per day (bpd) in the second quarter of 2026 and is currently at 1.2 million bpd, but growth levels could slow after the recent earthquakes.
In an effort to regain momentum in the oil sector, the Venezuelan interim government unveiled new oil regulations in July that clarify fiscal terms and open the industry to private-sector participation at all levels of the value chain.
While these regulations may encourage some additional private-sector interest, they are likely insufficient to spur a new cycle of oil investments that will get the country back to pre-Chavez levels of more than 3 million bpd without further improvements in the rule of law, a broader economic recovery, and a political transition.
The economic and humanitarian consequences of the June 24 twin earthquakes in Venezuela continue to emerge, with the World Bank estimating reconstruction costs of about $19.7 billion. While the energy sector was relatively unaffected, the earthquakes might still hinder the recovery of the country’s oil industry in the near term by souring the investment climate and delaying planned oil spending, given damages to some key infrastructure.
The significant easing of US sanctions and end to the US blockade earlier this year allowed Venezuelan oil production to reach about 1.2 million barrels per day (bpd) in June (second-quarter oil production was up 150,000 bpd from the previous quarter). The most consequential change has been redirecting Venezuelan oil exports to compliance markets, with Venezuelan exports to the US Gulf Coast now averaging almost 600,000 bpd. These are levels last seen in 2018, before the United States placed oil sanctions on the country, making Venezuela now the second highest oil supplier to the US behind Canada. Venezuelan exports to India are also surging.
In an effort to regain momentum and normalization in the oil sector after the earthquakes, the Venezuelan interim government unveiled new oil regulations in July. The regulations further clarified fiscal terms, with royalty rates plus other production taxes going from 15% for offshore greenfields to 35% for onshore producing fields. The regulations also unveiled an opening of the industry to private-sector participation at all levels of the value chain.
In this Q&A, Adjunct Senior Scholar Dr. Luisa Palacios says that while the new regulations further open the sector to private investors, they are likely insufficient to put Venezuela’s oil production on a solid path toward peak levels of more than 3 million bpd reached before the presidency of Hugo Chávez. The earthquakes have made clear that such a recovery of the oil industry would need to be grounded in the country’s broader economic recovery, a credible capacity-building framework, and a clear path toward a democratic political transition.
Though Venezuela’s oil sector wasn’t directly damaged by the earthquakes, could they still have an impact on the industry’s recovery?
Announcements about oil deals in Venezuela have dominated the headlines in the last several months; unlocking actual investment could be more complex. This natural disaster is revealing a few interrelated challenges to a more decisive recovery of the oil sector.
US foreign policy has been focused on jumpstarting a foreign-investor-led oil sector recovery to make the country “investable.” But less attention to improving the overall policy framework and macroeconomic conditions in the country, made worse by the earthquakes, is creating broader risks to this agenda.
The earthquakes make a refocus on the bigger picture urgent, serving as a reminder of the country’s unresolved humanitarian crisis, the critical state of public services, and the technical capacity and trust issues of the interim government. Earthquake reconstruction efforts, not only oil deals, are now likely to become a key test of US foreign policy toward Venezuela, as the country’s stabilization and recovery now depend on it.
In the very near term, a more intentional framework to enhance the Venezuelan state’s technical capacity is urgently needed for the success of reconstruction efforts, but also to effectively manage the opening of the oil industry. The lack of transparency around Venezuela’s oil export revenues, being deposited in a US Treasury-designated account as part of Executive Order 14373, is an example of such need for capacity building. Strengthening Venezuela’s capacity to publish economic statistics would bring more transparency and accountability to oil export and fiscal revenues, which have not been reported since the 2010s. Such an agenda of capacity building will require more decisive involvement by multilateral organizations, and some steps in that direction are starting, which is key to effective reconstruction efforts.
Control of Venezuela’s oil revenues has given the US leverage over Venezuela’s interim government to enact policy changes. But investors need to be convinced that changes in Venezuela’s stance toward private sector participation are not solely due to this leverage, which is not sustainable. The current stance will not lower the risk premium in Venezuela, given the risk of policy reversals in what are long-term and capital-intensive investments.
Thus, unlocking significant oil investments, as US government officials have recognized, would also require advancing a democratic transition, including free and fair elections. Some steps toward a democratic transition framework have been taken recently, with US-sponsored negotiations expected to begin on August 1.
Will the new Venezuelan oil regulations be enough to jumpstart greater investment in the industry?
The US focus on stabilizing Venezuela’s oil sector led to changes in the country’s oil law at the end of January, with subsequent required regulations published on July 7. Here are some observations about the ways in which the regulations represent a further improvement toward opening the oil sector to private-sector participation and where they bring regulatory risks.
The regulations recognize the distinct costs and investment requirements of Venezuela’s diverse and rich oil resource base, providing differentiated fiscal terms, as detailed in Table 1.
Table 1: Venezuela’s New Oil Fiscal Terms
Type of project
Royalty + integrated hydrocarbon tax
Income tax
Greenfield offshore Greenfield onshore
15%–20% 20%
34%
Heavy oil (requiring blending or upgrading)
25%
50%
Brownfields, without production
30%
50%
Brownfields, with production
35%
50%
Source: Author’s interpretation based on the new oil regulations (Decree 5.381), published in the Venezuelan Official Gazette.
The regulations open the midstream and downstream oil sectors to private-sector participation. The dire conditions of state-owned PDVSA-controlled oil and gas logistics in the country is an obstacle to further increases in oil production, and private-sector participation is likely to ease some of the bottlenecks currently present.
The refinery sector is now open to private-sector participation but with property rights limitations that require a license for a yet-to-be-determined period, after which the asset reverts back to the state. This will disincentivize any investment in new refineries and fail to solve the country’s fuel situation.
The Venezuelan government is taking steps to regulate venting and flaring of associated gas, requiring it to be captured or reinjected. This will be key to reducing methane emissions in the country, especially given PDVSA’s lack of operational standards.
Investors are now required to supply their own electricity, which could ease pressure on the country’s already fragile electricity sector.
International arbitration was not clearly included in the regulations, which is problematic for compliance with US oil licensing provisions that require oil contracts be governed by US law and subject to international arbitration. Such provisions would have to be negotiated in specific contracts. It remains to be seen whether existing contracts, which have to be migrated to the new legal framework by the end of July, will include such provisions.
The regulations grant the Ministry of Energy a high degree of centralization and direct oversight over contract management, including ample provisions for contract termination, which will not reduce the country’s risk premium.
The role of PDVSA remains undefined. Changes to Venezuela’s oil laws enacted in January introduced two types of contracting models for private operators: the existing mixed-company model, which governs Chevron’s operations in Venezuela, and new contracts, called CPPs, in which the private investor assumes full operation not as an equity partner in a state-owned venture but as a private contractor compensated by a share of production. A model of the new contracts is expected to be released by the end of July, but initial draft proposals were reported as insufficient for private investors. Although PDVSA is the contracting party or joint venture partner, the new regulations seem to shift all responsibility for contract management to the Ministry of Energy, which could lead to confusion about contract governance.
These regulatory changes may encourage some additional investment, particularly given continued geopolitical risks in the Middle East. But a lack of progress in Venezuela’s governance and rule of law raises doubts about whether the country will be able to kick-start the type of investment cycle—and production growth—that other countries in Latin America such as in Argentina, Brazil, and Guyana, have seen.
The Trump administration and Saudi leadership have reportedly agreed to a nuclear agreement that could enable US nuclear technology transfers to Saudi Arabia.
