What’s next for Venezuela? Oil production, global markets and foreign investment, with Jorge León

[00:00] This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm your host, Noah Brener, and each week, we're bringing you an inside look at the dynamics shaping global energy markets through in-depth conversations with our own Rystad energy experts and some special guests. Now, in today's episode, we're digging into an energy story that's been dominating the headlines. Venezuela. The US capture and extradition of Venezuelan President Nicholas Maduro on January 3rd has been the biggest energy story of the very young year. As we all try to understand the short and the long-term impacts on oil markets, Venezuela's production had peaked at around 3 million barrels per day, but had fallen into steep decline in the ensuing years as corruption and neglect pushed production down to around a million barrels per day. And now a US naval blockade has further cut the country's exports. However, the country claims the world's largest oil reserves, though much of it is locked up in heavy crude that's difficult to get to market, requires an immense amount of infrastructure, and both of those make revitalization of the country's oil industry a time-consuming and expensive proposition. So, why does Venezuela have outsized importance in the global oil markets? And how could what looks like long-term US involvement in the country's oil industry impact markets? How much money would it take for Venezuela to return to its lofty historical production? And which companies might be willing to invest? Finally, what are the geopolitical ramifications of the US reasserting its control over the Western Hemisphere in Venezuela for both China and the OPEC plus producers group? To help us understand the rapidly evolving situation in Venezuela and its impact on the energy industry, I'm joined today by Jorge Leyon from Madrid, Restad Energy's head of geopolitical analysis. Jorge, welcome to the program. Thank you for having me. No, it's always a pleasure. Well, let's talk energy. Jorge, you've been extremely busy. media requests, client briefings, market reactions, talking really non-stop about about this Venezuela situation and a situation, as I said, that that's rapidly evolving. But what angle in this story do you think maybe isn't getting enough attention um despite all of the discussion? What's what's maybe not being talked about that you think is important? Venezuela is moving from a world where exports were primarily flowing to China and now it looks like it is going to uh Venezuelan cruds crude barrels are going to flow to the United States and that shift will require a lot of trade flows, reshuffles, new relations in the in the oil market and I think that how that is going to be u how that is going to played out will be will be crucial to understand the full scale of the of the situation And the second important element that it has not received enough attention and I think it's crucial is the fact that I don't think political stability in Venezuela is guaranteed. And let me explain you why. The Venezuelan constitution is very clear about what happen when a president is absent. Um the the rule says that the vice president will take over and that has happened. Deli Rodriguez now is the former vice president is now now the president. But but the constitution is very clear that there needs to be a general election soon. And there is this legal dispute right now because the constitution says that if the absence is permanent, elections should take place in 30 days. If the absence is temporary, it should they still should take place in 180 days. So I don't know in which world we are, but it doesn't really matter. But my message here is that one way or another, we're heading towards an a general election in Venezuela. And we know that general elections, particularly in the current environment, could be very destabilizing for the for the country. That's where civil unrest could happen, internal splits, uh the risk of coups could could take place. So I guess I'm particularly worried though at that part of the of the of the of the of the market situation in in Venezuela. It certainly is attentioning uh attracting an immense amount of attention um from markets and from policy makers. So why is Venezuela so important to global oil markets um despite that that relatively low production level compared to a Saudi Arabia or the US or something? I think it's for three specific reasons. The first one I think is the the size of the price if if you want. Uh Venezuela holds the largest oil reserves in the world, 303 billion barrels uh in it on its ground. Um and but with a caveat with a little asterisk there, it's true that these are a lot of barrels, but when we look at the type of crude and the economically recoverable resource is less than that is just 27 billion barrels that is um that Venezuela could economically produce. But still this is massive. So the size of the price let's say is really really big and it's much bigger than its share in uh in current oil production. That's one element. The second element is the type of crude it produces. So the the type of price if you want. Venezuela produces a very specific type of crude which is heavy sour crude. and um and this is particularly valuable for the US refining system that let's not forget is the biggest in the in the world. So that's the the second reason and I think the third reason is a little bit more geopolitical if you want. Um Venezuela has a massive weight geopolitical weight in the oil markets. It is a founding member of OPEC and is very active in in the OPC and OPEC plus organization even though they don't have a production quota um right now. and also Venezuela or at least before the the event was part of the alliance with Russia, Iran and and China. So that leaves a lot of the weight of of Venezuela in the in the global oil market. [04:00] What is it about Venezuelan barrels that that make them in in demand? Venezuela produce most of Venezuelan production is heavy crude. And the way I like to think about this is that heavy crude has its pros and cons. It's sort of like dark chocolate of oil markets. Some people cannot handle it, but the people that can handle really love it. Let me start with the downside of of heavy heavy crude. Um, heavy crude is is harder in every sense. Let's put it this way. It is more costly. It is more energy intense to extract. It requires more more energy. As I said, it um it it is more difficult to refine. just to extract the crude and transport it, you need um diluent because it's it's a very sort of heavy heavy heavy stuff that makes it a little bit less competitive. Let's say normally the price comes with a with a discount. So that's the that's the negative side, but also it has very very important um you know um upside um potential or the plus side. First of all, uh we shouldn't forget that the US GF coast refining system is configured mainly to process that type of crude. And this is a historical element here. When the US refining system, the biggest in the world was built was in the 80s, 90s, 2000s. That was before the shield revolution. And back then, most of the heavy crude production uh was coming from neighboring countries such as Canada, Mexico, Colombia, Ecuador, and Venezuela back then. So when the US was designing its refining system, it really made sense to try to to try to configure the the refineries based on the cruts that were available. And back then it was it was heavy crude. Um then came the shell revolution. The shale revolution produces light crude which is not perfectly substitutable for the for the heavy heavy crude. So in a sense from the from the point of view of the demand of that crude there is this big source of demand that is the US um GF coast. On the supply side I think that the heavy crude bench is getting a little bit tighter. Uh yes we have a lot of growth from from Canadian supply in recent years and also in the future. uh but that part of that growth is probably going to start flowing even more to Asian markets as infrastructure now is now is available and then you have other countries such as Mexico, Colombia, Ecuador where production has been declining and we expected production to keep declining in the years to come. So in that sense, Venezuela and heavy crude oil is really valuable right now and in the years to come for the US refining system. We're talking about something that's often referred to as almost like tarlike or asphalt like um and you had mentioned dilluent. So this is a a lighter hydrocarbon um like a light crude or a condensate that's mixed with it. Um and so it's able to to flow um or it's heated. So it's really difficult. It's not like you just put a a well in the ground and and are able to just flow it through a pipeline. Um and so you know it makes it difficult. And we're going to talk more about that upstream angle and and Venezuela's production here in in just a second. Um, you know, I guess the key question for a lot of people is can Venezuela quickly ramp up production? It used to produce as much as 3 million barrels a day. Um, and certainly the oil industry has been in a very well publicized decline here down to about a million barrels per day due to issues with corruption and maintenance and and just general, I guess what could be termed as mismanagement. And so, um, I know we've done a lot of work on this question. I mean, what are the the technical, the operational, the financial constraints to Venezuela actually tapping into the world's largest oil reserves. There's a lot of potential, but this is not going to be fast. This is not going to be easy, and this is not going to be cheap. So, let me let me talk about the constraints that right now Venezuelan the Venezuelan uh petroleum industry needs to overcome to start showing showing growth. First of all, there's a chronic underinvestment in infrastructure things like the pipelines, ports, upgraders, uh refineries and so on and in a ve in a in a a very weak state. Um partly done also because of the corruption and the financial the macroeconomic situation in the in in the country. So that really needs to be solved immediately as soon as possible. That's priority number one and that will require money but of course time as well. The second important um constraint that the Venezuelan industry has right now is a massive brain drain. Um bear in mind that Pereesa and the and the industry in general has been managed by the army in Venezuela and um and that coincides with a lot of very capable petroleum engineers and experts in the industry that left the country in in Venezuela. So that's a massive problem as well. The third important constraint I think is Venezuela really needs to make sure that the political situation on the ground is stable enough to bring uh uh to incentivize international companies to start investing in the country and as I mentioned this is not this not assured this is not guaranteed there might be an election sometime soon uh we don't know where the opposition stands right now I think that probably the market is over um assuming that uh situation that the political stability is guaranteed. So I think that convincing international companies from that point of view is going to be is going to be tricky. And then when we look at what needs to happen in terms of money, first of all, we are in a world where 2026 is going to be an over supply market probably 2027 as well. So we're likely to see decreasing oil prices in the next couple of years. Why is this relevant? is relevant because in a world in an environment of lower oil prices oil companies tend to be extremely cautious where they put their their money and I think that in this case they're also going to be extremely careful and that's what the reading that that we saw after President Trump's meeting with the CEOs of the oil of the oil industry. So those are the hurdles that need to be um you know overcome uh in the next few years uh in order for the Venezuelan um sector to to start producing and re ramp up production. And in terms of money, we don't think that this is going to be fast. If it happens, and again, this is a big if. Um I think that the production in Venezuela could increase to 2 million barrels per day by early 2030 and to three million barrels per day by 2040. And this will require a massive $183 billion dollar in investment. This is a massive amount of money that needs to be poured into the country. [08:00] How are we thinking about the Venezuelan if Venezuelan production were to increase? Let's say we're able, you know, to see the investments go in. We're able to see the stability. Um we're able to see the infrastructure uh become upgraded, become more capable. Uh how would that affect global oil markets? And how are we thinking about this the return of Venezuelan production? Perhaps it depends on the time frame. In the short to medium term, we don't think that Venezuelan production has a lot of upside potential. We're talking about in the next 6 to 18 months no more than 200 300,000 barrels per day at most. So the potential is very very very limited. Um so I don't think that this is dramatically going to move the needle in the in the short and medium term. Don't forget that 2026 is a world where we are facing an over supply market. More than three million barrels per day over over of over supply. The fact that Venezuela might produce 300,000 barrels more, it doesn't really matter that much. Let's say in the grand scheme of things. Um so the short answer is in the short term very very little impact. In the long term things can be a little bit different. Again, with all the ifs and buts that I mentioned, let's assume that Venezuela manages to increase production. Let's say 2035, we're at 2.5 million barrels per day. Then that could have a bit of a bearish impact on on oil prices. Let's say by 2040 they reach 3 million barrels per day. In in our house view, we think that o global oil supply by 2040 will be close to 90 million barrels per day. So three million bars per day start to have sort of a a higher impact let's say on on oil markets if Venezuela can ramp up production. So um I think that in the long term if Venezuela can rapidly increase production as as we as we mentioned it's probably going to be marginally bearish for oil prices. But when you look at the big uh you know the big scheme of things um this doesn't really matter let's say massively for oil for the global oil markets for the supply and demand fundamentals. I want to shift over and talk a little bit about um geopolitics because there's a major geopolitical component to this um to what's happening there. I mean, China, China used to be the major buyer of Venezuelan crude. Um it's no longer receiving those barrels due to essentially a US kind of embargo of Venezuelan exports. I mean, the US has been actively seizing tankers that says are part of the dark fleet. Um h how has this shift impacted impacted oil markets and and and flows? But we think that the blow to China is actually fairly limited. And I'll explain you why. First of all, Venezuela only accounted for less than 5% of Chinese crude inputs. So in volumetric terms, it was marginal. Let's say even though for Venezuela, China accounted for 70% of its destinations. For China, it was less than than 5%. So you know, in volumetric terms, there was there's not a lot of loss. Let's say uh from from from China's point of view. The second important element is that right now there's a lot of barrels, sanctioned barrels in the world uh from Iran, from Russia that China could tap into and and continue receiving those barrels. And again, this is an over supply market this year. There's no deficit of barrels around around the world. So from the energy security point of view, let's say um this is not a big blow for China. And finally important element here is that let's not forget that 2025 was the year where China rapidly accumulated crude stocks um and probably with a you know a a good prediction of how the world might become more volatile and energy security was is and will be an an important consideration for the for the Chinese administration. So those three elements will tell me that the blow to to China is less than probably what people might might think. And there's a there's a final also element there to take into account which is the geopolitical element. I I guess um the the fact that uh China no longer has access to um to Venezuelan crude. Apart from the let's say buyer and seller relationship that China and Venezuela had, I think the relationship was more finance budget leverage uh sort of sort of relationship between between China. Right now we know that there's outstanding Venez on on on Venezuela close to 10 billion dollars. So we're not sure what is going to happen with that that debt and just losing the influence the Chinese influence in Venezuela. H I think that is more of an important blow for for the for China. [12:00] What does the Venezuela situation mean for OPEC and OPEC plus? And then I want to talk about potentially Venezuela's membership um you know after that but you know kind of near-term what does it mean for OPEC and OPEC plus and production policy? Venezuela has a lot of geopolitical weight inside the organization as I mentioned founding member very active in all the different committees and and so on and but its weight is much bigger let's say than its actual production right now OPEC plus produces around 42 million barrels per day and Venezuela produces just 1 million barrels per day so if Venezuela leaves tomorrow OPEC plus it wouldn't really affect the the the power that OPC plus has to control and manage the market and control and manage the production. So I don't think that this is this will be a major blow from the let's say operational point of view. It will be a blow from the geopolitical point of view because as I said Venezuela has a has a big um say inside the organization and and founding member. Now, if Venezuela leaves OPEC or not, I think the President Trump the just a few days ago mentioned that uh Venezuela could stay inside the the organization. So, that um that brushed out some of the doubts. But I think it's also important to mention that let's assume as I mentioned that if Venezuela manages to start increasing production in the years to come, I don't think that Venezuela will be faced with a production target yet. Right now, Venezuela doesn't have a production target, but let's assume that production keeps increasing. I don't think that they will receive a binding production target anytime soon. And the best example is Libya. Libya has been excluded from production targets because of the past disruptions that they had. They are back to their pre Gaddafi levels of production for almost a year, year and a half and still they don't have a target. So my sense is that once a country is put into the bucket of exempted countries, it's very difficult to bring them out of that of that bucket. Um so I don't think that this will be an issue let's say in the medium term. But this raises a very strategic question which I think is is equally important. If Venezuelan the Venezuelan industry is is raw is run and controlled by international companies then the question is whether it would make sense for for Venezuela to remain part of OPEC plus and let me give you a perfect example here. uh OPEC plus is a group very diverse um group of countries but they have a very common feature most of the production is controlled by the national oil company in Saudi Arabia is 100% with Aramco in the UAE close to 100% with ADNO and overall the average for OPEC plus is around 70% so 70% of n of production is controlled by the national oil company so that means that if tomorrow there's a production cut decided by OPEC the minister will immediately just you know inform the national companies and the the cut will be will be affected or the increase in in production. Um so if tomorrow the Venezuelan industry is controlled by US companies if there's a chance if there's a possibility that there's a production cut now how is Venezuela going to implement those production cuts into um on um on international oil companies that creates a problem and we have a very interesting historical example which is Kasakistan. Kazakhstan is the only country, one of the only few countries where the share of production owned by the national company is very low. It's close to 30% only. And guess what? The country that has failed significantly in the last three, four, five years to comply with production cuts has been Kazakhstan because it's very difficult for a country to impose on international companies to implement cuts. So that element, that strategic element, I think is really really interesting and we'll we'll we'll we'll see what uh how things might uh might evolve in the in the future. But that raises a question of what is the what is the the the advantage or the benefit from Venezuela to be part of OPEC if the industry is run by international oil companies. [16:00] We've had a lot of geopolitical news uh over the past week and who knows where it all could could be going, but I mean some other geopolitical flash points. We've mentioned Iran. talk to us a little bit about um how you see the Iran situation quickly here and maybe how the two how both Iran and and Venezuela how this kind of general geopolitical pressure on the market might play out. This been a rocky start of the year. First Venezuela and then and then we moved to to Iran and um how things had evolved um start of nationwide protest um starting from uh 28th of December and then rapidly spreading across across the country um many demonstrations. Um our numbers show that there's been even more demonstrations than back in 2022 when the latest waves of of demonstrations. So there's increasing internal unrest in the country and at the same time there's increasing external pressure on the country particularly from the from the from the US uh just imposing 25% tariffs on countries that are doing business with uh with uh with with Iran. So growing pressure we know that President K has been briefed about possible options military options in the in the country and and that was reflected in oil price. price just um a couple of days ago increased to $66 per barrel, the highest since October 2025. So this really increases geopolitical risk in the in the in the oil market. And it matters because as opposed to Venezuela, Iran produces 3.2 million barrels per day. So it's more than three times the size of Venezuelan production. And it also matters where um Iran lands in the in the world is in the in the Middle East. uh has sort of access to the straight of Hormuz is surrounded by very important oil producing countries. So that's why the market impact of a potential disruption there could be uh much bigger. Let's let's say um and there's a three three important elements that I or comments that I would like to add on on those. Let's not forget that uh there's historical parallels here that are worth taking into account. The 1979 Islamic revolution also started with a wave of protests on the cost of living and macroeconomic situation and and and an economic well-being of of people. And we know how the story end up. But in terms of production, Iran lost 2.4 million barrels per day of production in 1979 because of the protest strikes and social social unrest. So uh and back then of course the market was much smaller. So in percentage terms 2.4% 4% medium bars per day was massive and that that was what provoked let's say the second oil crisis in 1979. So that historical parallel should be taken into account and keep on the on the back of of our minds I guess. Uh the second comment I think is I want to go back to June 2025 when we had the 12-day war and and we knew what what what happened. Well um but one of the key takeaways for me is to talk about this the closure of the strait of Hermus. The threat of closing the straight of Hermoose is always on the cards for for Iran. And I think that my key takeaway from those 12 days was that closing the straight of Hermoose was probably overstated in the market pro probably the threat is less than what we really what we really thought. Let's let's say um first of all from the operational point of view I think Iran could close the trade for a couple of days three or four days but I don't think they can handle closing the trade for most for an extended period of time. The immediate reaction of the US the immediate reaction of regional powers such as Saudi Arabia the UAE would not allow for that. There's also the element of oil revenues are massively important for the regime for the Iranian regime. So closing the trade of most would not be in their best interest. And then the final element is China. China is the main buyer of Iranian oil and also Qatari gas LNG. So the closure of a straight of Hermus will affect them massively and I and as we know China is a main ally of Iran. So in that sense I think that that threat was probably overstated and that's a key learning that probably we need to take into account in case things escalate escalate further. And and the third comment which which I think is important also is the impact that force regime changes could have in the in a in a country and the Middle East gives us a lot of historical examples that are worth taking into account. You see Iraq after 2020 after 2003, Libya after 2011 and Yemen after 2011 after a force regime changed the those countries were into went into massive unrest um civil wars and a lot of volatility and instability. So um I cautious about thinking that a regime change could solve the situation. and it could actually lead into sustained volatility and uncertainty and unrest for years to come. [20:00] Venezuela and Iran face, you know, certainly some similar threats from an oil market perspective um when it comes to stability um when it comes to the availability of of flows from them. But uh Iran just on a a much larger scale, bigger producer in a a more kind of pivotal point in the world. Um and that's maybe why we see the differentiated impact in market market pricing um from you know from the Venezuela situation and the Iran situation. Is that the right way to think about that? When you look at price reaction after sep um January the 4th prices barely moved. Um the news was was giving us very little uh price price volatility. Uh there was a little bit of a of a spike in oil prices, couple of dollars um the the initial trading day, but then things sort of stabilized around $60 per barrel, very similar to the level that we had before the the the Venezuelan events. As the growing protest in Iran um accumulated and the US started thinking about um military options, we saw oil prices rapidly increasing from again $60 per barrel into $66 per barrel. So I think that shows the importance that each of those two countries has right now in the in the global oil market and how risk premium is being priced uh in the in the in the market. Well, Jorge, it's always a pleasure to have you on the program and thank you so much for for making time in your busy schedule to join us. Thank you so much. No, it's been a pleasure. [24:00] Let's recap. Venezuela's near-term impact on oil prices will be limited as the market had already discounted the reliability of its existing production and it's comparatively a smaller oil producer than it was years ago. In the longer term, however, Venezuela's large oil reserves will require equally large investments to unlock as well as legal and security backing from the US. The geopolitical ramifications of US intervention in Venezuela are only just being felt, but it certainly complicates the strategies of both China and the OPEC plus producers group. Thanks for listening to Let's Talk Energy. This podcast is a Ryad Energy production produced by Lara Rodriguez Scow and Bog. Check out the show notes for further analysis on the topics that we've discussed in this episode and connect with us on social media. We're Ryaden Energy on all your major platforms. While you're there, leave us a review, subscribe to the podcast, and hit that like button. You can also keep up to date on our website. 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