Black Gold, Broken State: Venezuela’s Oil Story
The United States saw a stroke of luck in 1953 when Venezuela became a democracy and a key U.S. ally, an oil-rich counterweight to Communist Cuba. In 1963, President John F. Kennedy called Venezuelan President Rómulo Betancourt “America’s best friend” in South America.
Yet Venezuela also asserted itself on the global stage. It became a founding member of OPEC in 1960 (with Iran, Iraq, Kuwait, and Saudi Arabia), gaining leverage over international oil markets and the foreign companies operating inside its borders. That same year it created the state-run Venezuelan Petroleum Corporation and raised the government take to 65% of company profits. Even so, Venezuela remained the United States’ largest and most important oil supplier; by the 1970s, many U.S. refineries were effectively built to handle Venezuelan crude.
Venezuela’s oil story began long before that alliance. Indigenous people used crude for fires and asphalt, and foreign interest intensified during World War I amid fears of fuel shortages. Shell’s local affiliate, Venezuelan Oil Concessions (VOC), explored through the 1910s. On July 31, 1922, VOC chose to drill deeper into Los Barrosos-2 in the Maracaibo Basin, an older well they’d abandoned. At about 1,450 feet, they hit oil sands. On December 14, the ground shook, and a towering gusher, around 200 feet, erupted and sprayed the villagers of La Rosa. It was a major ecological disaster, but it marked Venezuela’s rise as a petroleum supergiant, launching a century defined by booms, crashes, and political upheaval, culminating, in this account, with the extraordinary capture of President Nicolás Maduro by U.S. forces on Saturday, an operation framed as potentially restoring U.S. oil dominance in the country.
By 1929, Venezuela had shifted from an agricultural exporter to an oil economy, with 100+ foreign oil companies operating there, making it the world’s No. 2 oil producer behind the United States. Dictator Juan Vicente Gómez welcomed the influx, but Venezuelans saw limited benefit as giants like Standard Oil, Shell, and Gulf dominated the sector. After Gómez died in 1935, reforms followed, including the 1943 Hydrocarbons Law, forcing foreign firms to surrender half their profits, terms companies accepted because Venezuela held the advantage.
Venezuela’s strategic value is also geological: it sits on billions of barrels of crude (roughly a fifth of global reserves), and its heavy, sour crude is cheap, nearby to the U.S., and useful for products like asphalt, heating oil, and diesel, unlike much light, sweet Texas crude, which is best suited mainly for gasoline.
In 1976, President Carlos Andrés Pérez created PDVSA to run the industry. PDVSA partnered with foreign firms but at a steep price, taking 60% equity in joint ventures. The U.S., prioritizing the relationship, offered little pushback and was further mollified when PDVSA paid U.S. companies $1 billion for equity.
Trouble deepened in the 1980s as oil prices fell and Venezuela took on heavy debt after buying half of Citgo in 1986 (and the rest in 1990). Pérez’s austerity measures sparked backlash and helped pave the way for Hugo Chávez, who nationalized foreign assets (including ExxonMobil and ConocoPhillips), took direct control of PDVSA, and used its revenue as an “ATM” for the military. Skilled workers left, and infrastructure deteriorated.
After Chávez’s death, Maduro took power in 2013. A fresh oil-price collapse in 2014 helped trigger economic calamity, hyperinflation, and mass migration. Sanctions further constrained the industry: the U.S. has sanctioned Venezuela since 2005; in 2019 the first Trump administration effectively blocked PDVSA crude exports to the U.S. In 2022, President Joe Biden granted Chevron a license to operate in Venezuela to help lower gas prices; Trump later revoked it in March but reissued it with the condition that no proceeds go to the Maduro government.
With infrastructure in ruins and PDVSA short on resources, Venezuela produces only just over 1 million barrels per day today, about 0.8% of global output, less than half of its 2013 level and less than a third of the 3.5 million barrels per day it produced before Chávez.
Sarge