Venezuela wants to open its oil sector to private firms. New law raises questions about US influence

Venezuela’s National Assembly has backed a bill that would open the oil sector to private and foreign companies after 25 years of state dominance. The reform comes shortly after Nicolás Maduro was detained by US special forces, and some lawmakers say it bears Washington’s fingerprints. 

Venezuela’s National Assembly has backed a new hydrocarbons law that would open the oil sector in the socialist country to private companies. The law could overturn a quarter-century of state dominance. According to Bloomberg, Venezuelan leaders have rolled out the red carpet for “oil investors”.

The bill follows a US special forces operation in Caracas on 3 January, during which Venezuela’s authoritarian leader Nicolás Maduro and his wife, Cilia Flores, were detained and taken to New York to face drug trafficking charges.

The legislation, seen by our reporters, allows foreign and domestic private companies to operate and commercially exploit oil fields, reduces the share of taxes paid to the state and allows for international arbitration in the event of disputes. Under the bill, which passed its first reading on Thursday afternoon, private Venezuelan companies could operate oil fields at their own expense. Joint ventures would still require a majority state stake.

If passed, the law would retain the basic royalty rate of 30%, but allow it to be reduced to 20% or 15% in certain cases “to ensure the economic viability” of projects. The bill also removes the requirement for disputes to be settled in local courts.

Questions over US influence

An aide to Orlando Camacho, a lawmaker from the pro-government bloc who presented the bill at Thursday’s session, said it had been drafted by Venezuela’s executive branch. Another ruling-party lawmaker, however, said Washington had helped shape it.

“There’s a lot in there that the gringos dictated,” this lawmaker said to the reporters on condition of anonymity. “That law comes from the United States.”

The United States is not the only power that could benefit from the law. China has invested substantial sums in Venezuela’s oil sector through its development bank.

Under Maduro’s populist predecessor, Hugo Chávez, who ruled from 1999 until his death from cancer in 2013, Venezuela expropriated the assets of US oil companies including ExxonMobil and ConocoPhillips and installed political and military allies at the helm of state oil company Petróleos de Venezuela SA (PDVSA).

After the operation, US President Donald Trump said Washington would “run” Venezuela and effectively control its oil sector. In the wake of these events, the White House and US Energy Secretary Chris Wright announced a $500 billion energy deal between the two countries, through which Washington is seeking to gain significant influence over Venezuela’s oil industry.

The country’s interim president, Delcy Rodríguez, whom Trump backed in a bid to attract foreign investment to the oil sector, hinted last week that sweeping reforms were under way.

“This will allow investment to flow into new fields, into fields where no investment has ever been made and where there is no infrastructure,” Rodríguez told lawmakers last week.

US firms say they want serious guarantees

Many say Venezuela’s oil sector is in a sorry state after years of sanctions, underinvestment and mismanagement. Venezuela has the world’s largest proven oil reserves, estimated at around 300 billion barrels, and was producing roughly 3 million barrels a day at the turn of the century. Years of corruption and poor management, however, drove production down to around 500 000 barrels a day in 2020, while sweeping US sanctions imposed during Trump’s first term further complicated matters.

Production rose to around 950 000 barrels a day last year, largely thanks to Chevron, whose sanctions waiver makes it the only major US oil company operating in Venezuela. The new law would expand the contracts signed with the company in 2022.

US groups have said they need “serious guarantees” before committing to invest in restoring Venezuela’s dilapidated oil infrastructure. These include reforms that would allow them to contract with local companies and protect them from having their assets expropriated.