Biden’s Energy Hypocrisy with Venezuela
Why not exploit your own energy potential instead of depending on a bloody, unreliable dictatorship that can provide only low-quality oil?
In late November, when most Americans were still digesting their Thanksgiving dinners, the Venezuelan government announced an agreement with the U.S., with the Biden administration easing oil sanctions to allow Chevron to pump Venezuelan oil and send it to the U.S. for six months. The license can then be renewed monthly. American officials hope the deal will encourage dialogue between President Nicolas Maduro and the Venezuelan opposition.
The Biden administration has taken a soft approach to Venezuela, reducing sanctions and freeing Venezuelan prisoners in the U.S., including two of Maduro’s nephews, who were jailed for drug trafficking. This softening has only been accelerated by the Russian invasion of Ukraine, as the war’s effects on global energy markets have led the U.S. to take an even more pragmatic stance toward Venezuela.
However, Biden’s oil policy toward Venezuela is wrong for two main reasons. First, it finances a dictatorship 3,000 miles away from Miami that is well-known for both harboring terrorists and the drug operations that have created chaos on the U.S. southern border. Second, if we consider all the domestic energy potential in the U.S., it seems irrational to make amends with a communist dictatorship for a few thousand barrels of oil per day.
This is just another day of the nonsensical foreign policy of the Biden administration toward Latin America, and especially Venezuela.
So what does the agreement allow? According to the Office of Foreign Assets Control (OFAC), it permits:
(1) Production and lifting of petroleum or petroleum products produced by the Chevron JVs, and any related maintenance, repair, or servicing of the Chevron JVs [joint ventures];
(2) Sale to, exportation to, or importation into the United States of petroleum or petroleum products produced by the Chevron JVs, provided that the petroleum and petroleum products produced by the Chevron JVs are first sold to Chevron;
(3) Ensuring the health or safety of personnel or the integrity of operations or assets of the Chevron JVs in Venezuela; and
(4) Purchase and importation into Venezuela of goods or inputs related to the activities described in paragraphs (a)(1)–(3) of this general license, including diluents, condensates, petroleum, or natural gas products.
Moreover, the agreement explicitly forbids:
(1) The payment of any taxes or royalties to the Government of Venezuela;
(2) The payment of any dividends, including a dividend in kind, to PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest;
(3) The sale of petroleum or petroleum products produced by or through the Chevron JVs for the exportation to any jurisdiction other than the United States;
(4) Any transaction involving an entity located in Venezuela that is owned or controlled by an entity located in the Russian Federation;
(5) Any expansion of the Chevron JVs into new fields in Venezuela beyond what was in place on January 28, 2019; or
(6) Any transactions otherwise prohibited by the VSR, including transactions involving any person blocked pursuant to the VSR other than the blocked persons described in paragraph (a) of this general license, unless separately authorized.
In an initial reading, the license seems to prohibit Chevron (or its joint ventures, it is unclear) from paying taxes or dividends to the Maduro government; this is how U.S. officials and the Venezuelan opposition have sold it. They claim the oil agreement will not directly benefit Maduro.
Yet this makes no sense: OFAC has no way to supervise whether Chevron pays royalties or taxes to PDVSA, Venezuela’s state-owned oil company, or the Venezuelan government, because Chevron is only the minority shareholder of joint ventures with the Venezuelan government, and thus has no direct control on where all the money goes.
According to Venezuelan law, the J.V.s, and not Chevron itself, hold the rights of exploration, production, and commercialization, and PDVSA ultimately controls the J.V.s, not Chevron. So while the license prohibits Chevron from paying royalties to PDVSA and taxes to the Venezuelan state, it is unclear how OFAC would enforce this.
The former attorney general of Juan Guaido’s interim government, José Ignacio Hernández, said in an article that “[the question] is whether it is possible to pay royalties and taxes to a third party, following instructions from the Maduro government. If we read the license in detail, we will see that it does not prohibit the payment of royalties and tributes, but payments to the Venezuelan state. Technically, it is possible that Maduro instructs the JVs (and Chevron?) to pay the amounts owed to third parties. Needless to say, this arrangement would create incentives for corruption.”
Besides being politically problematic, Venezuelan oil comes with added logistical complications that should make U.S. support for it undesirable.
First, Venezuelan refineries and oil facilities are falling apart after years of mismanagement and corruption in the oil industry. Just a month ago, the largest refinery in the country stopped working, while another caught fire after Christmas. In fact, experts believe that Venezuela will be able to actually scale its oil production only around 2024, and it may only reach 1,000 kbd if other Western companies such as Spain’s Repsol are allowed to operate without major restrictions.
Second, Maduro is not a trustworthy business partner. Much like Chavez, he prefers dealing with Russia, China, and Iran. If the U.S. becomes too pushy—perhaps, for example, because he steals the 2024 elections or once again jails dozens of opposition members—he may very well once again shut the door to U.S. involvement in the Venezuelan oil market.
Lastly, Venezuelan oil is just not good oil. In technical terms, Venezuelan oil is what you would call “heavy” and “extra-heavy” oil. This means it is more viscous than typical oil and cannot easily flow from standard production wells. This viscosity makes it hard to pump, hard to transport, and hard to refine. Sometimes it has to be mixed with lighter oil to be processed. Venezuela sits on 20 percent of the world’s oil reserves, but extracting its oil is an extremely tiresome process. Moreover, for all the environmental concerns of the Biden administration, the process to extract extra-heavy oil is much more energy-intensive, and extra-heavy oil has more contaminants than light oil.
However you look at it, it is hard to see how Venezuela can be, practically, diplomatically, and morally, a desirable oil provider for the U.S. (By the way, guess who has more than plenty of light, easier-to-refine oil? Yes, America.)
Get daily emails in your inbox
Considering all his climate change antics, Biden’s policy is not only hypocritical but incoherent and idiotic. If you accept that “phasing to green energy” is not happening, why not exploit your own energy potential instead of depending on a bloody, unreliable dictatorship that can provide only low-quality oil?
Perhaps the Biden administration believes that taking the American energy industry to the next level would take too long and that importing is the only short-term solution to national needs. This only makes Biden’s decision worse. In that case, why would Biden veto an Inter-American Development Bank loan to Guyana to expand its oil operations, enabling it to sell more oil to the U.S.? Biden is putting a communist dictatorship over an oil-rich, pro-U.S. country also in South America. That’s without mentioning the proposal to block offshore oil leases for five years or playing politics with permits for new pipelines—and outright halting the construction of the Keystone XL pipeline. Joe Biden seems to believe that the oil industry is environmentally problematic—unless the oil comes from a bloody dictatorship and not from American soil.
The idea that you can simply ban your way to an energy transition is what brought the West to the energy crisis that has exploded in the aftermath of the Ukraine war. Progressives claim that we need to transition to green energy to save the planet from destruction. But killing your own energy sources, subsidizing “green” energy that is unreliable and expensive at large scale, and importing the rest of your energy needs from untrustworthy and dubious sources is not a coherent energy policy, or one that cares for the future or present of the planet.