Trump’s Venezuela Oil Deal Is Better Than Its Critics Say

Rich in Oil, Poor in Investment

Venezuela sits on the largest proven oil reserves in the world, and it produces less than a third of what it did in 1970. Energy Institute data compiled by Our World in Data show output near its 1970 high again in 1998, then a long slide, then a collapse after 2015 that bottomed out in 2020 and 2021. OPEC data put Venezuelan crude output at about 1.2 million barrels a day in July 2026, down from a peak of roughly 3.45 million in December 1997.

President Carlos Andrés Pérez nationalized the oil industry in 1976 and created Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s state-owned oil company. Hugo Chávez fired thousands of the company’s most experienced workers after a 2002 and 2003 strike. In 2007 his government seized the heavy-crude projects run by ExxonMobil and ConocoPhillips without agreed compensation. International tribunals later awarded ExxonMobil about $1.6 billion and ConocoPhillips $8.7 billion plus interest. Investment stopped, maintenance stopped, and production collapsed. Between 2014 and 2021 Venezuela’s economy shrank by roughly three-quarters, and nearly eight million people left the country.

The oil itself is cheap to produce. Chevron, the only U.S. major company still operating in Venezuela, says its production cost there is about $20 a barrel, and it announced this week that it will spend $7 billion over five years to double its output to 600,000 barrels a day. What made Venezuelan oil expensive was risk. When the risk premium is high enough, oil that costs $20 to extract still stays in the ground at $65.

Outlines of the deal

What makes this agreement different is that investors do not have to trust Venezuela itself. They can trust the outside institutions Venezuela has agreed to rely on. NABEP’s board must have a U.S. citizen majority and the U.S. holds a veto over appointments. The company must use U.S. auditors and lawyers. Disputes go to U.S. courts under U.S. law. Secretary of State Marco Rubio put it plainly in a Spanish-language interview, saying, as Euronews translated it, that “essentially, this is now an agreement with the US government.”

In other words, this agreement is a “commitment device,” an arrangement that raises the cost of breaking a promise so that the promise becomes believable. Countries with weak institutions have used such devices for a long time. Dollarization, for example, ties a central bank’s hands by taking away its ability to print its own currency. The oil deal does the same thing to Venezuela’s habit of rewriting contracts. Venezuela’s new hydrocarbons law, amended in January with what the White House calls U.S. support, already lets disputes go to international arbitration. The new deal goes a step further by making the U.S. government a party with money at stake, which is perhaps the strongest guarantee a small country can offer a skittish investor.

That is why the arrangement can be positive-sum rather than extractive. Venezuela contributes the reserves and gets capital it cannot borrow otherwise, having been in default on its bonds since 2017. The result will be a rebound in oil revenues after a decade of collapse. Interim president Delcy Rodríguez says the state will collect a minimum 16 percent royalty and a 34 percent income tax and receive about $19 a barrel. By her account the arrangement runs at least 25 years, targets 1.5 million barrels a day, and yields about $209 billion in royalties and taxes over its course at a $65 reference price, a figure in line with the White House’s estimate of roughly $200 billion over 25 years. Meanwhile, the United States gets a large, low-cost supply in its own hemisphere and the displacement of Russian and Chinese firms that previously held many of these fields.

The “asset grab” label assumes Venezuela was going to develop these fields itself. It has not done so at anything like the potential scale for most of a quarter century, and even with output recovering from its 2020 low it cannot fund $100 billion of investment on its own with no credit and no functioning courts. Jorge Rodríguez, the Chavista head of the National Assembly, framed the alternative bluntly when he asked, “Who benefits from this oil if it stays underground?”

The constitutional objection

The most serious criticism of the deal is that it violates Venezuela’s constitution. Article 12 declares that hydrocarbon deposits “are the property of the Republic, are of public domain, and therefore inalienable and not transferable.” Article 303 requires the state to keep all shares of PDVSA itself, though it creates carve-outs for subsidiaries and strategic associations. Opposition figures and former PDVSA executives argue that a 100-year concession negotiated by an unelected interim government cannot be squared with those provisions.

The concern is legitimate, but it should be weighed against what the Venezuelan constitution actually is. The 1999 charter is the country’s 26th constitution since 1811, which works out to a new one roughly every eight years. It was drafted in Hugo Chávez’s first year in office by a constituent assembly his allies controlled, and it was approved in a referendum in which just 44.3 percent of eligible voters turned out. It was amended in 2009 to abolish term limits for elected officials, the president included. Venezuela has rewritten its constitution after nearly every change of regime in its history, and a country emerging from a quarter century of Chavismo and the capture of its former president is likely to do so again. Treating the 1999 text as the baseline against which a post-Maduro recovery must be evaluated gets the sequence backward. The constitution is likely to be updated to fit the new settlement, as it has been after every previous change of regime.

The more important question is whether the deal will fit the next constitution, and the answer depends on whether Venezuelans come to see a new constitution as their own. Article 150 of the constitution contemplates National Assembly approval for contracts in the national public interest where the law requires it, and the current Assembly approved the arrangement on September 1 with opposition lawmakers abstaining. A stronger mandate would be if ratification came from the Assembly after the elections that Senator Ted Cruz says should take place by mid-2027. The administration should welcome that vote, because a deal that survives an election is far more durable. Promisingly, even opposition leader María Corina Machado calls the United States “the principal partner Venezuela needs,” and says long-term investment is “only possible with the legitimacy and stability provided by a serious, democratic government.”

Where the deal is weak

The agreement’s real problems are less dramatic than its critics suggest and more fixable.

The first is the term. The White House describes 100-year concessions while Rodríguez describes a 25-year agreement. The amended hydrocarbons law limits the joint ventures it calls mixed companies to 25 years plus a 15-year extension, and whether the NABEP vehicle even counts as one is among the things the unpublished contract would need to settle. A 25-year contract with renewal rights that visibly conforms to Venezuelan law is more durable than a century-long one that invites legal challenges. The fix is to publish the contract and conform its term to the statute.

The second is the at-cost purchase right. David Goldwyn and Andrea Clabough of the Atlantic Council point out that requiring the operator to sell oil to the U.S. government at cost, potentially for decades, lowers the project’s return and discourages the very investors the deal is meant to attract. They also ask whether oil sold at cost can satisfy the royalty the new law requires, and who absorbs the difference if it cannot. A better arrangement would give the U.S. government first claim on 20 percent of the oil at the going market price. The operator would earn a normal return, and the United States would still have guaranteed access to the barrels.

The third is the legal footing of the Pentagon’s stake. The Office of Strategic Capital was set up in 2022 to make loans for critical technologies, and Zachary Price of UC Law San Francisco argues its statute authorizes neither government equity stakes nor oil investments. The administration has taken equity in critical-minerals companies since 2025 under other authorities, but those cover the domestic industrial base, not a foreign oil venture, and it has not said which statute applies here. The position in Venezuela is held as warrants, an option to buy 35 percent of the company later that a U.S. official told Reuters protects the government’s share from dilution as NABEP raises capital. The stake is worth keeping, since it ties Washington’s interest to the venture’s success. To put the equity stake on firm footing, the administration should clarify the legal authority, and Congress should authorize the holding explicitly.

The fourth is the tax take. Francisco Monaldi of Rice University’s Baker Institute calls the announced fiscal terms “incredibly low.” But low rates at the start are how to get anyone to put money into fields this run down. And they don’t have to stay low. The law allows royalties as high as 30 percent, so the contract could start near the 16 percent floor and step up as production or prices rise. Venezuela would get a bigger share once the fields are actually producing, and investors would still see attractive terms in the early years when the risk is highest. Oil contracts around the world work this way.

The fifth is expectations. Amy Myers Jaffe of NYU observed that the deal “is not going to do anything” to change the price of gasoline this Labor Day, and another analyst quoted in the same report put the horizon for a meaningful effect on U.S. pump prices at five to fifteen years. In principle, credible future supply can lower prices today, because traders who expect more oil later have less reason to hoard it now. Many of the 17 fields lack electricity, processing equipment and pipeline connections, and Venezuelan heavy crude is harder to refine than the light crude U.S. refiners typically process. GE Vernova has already signed on to repair the electricity system, but nobody has said who will pay for it. Ring-fencing part of the early royalty stream for grid and export-terminal repair would give markets a reason to believe the future barrels are real.

What to watch

There are a few ways to tell whether this arrangement becomes a durable positive-sum deal or another addition to Venezuela’s long list of broken oil contracts. One is whether the full contract text is published, as opposition lawmaker Luis Emilio Rondón demanded when he said Venezuelans are “obliged to know what is written in the fine print.” Another is whether ExxonMobil and ConocoPhillips, the two companies with the longest experiences with Venezuelan expropriation, bid on the eight greenfield blocks that Rodríguez has said are part of the wider opening of the sector to private investment. Yet another is whether a freely elected National Assembly ratifies the deal in 2027. And finally, watch whether production reaches the 1.5 million barrels a day target Rodríguez has set by the end of the decade. If those things happen, the deal will have shown that the Venezuelan government can make a promise investors believe and that its own citizens stand behind it.