Economic Analysis Casts Doubt on Profitability of Venezuela’s Vast Oil Reserves

2026-01-11 economy

Berkeley, Sunday, 11 January 2026.
Economists warn Venezuela’s 300 billion barrels are likely stranded assets, as the “peanut butter” consistency crude requires unjustifiable capital to extract amidst a global green transition.

The Geological Reality Check

Following the dramatic political shift in Caracas earlier this month, marked by the capture of former President Nicolás Maduro in early January 2026 [3][6], the United States has moved swiftly to reintegrate Venezuela into the global energy market. On January 3, President Trump urged American executives to invest $100 billion to restore the nation’s infrastructure [1], followed by an announcement on January 6 regarding the transfer of up to 50 million barrels of crude to the U.S. [2]. However, the economic viability of this strategy faces a stubborn geological hurdle. According to David Levine, a labor economist at UC Berkeley’s Haas School of Business, the country’s 300 billion barrels of reserves are largely “stranded by chemistry” [1]. Unlike the light sweet crude found elsewhere, the vast majority of Venezuela’s oil emerges from the ground with the “consistency of cold peanut butter,” requiring massive processing before it is commercially viable [1].

The Heavy Cost of Heavy Crude

The financial implications of this heavy crude are severe. To transport this viscous material, producers must import costly diluents, such as naphtha, which adds approximately $15 per barrel to the production cost [1]. Furthermore, because the oil requires specialized “coker” refineries to process, it trades at a significant discount, selling for $12 to $20 less per barrel than global benchmarks [1]. This structural price disadvantage challenges the assumption that Venezuela can rely solely on petroleum wealth for recovery. While the U.S. Gulf Coast possesses the specific refining capacity needed for this extra-heavy crude [2], the margins remain tight. Levine warns that unless oil prices sustain levels of $100 per barrel for a decade, or new technologies emerge, major projects in the Orinoco Belt may fail to reach a risk-adjusted break-even point [1].

Infrastructure in Decay

Beyond the chemistry, the physical state of Venezuela’s oil sector presents a logistical nightmare. While President Trump has suggested that American operations could be “up and running” in under 18 months [4][8], industry experts offer a far more conservative timeline. Analysts at Rystad Energy estimate that maintaining production at just 1.1 million barrels per day would require $54 billion in investment over the next 15 years [4]. Reports from the ground paint a picture of severe degradation; storage facilities are literally sinking into the ground, and satellite imagery reveals that a significant portion of storage tanks are rusting and unusable [6][8]. As of late 2025, Kpler data indicated that while 22 million to 40 million barrels were in storage, about one-third of the country’s storage capacity appeared effectively useless [8].

The Human Capital Crisis

The revitalization effort also faces a critical shortage of skilled labor. The economic and human rights crisis under the previous administration triggered a massive exodus of the country’s professional class. Levine notes that nearly all skilled engineers and technicians have emigrated to energy hubs like Houston, Bogotá, and Calgary [1]. Rebuilding this human capital is not an overnight task; estimates suggest it will take at least 10 to 15 years to restore the workforce necessary for a functioning oil sector [1]. This “tremendous brain drain” complicates the deployment of the $100 billion investment envisioned by the U.S. administration [1][4]. Furthermore, with the global economy increasingly pivoting toward renewable energy, investing billions into high-carbon-intensity oil represents a “massive strategic gamble” [1]. The International Energy Agency notes that Venezuelan production emits methane at an intensity roughly six times the global average [6], adding an environmental liability to an already precarious financial equation.

Market Dynamics and Future Outlook

Despite these challenges, the immediate flow of oil has begun. As of January 2026, Chevron remains the sole exporter with special authorization [2], but tankers carrying Venezuelan crude are expected to arrive at U.S. ports in Texas, Louisiana, and Mississippi as early as the week of January 12 [2]. In 2024, Venezuela managed to produce an average of 952,000 barrels per day [3], with the vast majority flowing to China. In November 2025 alone, China absorbed approximately 81.723% of Venezuela’s exports [3]. Redirecting these flows and ramping up production to pre-crisis levels will require navigating not just the “rusty” infrastructure described by U.S. officials [3], but also the complex economics of a global market that may have moved on from heavy, dirty crude.

Sources

Energy Economics Sovereign Debt