The oil curse is illustrated once again. This time it’s Venezuela that pays the price. If for the general public, the image of an incapable and corrupt government has been sold, the invisible part of the iceberg reveals an extreme oil issue. Currently in the hands of China and Russia, the United States has the cruel need to appropriate this black gold.
Even if the US has become the world’s largest oil producers, the poor quality of their oil forces them to incorporate extra heavy crude oil from Venezuela to produce kerosene or diesel.
Without this exhausted oil, the energy supremacy of the USA hangs by a thread.
The American Dilemma
Thanks to shale oil, the USA has become the largest oil producer in the world. If the lightness of the shale is ideal for petrochemicals, pesticides or plastic, diesel and kerosene require mixing it with a heavier crude. To produce these fuels, refineries in the country import more than 500,000 barrels / day of extra heavy crude oil from Venezuela.
Canada could help Washington, but limited transportation capacity and significant costs of Alberta’s oil sands are hampering the process.
In order not to shoot himself in the foot with the heavy financial sanctions imposed by President Trump on the Maduro regime, the US continues to accept deliveries of crude but deposits payments into blocked accounts. Who between Caracas and Washington can last the longest, the question is asked.
26% of American oil can be refined.
The remaining 74% must be mixed with heavy or exported crude.
Source: EIA
Trump: one stone several shots
President Trump’s strategy rests on several pillars: public opinion, the 2020 elections and money.
Donald Trump castigates the excesses and the incapacity of a government “socialistBy highlighting the precariousness of the Venezuelan people and the lack of investors. This message kills two birds with one stone. Internally, it allows you to enter the frontal with Democratic candidates “Openly socialists” in the 2020 election and the external way of splitting the world between the bad guys and the good guys.
This perception is reinforced by the sending of humanitarian aid, which has taken a Hollywood communication turn, when it should be organized in a neutral and independent manner. This suspicion of Cheval-de-Troie was reinforced by, John Bolton, the National Security Advisor. His notepad revealed: “5,000 American soldiers in Colombia.”
On John Bolton’s notes block:
5,000 American soldiers in Colombia.”
More discreetly, the same John Bolton is working on the real objective of overthrowing President Maduro by his protégé: oil.
ExxonMobil and Chevron are expected to take over Venezuela’s oil facilities and supply American refineries. The French,, English and Spanish are also involved in this reflection, hence the immediate cooperation of President Emmanuel Macron and Prime Ministers Theresa May and Pedro Sánchez.
“We are currently chatting with large American oil companies. It would make a difference if we could get American companies to produce oil in Venezuela. We both have a great interest. It would be good for Venezuela and the people of the United States.”- John Bolton, National Security Advisor ()
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Peak Oil
The country alone is illustrating the current oil paradox. Cheap oil runs out and it becomes more and more expensive to extract a barrel.
A member of OPEC, Venezuela potentially has the largest oil reserves in the world and its economic returns are 96% assured by this windfall.
Historically, Venezuela has never recovered from the currency and debt crisis of the 80s and 90s. The drastic regimes imposed by the IMF and the World Bank ultimately only succeeded in mounting the impoverished population against the right-wing president .
Liberalism carried by the Americans was intended to revitalize the private sector and attract international investors. In an attempt to increase oil production, Caldera privatized the oil sector. Despite efforts, Venezuela reached its peak oil in 1997 with 3.5 million b / d.
When Hugo Chavez took power in 1999, production had already decreased by 1 million b / d. and corruption ravaged the country.
Today, with the illusion of sitting on an oil wealth, the blame is essentially on the socialist economic model of the Chavez and Maduro governments.
There is no doubt that the casting errors and corruption damaged the extraction of the precious liquid. But much of Venezuelan black gold requires huge amounts of money, advanced techniques and professional management. As long as the barrel held above $ 100, the equation could be resolved. With the fall of the barrel in 2008 and 2014, Venezuela suffered the same fate as the Soviet Union in the 1990s.
If in the USA, shale oil or Canadian shale sands have seen billions of dollars of foreign investors like European pension funds flow, private banks or Venezuela was not so lucky.
On the contrary, Caracas had to continually fight against justice and the vulture funds (eg Crystallex or Pharo Gaia Fund Ltd) of American investments to reimburse, with indecent rates, loans made. In this financial disaster, from Bush to Obama, Washington will have done everything to move towards the current situation.
From 1998 to 2013, Chavez failed to understand the importance of injecting money into the oil system. He diverted this money for his own use but also to reduce poverty by going from 55 to 34%, to educate 1.5 million adults and with the help of Cuban doctors to offer 70% of the population a free health system.
As soon as the barrel fell in June 2014, the government ran out of money to support oil production and its social programs.
The crank return was edifying with more than 3.5 million Venezuelans forced to go abroad to simply eat. In a few years, the country has fallen into disrepair.
Average oil production Venezuela since its peak oil in 1997.
Source EIA
Oil independence
Tomorrow, the one in charge of Venezuela will inherit a country whose agony will only match the speed of the decline in its oil production.
If for Russia and China the risks are summed up by the loss of tens of billions of dollars in receivables and assets as well as influence in Latin America, President Trump must absolutely guarantee the importation of conventional or very heavy crude oil to ensure the production of fuels for his trucks and planes.
Small nations more vulnerable to oil variations were thought to be more vulnerable. The very uncomfortable position of the USA demonstrates this paradigm shift. We are producing more and more oil, less and less good quality but more and more expensive. The equation has no solution in the current economic system.
The speed at which Venezuela has collapsed can only encourage us to find oil independence, otherwise we will suffer the same fate.
Are we all on the way to becoming Venezuelans?
The 3 largest oil imports, from American refineries in the South of the USA
in thousands of barrels per day
Source: RBC Capital Markets
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