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Daniel Sternoff: The Trump administration may want to try to encourage the industry to come into Venezuela and help develop it. The Trump administration also wants to drill baby drill in the Permian, but when we have sub $60 prices, just the desire of the White House can’t compel a private industry to act against its commercial or economic interests.
Luisa Palacios: In the very near term, what is going to matter is going to be the relationship between the US and the vice president — or Delcy Rodríguez — and how they meet Marco Rubio’s or the Trump administration’s demands.
Richard Nephew: We’re in a period now where resource nationalism and resource access is very much on the front burner that’s going to be meaningful, both in terms of what we do and what people do to push back on us.
Jason Bordoff : Early on January 3, the United States launched a military operation to apprehend Venezuelan president Nicolás Maduro and his wife and removed Maduro from power. Maduro was subsequently transported to New York, where he now faces federal charges of narcoterrorism and drug trafficking.
The situation in Venezuela remains highly fluid, as does the US policy response. President Trump has signaled an expansion of US objectives, signaling that the US will be running the country during a transition and seeking direct access to Venezuela’s massive oil reserves.
Meanwhile, in Caracas, interim president Delcy Rodríguez condemned the operation as a blatant act of aggression but has also expressed a willingness to negotiate, all while the role of democratic opposition leader María Corina Machado remains unclear.
Venezuela possesses the largest oil reserves in the world, so these developments raise important questions for global energy markets at a time of ongoing geopolitical uncertainty. So what’s the future of Venezuelan oil, and how might US sanctions and foreign policy decisions reshape energy flows in the region and beyond?
This is Columbia Energy Exchange, a podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff.
In response to the historic events in Venezuela this past weekend, we pulled in three leading experts right here at the Center on Global Energy Policy to discuss the Trump administration’s evolving strategy, what could happen in the coming days and weeks, and its impact on global energy markets.
Today on the show: Luisa Palacios, Richard Nephew, and Daniel Sternoff. All three are senior fellows here at the Center on Global Energy Policy. Luisa previously served as chairwoman of Citgo Petroleum Corporation, the US refining arm of Venezuela’s state oil company, PDVSA. Richard formerly served as US deputy special envoy for Iran, among several other government roles working on sanctions and many other issues. And Daniel was the head of Energy Aspects’ executive briefing service.
Luisa, Richard, and Daniel joined me on the afternoon of January 5 to talk through the latest developments in Venezuela and their wide-ranging implications for regional geopolitics, US policy, and global energy markets.
Luisa Palacios, Richard Nephew, Daniel Sternoff, great to see all of you again after a very busy weekend for all of us. Thanks for putting your thoughts together so comprehensively to share with the audience at the Center on Global Energy Policy. The pieces you wrote this weekend—I put a piece out today as well—so excited to talk to you in real time about the extraordinary events we saw over the weekend.
And Luisa, maybe I’ll start with you, because I spoke with you just before Christmas, about two weeks ago, about what might happen in Venezuela and particularly what it might mean—since this is an energy podcast—for the energy sector. Talk about what you saw transpire this weekend, what you heard from the administration, and how was that consistent or inconsistent with what you expected and what it means for where we go from here?
Luisa Palacios (04:10): Thank you, Jason. Really a pleasure to be here with such esteemed colleagues as Richard and Daniel. So as we spoke a couple of weeks ago, indeed what we were discussing about and the possibilities of some kind of intervention in Venezuela related to Maduro did happen. It happened in a very surgical way. It was an extraction of Maduro and his wife, who are now being presented to US courts. It was presented as a law enforcement type of event. And so the narrative behind it has been very limited to not a war against Venezuela, not an invasion of Venezuela, just a following up on law enforcement operation linked to drug trafficking, narco-regime, and this kind of narrative that we have been seeing for the last months.
In terms of how the narrative has been shaping up: My first reaction is that we don’t really have a lot of clarity about what comes next. And there are still a lot of questions that we’ll start to see the answers to in the next days, if not weeks, in order to understand what kind of political system Venezuela is transitioning to. However, my sense is that there is a transition that has started in Venezuela. This is the first inning of a very long game.
Jason Bordoff (06:06): And if I remember correctly—but tell me if I’m misremembering—when we spoke with Eddie Fishman, another colleague, two weeks ago, and we talked about why the Trump administration is so interested in Venezuela, we talked about Secretary of State Rubio’s longstanding interest in the country, politics in states like Florida, claims of drug trafficking.
And the idea was oil’s part of this, but really not the central piece. Were you surprised to hear President Trump put oil so front and center in his press conference and “take back the oil” as a motivating factor in what the US did this weekend?
Luisa Palacios: I was surprised. I thought that it featured in a way that to me continues not to be the main reason. And I am going to refer to Secretary of State Marco Rubio’s comments during the weekend as well. He did mention that it’s not that we need Venezuelan oil—not exactly with those words—because the US is the most important producer on the planet. So it’s not that the US needs Venezuelan oil from a strategic perspective. So I think he phrased it in a different way. It is Venezuela’s oil, and who manages Venezuelan oil is of strategic importance to the US, because the mismanagement of the oil revenues, the oil resources, and the oil industry in Venezuela has led to the security situation in which Venezuela and the region finds itself. He framed this in terms of competition and the opening of Venezuela’s not only oil sector but its economy and its political system to both rivals of the US. And so to me, that seemed more in line with what I thought were the main drivers of this intervention.
Jason Bordoff (08:04): And Richard, I’m curious about your reaction to what you saw this weekend, the prominent role oil played, and also Trump did something else, which is it seems like the administration has obviously seized Maduro and his wife and is now working with the vice president, Delcy Rodríguez, not the elected opposition leader or the Nobel Peace Prize winner, María Corina Machado. Does that have any significance for what happens next and what it might mean for the energy sector? Again, this is an energy podcast.
Richard Nephew: Yeah, look, I think it does have some significance in terms of the nature of the transition that, as Luisa was pointing out, we’re still kind of in the midst of, and we don’t know how it’s actually going to turn out. I think that there is a legitimacy crisis that clearly has been around Venezuela’s government for quite some time. We see this in how the opposition fared in the elections that happened recently. And so I think the durability of any kind of arrangement that’s reached is kind of linked to what is the legitimacy of the transition process and what comes out of it. And I think that while there are still questions about what the US involvement is, who’s going to be doing what to whom, what does “running Venezuela” mean—which was the words that were actually being used by the president on Saturday—I think that’s going to make it harder for international actors to know how they want to see the situation, how companies want to see the situation, and certainly what the reaction’s going to be as you start to see decisions coming out of Venezuela.
(9:33) The other thing I would say, too, it’s interesting: there were a number of different reasons why the United States might have had concerns with what the Maduro government was up to, including its relationships with Iran, with Hezbollah, with Russia, with China. Those weren’t at the foremost of the discussion that was happening on Saturday. I think consistent with the fact that there was previously a strong focus on counternarcotics trafficking, but it is now something that the secretary of state is speaking a lot about, and I think that has a ramification for what happens in the future and what are the sorts of requirements and demands that are going to be made to the Venezuelan government as we look to the future and a potential better relationship. I imagine there is going to be a desire to make sure that Iran doesn’t have a foothold, that Hezbollah doesn’t have a foothold, that Russia and China’s relationship in Venezuela has changed. And those are all kind of open questions that are also linked then to what the transition’s actually going to involve.
Jason Bordoff (10:30): Daniel, a lot of the coverage this weekend kept constantly referring to largest oil reserves in the world. There is a massive resource potential there. Today Venezuela is producing a little under a million barrels a day, a little under 1 percent of world supply, but we had a military incursion into a significant producer. Oil prices, I think, are up a dollar. It doesn’t seem like the market has reacted too much to all of this. Why is that?
Daniel Sternoff (10:54): In the short term, not a huge reaction, because it’s not an enormous producer. So it’s producing below a million barrels per day, exporting slightly below that. Oil markets are oversupplied right now as a consequence of all of the production that OPEC brought back last year, along with growth from the Americas and the US. And so there’s room to absorb any losses, which have included a few hundred thousand barrels per day worth of losses from Venezuela when the naval blockade began to be put in place prior to the snatch-and-grab operation against Maduro. So it’s not enough to really move the needle on current balances. I think another factor is many in the market have been focusing not on will instability lead to some near-term loss of supply. They’ve been focusing on are we going to see Venezuela returning to world markets over the next few years, and what does that mean? So in fact, what we did see today is the back end of the crude curve—meaning futures contracts with delivery in 2027, 2028—are lagging the spot price. There’s more pressure down the curve, and part of that is due to the perception that Venezuelan supply could return, and that’s something that dampens future price expectations.
Jason Bordoff: Luisa, you wrote about that in a piece in Americas Quarterly. So curious if you think that optimism, if that’s the right word, from people who are making those investments in Venezuelan oil coming back in the next two or three years—is that warranted? How quickly could that come back? How much investment is needed? And maybe this ties to what I asked Richard. I mean, I assume an important part of the answer to that depends on whether this is in fact a stable transition or not. Given what we’ve seen—it’s just been forty-eight hours—should one be more or less optimistic about that?
Luisa Palacios (12:52): That is, to me, really an excellent question, and I think it matters not only what kind of transition we’re getting—and that matters more for the medium term—but also the US relationship with the current government. The key to whether we’re going to see stability or increases in oil production in the near term will depend on whether there’s sanctions relief. And this is not only because it would allow Venezuela to redirect exports from illicit trade routes that have high discounts into other markets like the US Gulf Coast, which deliver very high yield for Venezuelan oil in terms of the cash that it gets. So it really matters significantly for the stability of even this regime that the outlook for oil revenue significantly improves. And that is not going to happen unless we have an easing of this blockade and an easing of the sanctions, not only because of exports but also because of imports. Venezuelan oil exports have a dynamic just because of the heavy component of the type of oil that it exports in which it needs condensates in order to blend with this very heavy oil to be able to export to all markets. Not having access to those condensates has an immediate impact on the ability of the country to export. So in the very near term, what is going to matter is going to be the relationship between the US and the vice president, Delcy Rodríguez, and how they meet Marco Rubio’s or the Trump administration’s demands.
Jason Bordoff (14:40): And Secretary of—sorry to interrupt—Secretary of State Rubio said this weekend the blockade remains in place.
Luisa Palacios: Remains in place.
Jason Bordoff: So the idea that you want to help the oil sector rebound, you want to create investment opportunities, you want to give the new government more revenue to work with—that’s not where the US is yet. There’s something we want to see that we haven’t seen yet before we’re going to lift this blockade. It’s not clear what that is exactly.
Luisa Palacios (15:06): So in any case, to Daniel’s point, to me, the risk in the very near term is more to the downside, just because the blockade is there. I think Daniel can speak to the fact that we’re starting to have shut-ins, and the Venezuelan government has announced that already, because they do not have enough storage capacity. So before the situation can stabilize, actually it’s going to get worse. That said, let’s assume that indeed this is a government that is willing to play ball with the Trump administration. This is a case in which if you have those two conditions—you have an elimination or an easing of the blockade and you have an easing of sanctions, and there is redirection of Venezuelan oil into US Gulf Coast—I do think that not only are you going to see stabilization of oil exports, but you might have an increase in oil production.
And so the relationship between this transitional government—or whatever you want to call it—and the Trump administration, to me, is key. Now, I did write about what a very optimistic scenario looks like in the long term, and that is, what would it take? To me, the way I looked at it is, before the Chávez regime came into power, Venezuela produced 3.5 million barrels per day. That, to me, is—and that was in the best possible circumstances—so that is the best, the most optimistic scenario that you can think of. Venezuela is that …Venezuela is able to return to 3.5 million barrels per day. That is the upside scenario. That is not my central scenario, but that is the most optimistic scenario. To me, that scenario does not occur under the current political circumstances. There is a lot that needs to happen in order for us to get there.
Jason Bordoff (16:50): And did I read you and other analysts correctly over the weekend that a modest amount in oil terms—so an industry that spends tens of billions of dollars routinely—a modest amount of investment in maintenance and repair, OPEX, could bring several hundred thousand, maybe half a million barrels a day of increase back to market reasonably quickly, but then you’re talking about tens of billions more over a longer period of time to get beyond that. Is that the right way to think about it?
Luisa Palacios: I think the right way to think about it is, what was the Maduro administration producing before sanctions hit in 2019? That was 1.5 million barrels per day. So what you can think about is, okay, what would it take to get back to where the Maduro administration was in 2018? That is where I think the way to think about it, if we have this current system in place with improved relations with the US.
Jason Bordoff (17:45): Daniel, is your sense today that lots of oil firms—Chevron’s the sole remaining American operator there—not just Chevron but others, too, are really excited about this opportunity and can’t wait to go put tens of billions of dollars to work in Venezuela? Or, in the spectrum of investment opportunities around the world—Argentina, Libya, Iraq, US shale, US Gulf of Mexico—this would not be their first choice anyway. How much commercial interest do you think there is in putting huge amounts of money into Venezuela? And now there may be even more pressure from the White House to do so, because getting that revenue and rebuilding the oil sector is sort of central to the success of the administration strategy.
Daniel Sternoff : I mean, there’s not going to be commercial interest if you don’t have basic political and legal stability in the country full stop. So there could be interest among those companies that are currently maintaining small operations inside of Venezuela. So that is Chevron that has maintained a foothold and has a waiver from the US to export about 120,000 barrels per day to the US Gulf Coast. You have companies like Eni and Repsol that have some small operations producing some gas. And so because they have assets already on the ground, if given some opportunity, sanctions waivers, and it could be an avenue for them to more swiftly recoup arrears that the Venezuelan government has accumulated with them—so faster debt repayment—or to increase some production to a small degree. But for others to come in, you need to have basic political and legal stability, and that is very far away. And the Trump administration may want to try to encourage the industry to come into Venezuela and help develop it. The Trump administration also wants to “drill, baby, drill” in the Permian, but when we have sub-$60 prices, just the desire of the White House can’t compel a private industry to act against its commercial or economic interests.
Jason Bordoff (19:50): Richard, I’ll come to you in a second, but Luisa, I’m just curious if you kind of agree with Daniel’s take on what the interest from large oil companies is right now.
Luisa Palacios: So, Jason, I completely agree with Daniel, particularly because these are the same companies that were expropriated, with exactly the same actors in place, with exactly the same kind of law, the same kind of system, the same kind of judicial structure in place. And so I do think that the risk premium to investing in Venezuela is just very high, and before they commit to any kind of really significant capital investment, there needs to be a lot of changes taking place within the Venezuelan economy, within the legal system, the rule of law, governance, and probably guarantees from the US.
Jason Bordoff (20:43): And I assume, Richard, this requires the blockade to be lifted and maybe sanctions to be lifted as well.
Richard Nephew: Yeah, and look, this goes back to a fundamental question of do we want to do that? Now I think, unlike in other sanctions scenarios where we’ve got a web of statutes that make it very difficult for the president to act—so like if we’re thinking about Iran or we’re thinking about Russia—Venezuela actually represents a fairly straightforward case in terms of sanctions removals. The vast majority of sanctions that are against Venezuela—in particular against the oil and gas sector—are under exclusive control of the president and could be terminated if he were to decide to end those sanctions, either specifically or if he were to just rescind the national emergency with respect to Venezuela. So there are some specific ones that would have to deal with human rights–related issues and similar, but again, a lot of those even come with national security waivers if you wanted to do that.
So sanctions relief would have to be an essential component of this. I think that it is straightforward to do, but kind of lurking behind all this—and this goes back to my earlier point about legitimacy and the sustainability of whatever arrangement is in place—even if sanctions are gone, companies are going to want to believe that they will remain gone. We’ve seen in other circumstances where we’ve provided sanctions relief that corporates sit back and say, “Yeah, but how long is this going to happen?” And if all of this is contingent on continuing to get cooperation out of the Rodríguez government—now not the Maduro government—well, that might be a pretty tenuous bet for the corporate world to accept. And so this goes back to, will they be willing to take advantage of sanctions relief? And even if it’s on order, would they be willing to take advantage of licenses that are available? Maybe. And I think the degree to which the US administration is both pushing them and encouraging them will be significant, but it won’t be the only factor in what they will make as a decision for the exposure that they want to take on as companies going forward.
Jason Bordoff (22:35): We’re talking about the potential for political-legal changes to create opportunities for more investment, but again, the blockade is still in place. So in the very near term, is there a risk to Venezuelan oil supply going down while that blockade remains in place? Anyone who wants to take that, jump in.
Daniel Sternoff: I’m happy to take that. There absolutely is. I mean, basically, what is the blockade so far? The US has seized two ships and chased a third that swiftly repainted the Russian flag on its side. And the Russians apparently called and said, “Please don’t take our ship,” and we did not. But that said, this is affecting exports, because you obviously don’t want to run the risk of having your vessel seized. And as Luisa alluded to, there is not enough storage capacity. So if Venezuela is producing oil, you can’t export it, and you don’t have tanks to put it in, you have no choice but to shut in production. And that is what is starting to happen. A couple hundred thousand barrels per day, it’s kind of orderly, but Venezuelan exports are down roughly half. They’re exporting about 400,000 barrels per day compared to a little above 800 prior to the blockade being put in force.
And if you can’t get imports of mostly Russian naphtha that’s used as diluent to blend, you also will affect production. So as long as this is the case, there is absolutely a downside risk here. And just for some context, I’m not aware of any regime change in a major oil producer that led to a swift recovery in output. And for the most part, whether we’re talking Iraq or Iran or Libya or the Soviet Union, you tend to see disruptions before you see recoveries, and those recoveries tend to come years rather than months after some kind of political event like that.
Jason Bordoff (24:32): Luisa, I want to ask you about the blockade strategy of the US and what the administration’s looking for to pull this back and let production stay where it is—nevertheless increase.
Luisa Palacios: So let me react to something that Daniel said. I do think—and I think we have an agreement there—that in the near term, I think what you’re going to see is more of that disruption in exports leading to forced shut-ins because there is not enough storage capacity in the country. And I think we’re going to be in that dynamic for as long as the US administration does not believe that the current Rodríguez government is playing ball with the number of demands that have been presented to them. That said, if those things are solved in a way that is satisfactory to the Trump administration, I disagree with the concept that then this leads to a significant disruption, because these are the same actors. Rodríguez was the vice president of PDVSA. She actually has managed the oil industry. All the actors are there. There’s not been any change in actors. And so there’s no—the only event happening right now is a blockade from the US that, once—if it’s solved—there’s no reason to believe that oil production will not come back in. The type of targets that took place for the seizure of Maduro did not impact any kind of oil facility. They were very, very surgical. So I mean, the oil infrastructure is in disarray, but it is in the same state of disarray that it was a month ago.
Jason Bordoff (26:22): Yeah, question is what the US needs to see to lift this blockade and what signals they would want to see from Rodríguez, who has criticized the action this weekend.
Luisa Palacios: To me, there are a few signs, some of which we already started to see today. There was a different kind of tone from the Rodríguez administration. I think the US has sent signals in relation to Venezuela not being any longer the lobby or the entryway for these kinds of regimes that they have determined as foes in the Western Hemisphere. And so I do think that whatever happens with the shipments of oil to Cuba is also going to be determinant. They have also asked for changes in the type of oil legislation and more openness and respect for rule of law. So there are a series of things, some of which they have voiced publicly and some of which they have not.
Jason Bordoff (27:30): Richard, what ripple effects are you seeing for what is happening in Venezuela and what it means for, say, Cuba that depends on cheap Venezuelan oil, the potential uprising in the streets we’ve seen in Iran, which would also have potential energy implications? How are a set of other actors responding to the United States seizing a leader of a foreign nation this weekend? And does it change your outlook for any of those countries?
Richard Nephew: Yeah, look, I think it’s going to have an effect, but I think what exactly that effect is going to be is going to depend on each of the countries in question. So if you’re looking pretty far afield, places like Iran or certainly looking at places like North Korea, I think personally you’re much more likely to see belligerence and pushback than you are any degree of acquiescence to US demands. I mean, frankly, I don’t know whether or not there’s a connection, but I do know that yesterday North Korea fired a ballistic missile into the Sea of Japan. Perhaps they were making a very clear statement as to their views about potential abduction of their head of state. In the Iran case, certainly they are already dealing with a lot of domestic legitimacy issues and security issues, all created since the conflict in June. And so I think an element of all of this to the Iranians is a sense that the US is prepared to use force in a way that it might not have been able or willing to do in previous administrations, including the first Trump administration.
But I don’t think that’s news to them. I think they will be much more curious as to what this means in terms of their ability to operate in the hemisphere. I don’t think there’s any reason to expect that the Iranians will not still want to have some sort of ability to operate in the Western Hemisphere, but Venezuela was only part of that. And the Iranians have looked to other governments in the past and other locations to spread their influence and access. I think it’s much more significant in terms of the region itself. You’re already hearing threats from the United States towards Cuba, threats from the United States towards Colombia. Those are fairly dramatic escalations in US verbiage as opposed to just sparring with governments that the current administration doesn’t particularly like. I will say I think that all those governments are now reevaluating their security protocols and how they will respond if they see US forces operating close to their territory.
But if nothing else was demonstrated by this operation, the US military’s ability to operate pretty effectively, cleanly, in a lot of spaces is pretty clear. And so I don’t necessarily think that they’re going to bow down to the United States anytime soon, but I do think they have a very clear sense of the risk that they’re potentially running. More than anything, I think that’s going to lead them to work together more. And I would be curious to see a week from now, if we’re having this conversation, what is the regional discussion? What does it look like between Mexico, Cuba, Colombia, Brazil? What is the nature of that conversation as they’re looking at a US that is looking to demonstrate what it said in its national security document that the president just put out a little while ago, that the Western Hemisphere is ours, as the State Department just said in a tweet. What does that mean, and how do these governments want to respond to that? I think that’ll be the most significant new development strategically.
Jason Bordoff (30:42): Luisa, we’ve talked about whether there’ll be interest in going to invest to grow Venezuelan oil output in the refining sector as well. Is there going to be interest in buying a lot more Venezuelan oil? Venezuela’s heavier oil? Talk about the market in the United States and the Gulf Coast, in Europe. Most of it’s going to China now. What does the global outlook look like to buy up all of this Venezuelan oil?
Luisa Palacios: So yes, so I do think there will be interest in Venezuelan oil from the usual suspects in the US Gulf Coast. Venezuelan oil does represent another source of supply, but you do now have Canadian heavy oil flowing into the Gulf Coast. You have Mexican oil, you have Colombian oil also as a substitute for all of these, for other sources of supply. I think that’s the way you should think about this. And so to me, there is space for rapid absorption of that Venezuelan oil that could have implications as well for the other heavy oil suppliers to the US. I would say that you also have a very attractive market for Venezuelan oil in the Indian refinery sector, which has gotten into also geopolitical tensions with the US because it was buying a significant share of their oil, heavy oil, crude needs from Russia.
So there are also other refinery sectors aside from the US that can provide the same kind of cash-related type of markets and refinery sectors that can absorb Venezuelan oil. So there are markets outside of China and outside of the Chinese teapot refineries that can absorb Venezuelan oil. So that, to me, is not an issue. I do think that Venezuela, like the rest of Latin America, is a market for US refineries as well. Venezuela has a huge need for condensates, and you could have some swaps that can take place as well. So I do think that this is in the interest of both Venezuela and the US for that trade to resume, given the investment that took place in the US refinery sector exactly to process this kind of oil. But it will have implications for the other suppliers to the US Gulf Coast as well.
Jason Bordoff (33:12): Daniel, many people listening will have heard the president of the United States this weekend explain this action in part by saying the US wants to “take back our oil,” that this was our oil and it was stolen. Can you just help people understand the history of Venezuela’s oil sector and what he may have been referring to?
Daniel Sternoff: I mean, he’s probably referring to past expropriation of operations by international oil companies, including US companies. So obviously the history is there was an opening back in the 1990s, and international oil companies were invited in. And so there were producers like Chevron and ExxonMobil and ConocoPhillips and Total under various profit-sharing contracts. And that was the period when Venezuelan production peaked around 3.5 million barrels per day. And then under Chávez, after 2007, they basically demanded that private oil projects be converted into joint ventures and a majority stake had to accrue to PDVSA. And some companies agreed to terms, like Chevron, which is still operating in the country. Others, like ExxonMobil and ConocoPhillips, refused, and they left, and in effect their assets were seized. And that has led to a lot of legal fallout and arbitration awards and proceedings that continue to this day. And then under Maduro, there have been further operational takeovers of other facilities. So perhaps Trump is referring to those effective expropriations of assets that have been developed by American companies back in that period.
Jason Bordoff (35:00): And there have been arbitration settlements, judgments for ExxonMobil, for ConocoPhillips, for billions of dollars as a result of that. I assume the odds of those getting paid have gone up after this, but maybe I’m wrong.
Daniel Sternoff: Well, I mean, that’s a better thing for Luisa to answer, but again, we’re back to the same fundamental question about political and legal stability. Who would repay and how? Do you need to have a functioning government and terms in order to find some proper arrangements for repayment of past debts?
Luisa Palacios: As Daniel was mentioning, I mean, that is one of the reasons why you saw such a significant decline of oil production during both the Chávez and the Maduro—particularly during the Maduro administration—the expropriations that took place. There have been around fifty different, or more than fifty, arbitration cases brought against Venezuela. Venezuela is the country where you have seen the most arbitration cases being brought in international arbitration courts. Some of them have received awards. The awards right now are estimated to be somewhere between twenty to thirty billion in obligations that Venezuela still owes. And it’s part of the $150 to $200 billion in defaulted debt that now Venezuela has to pay back. The oil sector was not the only sector that was expropriated. I mean, you had the petrochemical sector, you had the mining sector, so all of the natural resources, telecommunications. And so overall there were five thousand companies expropriated, confiscated, nationalized in Venezuela during the Chávez years, which actually has meant that Venezuela is even more dependent on oil and oil exports for its survival because you pretty much have destroyed the productive capacity of the country and the private sector.
(37:00) And so that’s part of the challenges of why you really need a complete reset of how the country needs to operate in the future so that any private oil company can come back. And quite frankly, going back to the 1990s, the reason why you had that peak production at 3.5 million barrels per day was not only because there was significant private investment that took place during that period—somewhere between twenty-five to thirty billion dollars were invested by all of these companies during a five-year period—but it was also because PDVSA invested a significant amount of money. The increases in oil production that took place, they took place because you had a very—and you wrote about this, Jason—because you had a completely different PDVSA with a very healthy balance sheet and with operational capacity. And it was that combination of PDVSA with these international companies that led to that one million barrels per day in oil production increase that took place during those years.
And so that’s why it’s so challenging to think that with the existing PDVSA, which is in default, has its balance sheet and its operational capacity completely decimated, that you are actually going to be able to have significant increases in oil production. And so the numbers that opposition members of the opposition have estimated is somewhere between $100 to $150 billion in the space of ten years to be invested so that you can go back to that kind of oil production levels. But all of that will have to be borne by the private sector, a different scenario than in the 1990s, which was really a lot borne by PDVSA and PDVSA’s ability to embed themselves in international markets.
Jason Bordoff (39:00): People may not remember that long ago, to the mid-1990s, when, as you said, PDVSA was one of the most respected oil companies in the world. The Venezuelan oil sector was kind of the gold standard. CEO Luis Giusti was seen as one of the prominent leaders in the global energy industry, which may tie to the next question I wanted to ask you, Luisa, because you’ve written a lot here at the center about environmental issues related to Venezuela’s oil and gas sector. And so there may be some people listening who are thinking, well, Venezuela’s really dirty oil, it’s very carbon intensive, it’s very heavy. That’s not good. And it is more energy intensive to produce Venezuelan oil. I think that’s just the nature of the oil. But I’m wondering if you see a sort of flip side to that, where more foreign investment, a better-run sector actually has the potential to significantly clean up the environmental footprint of Venezuela’s oil sector quite a bit. You wrote this weekend—I found staggering—that 40 percent of Venezuela’s natural gas production is vented or flared. I mean, that’s kind of—
Luisa Palacios: yeah
Jason Bordoff: —an unbelievable number.
Luisa Palacios (40:03): No, it’s unbelievable because PDVSA was also a leader in safety and environmental practices. And one of the things that happens—and that happened during the Chávez administration and the Maduro administration—is that significant deterioration of the operational capacity and the institutional capacity of this national company that once was seen as an example. And it matters because it also means a material risk for the way you operate the sector. And so to me, it’s not only that you need private investors to come because of the severe financial difficulties in which the country finds itself. Twenty-five percent of Venezuelans had to flee their country because of lack of opportunities. So there are really very significant humanitarian needs in the country. So you actually are going to need a lot of private investment for the reconstruction of the oil sector, which is the first starting point for the reconstruction of the economy.
It’s just—as I just explained—the IMF wrote at some point that Venezuela’s economic destruction is unprecedented in a country that has not suffered a war. This is how—a 70 percent decline in GDP in the space of five years. That’s what happened to Venezuela. So Venezuela now has a GDP per capita of Haiti when this used to be the Saudi Arabia of Latin America. And so how do you get back to that country? How do you start to reconstruct the economy? And just, there’s no way around it but through oil production and oil exports. But this can be done in a responsible way. And that, to me, is part of the mission of having US oil companies and European oil companies that have very responsible environmental, health, and safety practices as a way to also transfer—to me it’s a technological transfer, a know-how transfer of operational excellency and management of these kinds of environmental risk. And I also wrote that if Venezuela did not vent this natural gas but could export it, it represents an opportunity worth $1 billion. Could you imagine that? So I do think that there’s a lot that having a responsible government with the right type of approach to governance issues, to operational issues, means not only for energy security in the region but also for social reconstruction in this country.
Jason Bordoff (42:49): I want to wrap up just by asking each of you to reflect for a second on—step up a level—to some of the broader implications of the action this weekend, particularly as it relates to the energy sector. Maybe I could ask you to react to the piece I wrote this morning. And I’m not fishing for a compliment, so feel free to disagree with it, but it was trying to make the point, a little bit consistent with what we said earlier in the conversation, that the oil market impacts are important, but a few dollars in either direction. Now maybe the back of the curve comes down for the reasons Daniel said, not a massive change, but the bigger thing I was thinking about this weekend was what might matter the most is how the Trump administration goes about orchestrating this. The language of “taking the oil,” and it had a concessionary tone to it reminiscent of like a hundred years ago, suggested a level of government involvement and government ownership and government payments—that is pretty inconsistent with how global energy markets have evolved over the last several decades and criticism the United States—of both parties—has placed on other countries that have engaged in activity like that.
But what’s important is, as you all have just said, a stable transition of power, rule of law, a stable and transparent investment climate, and if international capital can come in to grow Venezuela’s oil sector in that scenario, it can do a lot of good and deliver a lot of revenue to a country that’s going to need it to rebuild. Just wondering if that makes sense to you or are there any other big-picture sort of things you’re thinking about today and you’ll be looking for in the days and weeks ahead? I’ll call on someone, but just jump in.
Richard Nephew (44:30): So I’m happy to take a first crack. And your piece was magnificent and beautiful and wonderful, boss. I really appreciate that.
Jason Bordoff: That’s not why I asked.
Richard Nephew: No, look, I think it’s the right question to ask, to be sure. And I would say two things. One, I look at things from a broader kind of economic statecraft–security kind of dimension. It’s not lost on me that while there may have been multiple different objectives that were motivating this action, what has come the most out of the president of the United States’s mouth over the course of the last forty-eight hours has been about natural resource acquisition on the part of the United States, either in terms of actual terms or what will be able to control into manifest. And that’s not just in the case of Venezuela. We’ve seen renewed discussion about Greenland, for instance, and a resumption of discussion about what appropriate US strategy ought to have been in other places like Syria in the past, which the president has argued before: “We should have just taken the oil.”
(45:30) So to my mind, what this is indicative of, even if it’s not throughout the administration, is that in the president’s mind, at least, resource nationalism and the United States as a government ensuring its supply of things, including through US military force, is now very much on the table. Now in the past, that was something that was the province of, frankly, conspiracy theorists who would make the argument that the Iraq war was all about oil and the previous Iraq war was all about oil and so on and so forth. But now we have the president actually saying it himself. And that’s important because it does speak to what future US strategy might be and what the focus of US foreign policy might be, and the degree to which the US is now prepared to make this an all-in national effort. That will be, I think, of concern both to people who, as you were saying, look to traditional ways in which the US secures access to resources through investment and business arrangements and contracts as opposed to military force.
So I think this was an important event as I think about the future of US approaches to coercion and economic statecraft. The other thing that I’m thinking about an awful lot is, again, this issue of legitimacy and stability, because while it’s absolutely true that there is a positive outcome that can come from this—perhaps I’ve spent too much time in the Middle East and spent too much time thinking about Iraq and Iran and other such places—but I’m very mindful that the president’s focus on resource nationalism also means that could be a focus of those who are trying to undermine US objectives and trying to counter US objectives, just as they were in Iraq after the US invasion in 2003. And so there is also a very dark story that could come out of this, of damage that’s being done to US economic interests that could come from people who want to push back, whether we’re talking about inside Venezuela or whether or not we’re talking outside. So I think we’re in a period now where resource nationalism and resource access is very much on the front burner. That’s going to be meaningful, both in terms of what we do and what people do to push back on us.
Jason Bordoff (47:32): Daniel, was my piece excellent or really excellent? No, I’m just kidding.
Daniel Sternoff: It was exceedingly excellent. I read it three times straight. The comment I would make is how the realities of a well-supplied global oil market is giving the Trump administration optionality to act against a range of US adversaries. And so those of us who the last thirty years have been looking at geopolitical risks in the oil market, you tend to have this focus of what place will things blow up, and that will be a risk to oil supply and drive prices up.
We’re in a reality now where prices are moderate because we have plenty of supply that’s grown from non-OPEC. And because OPEC has brought a lot of production back, that has opened up capacity for the Trump administration to be aggressive. And it acted in Iran. If oil was at ninety or a hundred dollars a barrel, would Trump have bombed Fordow? If oil was at a hundred bucks, would he have sanctioned Lukoil and Rosneft? If oil was at a hundred bucks, would he have done this against Maduro? So I think we’re in a place where the realities of a well-supplied oil market are creating an opportunity for the United States under President Trump to take action against a range of American adversaries that have benefited and been fueled by high oil prices. That’s for me an interesting observation about this current situation.
Jason Bordoff (48:56): And as you said, the primary reason for that softness in the market has not been “drill, baby, drill” in the United States but OPEC bringing so much oil back to market so quickly.
Daniel Sternoff: Correct. I mean, obviously we’ve seen tremendous growth in US shale production over recent years, but in the last year, that growth has flattened out to almost zero as a consequence of when we have WTI around $60 or a little below $60, we see the US rig count fall. And the reason for that is OPEC started bringing back a lot of production. So the realities of the US being such a large producer and our Middle Eastern allies, principally Saudi Arabia, bringing a lot of production back has created this constellation of opportunities for Trump to act against these historic adversaries.
Jason Bordoff (49:45): Luisa, a final reflection on the importance or implications of this weekend, or the wonderfulness of my essay. Either one, you choose.
Luisa Palacios: I already commented on the essay. Okay. So I think the region…Latin America has woken up to a different dynamic. So for a long time, the region has complained… The region has always been seen as the last of the priorities, even though it is in the same vicinity. That changed in a significant way. And the implications of that, I think … we still have to digest. That’s one. And the second one, the Venezuela story needs to end well. I think from that perspective, for a long time, the US was seen as a beacon of many things. And so I think now the Trump administration owns this transition, and there are significant opportunities in front of us, but we are with a lot of challenges and a lot of uncertainties.
Jason Bordoff: It was a really confusing and busy weekend to try to keep track of all of this, and can’t tell you how much I benefit from learning from the three of you every day. And thanks for taking time to explain it to us here, and I’m sure we’ll be talking much more in the coming days and weeks. Luisa Palacios, Richard Nephew, Daniel Sternoff, thanks so much for being with us.
Luisa Palacios, Richard Nephew, and Daniel Sternoff: Thank you, Jason.
Jason Bordoff (51:36): Thank you again, Luisa, Richard, and Daniel. And thanks to all of you for listening to this episode of Columbia Energy Exchange. The show’s brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Caroline Pitman, Mary Catherine O’Connor, and Kyu Lee. Gregory Vilfranc engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu or follow us on social media at @ColumbiaUEnergy. And please, if you feel inclined, give us a rating on Apple or Spotify or wherever you get your podcasts. It really helps us out. Thanks again for listening. We’ll see you next week.
The Center on Global Energy Policy at Columbia University SIPA is closely following recent US actions in Venezuela and their impact on geopolitics, policy, and global energy markets. See all of our coverage here.
Early on January 3, 2026, the United States apprehended Venezuelan President Nicolás Maduro and his wife and removed Maduro from power. Maduro was transported to New York, where he now faces federal charges of narco-terrorism and drug trafficking.
The situation in Venezuela remains highly fluid, as does the US policy response. President Trump has signaled a dramatic expansion of US objectives. He has suggested the US will be “running” the country during a transition and is seeking direct access to Venezuela’s massive oil reserves.
In Caracas, interim President Delcy Rodríguez condemned the operation but has expressed a willingness to negotiate. Meanwhile, the role of democratic opposition leader María Corina Machado remains unclear.
Venezuela possesses the largest oil reserves in the world and these developments raise important questions for global energy markets at a time of ongoing geopolitical uncertainty. What’s the future of Venezuelan oil? And how might US sanctions and foreign policy decisions reshape energy flows in the region and beyond?
Today on the show, Jason Bordoff speaks with three leading experts at the Center on Global Energy Policy, Luisa Palacios, Richard Nephew, and Daniel Sternoff, about the recent events in Venezuela and their wide-ranging implications.
Luisa previously served as chairwoman of Citgo Petroleum Corporation, the US refining arm of Venezuela’s state-owned oil company, PDVSA. Richard formerly was the US deputy special envoy for Iran among several other government roles focused on sanctions and foreign policy. Before joining the Center, Daniel led Energy Aspects’ executive briefing service.
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