Huge investments in Venezuela's oil sector raise cautious hope and major challenges

The massive investments promised by the United States and Venezuela under a new oil production agreement have sparked cautious optimism that Venezuelans are on the cusp of a new era of prosperity after more than a decade of economic and social turmoil.

As the country with the largest proven reserves of crude oil in the world, some analysts expect Venezuela to reap some benefits from foreign investment even before it begins to increase production.

But analysts warn that the greater economic gains will take time to appear, and it remains unclear when the general public will feel their effects.

Some residents expressed fears that the United States would capture most of the profits and leave them little.

Furthermore, the Venezuelan opposition has questioned the current government's ability to manage these new investments, citing a lack of transparency and violations of civil liberties.

However, experts believe that there is reason for cautious optimism, stressing that the project should not be evaluated based only on oil revenues, but also on the support it can provide to other sectors of the exhausted Venezuelan economy.

Doubts and challenges

The US government signed an agreement with the Venezuelan company North American Blue Energy Partners to develop 17 oil fields with potential reserves estimated at about 65 billion barrels of crude oil.

US President Donald Trump described the agreement as "historic," saying that it would allow the United States to purchase 20% of production at cost.

In a separate context, several international companies signed additional agreements for new energy projects in the country.

On Thursday, Venezuelan opposition leader Maria Corina Machado supported Washington's role in developing the country's oil reserves, but said that the United States needs a more competent partner than the current Venezuelan government, which she described as an "illegitimate regime."

She added: "All of this requires diligent work in accordance with the principles of absolute transparency, legitimacy and efficiency, which are principles that are not subject to compromise. This can only be achieved through the legitimacy and stability provided by a serious and democratic government."

Experts expressed doubts about the limited information published by the government, including some discrepancies between Washington and Caracas regarding the duration of the concessions, as well as officials’ optimism that these investment numbers would be achieved.

Economist Manuel Sutherland, director of the Center for Workers' Research and Education, believes that one of the challenges posed by such an agreement is that the flow of capital could distort Venezuela's economy if not managed properly.

He added that Venezuela will need "new economic institutions and new rules capable of changing its monetary, political and exchange rate structure to avoid minor currency devaluations and the issuance of an unbacked currency. Otherwise, no matter how much money comes in, its value will diminish."

Strengthening energy infrastructure

For these investments to materialize, experts say, Venezuela will also need to rehabilitate or build entirely new energy infrastructure, and the deal includes oil fields that have not yet been exploited.

“It requires an electrical infrastructure that does not currently exist in the country, and it needs resources, investments, technology, and especially a full supporting workforce in the surrounding areas, which will undoubtedly have a huge multiplier effect on the economy,” said Venezuelan economist Luis Vicente León, president of consultancy Datanalysis.

He stressed that the development of new oil fields will take 5 to 10 years.

According to Sutherland, the program will also require a “grid bailout” due to a current deficit that is forcing some areas to ration electricity consumption. He estimated that transforming the electrical grid could require more than $15 billion.

Sutherland stressed that the investment amounts mentioned by officials (up to $100 billion) will not be achieved in the near term.

He explained: "The investments will be distributed in stages. It is not as if ten companies will come tomorrow and pump $100 billion into the country; this is out of the question. The investments will be in the form of $10 million, then $20 million, then $100 million, and they will increase gradually."

However, he stressed that an annual investment of $5 billion would be enough to alleviate the liquidity crisis in the country.

“In a small economy like this, when you have a project of this size, its impact on the country is huge and very fast, because it changes expectations and improves the investment climate,” Leon noted.

People are waiting for the results

Residents of Venezuela received the deal with a mixture of hope and anxiety. “We have to be patient because the economy does not rebound overnight,” said Erasmo Rojas, a resident. “It takes time for the economy to rebound, and we are now in a transitional phase that I think is positive for the country, as the country is moving toward a better future. We have to believe in the country.”

Some believe that the agreement will not yield anything unless the funds are used to address chronic problems, such as the low level of public services and their unreliability.

Trader Gian Gomez told CNN: “What I want is for us to get better, right? It is the people who suffer the most; whether there are sanctions or not, it is the people who ultimately bear the suffering.”

Over the past two years, Venezuela has witnessed a slow but steady increase in oil production, with production recently exceeding one million barrels of crude oil per day for the first time since early 2019.

Leon pointed out that this increase has already begun to have a tangible impact, and this impact is expected to increase in the last quarter of the year. However, he cautioned that this path may not necessarily be sustainable in the absence of new investment.

Even if investments are confirmed, it is not clear when residents will begin to feel the improvement.

For Leon, “this is a more complex issue,” as GDP growth does not necessarily translate into tangible benefits on the ground.

“There is a lot more money now, but what is the result? If you ask the Venezuelan people, they will tell you that they do not feel this better; this generates unfulfilled expectations, which creates a negative impression at the national level,” he said.

For her part, Delcy Rodriguez, who holds presidential duties in Venezuela, stated that she aims to raise the production rate to 1.5 million barrels per day.

Leon believes that this would improve some economic indicators, but he warned that if production stops at this level, “social demands will remain.”

"Is there more money? Yes. But the power goes out for five or six hours in cities like Barquisimeto, San Cristobal, Mérida and Maracaibo. In other words, the problem of electricity or water infrastructure has not been solved," he added.

Leon estimated that it would take at least a year for residents to feel an improvement in the management of services. “Whether the agreement is sufficient or fair, or how it compares to others around the world, is another story,” he said. “But I have no doubt that there will be growth.”