Why Trump Wants Venezuela’s Oil

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. If I counted correctly, I think he mentioned the word about 20 or 21 times in his first press conference. That really tells me everything. That's Bloomberg opinion columnist Javier Blas. And that word he's talking about that President Trump used almost two dozen times in that one press conference is oil. It's part of almost every conversation about Venezuela. The president has big plans for the country, and he's hyper-focused on its energy sector. We're going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country.

1:54Since the attack, oil prices have swung back and forth. And on Friday, they were right about where they were the night before the U.S. removed Nicolas Maduro from Venezuela. On Friday afternoon, President Trump met with executives from the oil industry at the White House to talk about what comes next. All of the companies here today are going to be treasured partners in bringing the nation of Venezuela back to life, restoring its economy and generating great wealth for their companies and for their people and also great wealth for the American people. and tremendous wealth for the companies that are going in.

2:31So why Venezuela? It only produces about 1 % of the world's oil. Javier Blas says you have to look at the country's past to understand its potential. Back in 1970, which is the heyday of the industry, the country produced about 3.7 million barrels a day. Today, it pumps about 1 million barrels a day. It is a shadow of what it used to be, But it has quite a lot of oil and certainly the means to be one of the top oil producing countries. But having the means doesn't mean that it's going to happen. I'm David Gurra, and this is The Big Take from Bloomberg News. On today's show, Venezuela's oil, what it would take to get it flowing the way President Trump wants, and how it's key to the president's foreign policy objectives and his political success at home.

3:30Javier Blas is a columnist with decades of experience covering energy. And he's spent years touring oil fields and refineries. Oil for Venezuela is a casco. It's basically what keeps the economy running. And given that, Javier says, you'd think the country would have invested more in the industry in recent years. But Venezuela's oil infrastructure has fallen into disrepair. It's a shadow of what it once was. The oil sector under Maduro was just complete mismanagement, corruption, and then exacerbated by the impact of American sanctions on the sector. The facilities are completely in bad state.

4:11They need repairs. They need basic maintenance. And that has not been happening. Venezuela has lost about 25 % of his population. And this has been mostly educated people who used to have very well-paid jobs in the oil industry and that they are no longer there. So under Maduro, it was just a complete collapse. Delce Rodriguez was the country's oil minister before she became the vice president, now the acting president of the country. How could Venezuela's approach to oil shift now that she's in charge? Well, the first question is, is she really in charge? because Trump claims that he is running Venezuela.

4:49So it's difficult to know exactly who really is calling the shots in Caracas. Delce Rodriguez has been seen as a relative moderate figure within the Chavismo, this revolutionary movement that has been running Venezuela for the last 25 years. So it very much depends on what he wants to do, But it's also going to depend a lot of what the White House allows her to do. The oil fields there are so prolific that even with just some basic spending, some basic maintenance, things could really regain some traction very quickly. And just to get a sense of what I'm talking about, I have been speaking with former executives of the state-owned oil company called PDVSA and Venezuelan oil engineers, geologists who have a great knowledge of the industry.

5:41And one of the things that they said to me is, Javier, so you to understand what the problem was, is that all what is needed today to get things starting to look a bit better is that pump that failed seven years ago, we're going to replace it. That oil pipeline that started leaking three years ago, we're going to fix it. This is the state of the industry. It was led to rot. And now if some money can be spent, that could really go a great way into stabilizing production and started growing. But there are going to be conflicted needs. Venezuela needs food, lots of food. It's a hungry nation. And how the White House balanced that, food versus oil, how the government in Caracas balanced that, and at the same time, the relationship with Washington, I don't know how that's going to play out.

6:38You know, you and I have talked recently about how the world is awash with cheap oil. The U.S. doesn't need cheap oil at this point in time. Given that, what is your sense of the motivations here on the United States' part? Well, I think that President Trump has been quite transparent about this. I mean, I remember back in 2003 covering the invasion of Iraq and a lot of debate and really heated arguments about is this about oil? and the answer at that point from the administration of George W. Bush was absolutely not. This is about democracy and la la la. In this occasion, President Trump has been very clear that oil is absolutely central to what he's doing and he has been quite transparent that he wants lower oil prices.

7:22And I mean lower than today, which are already the lowest in five years. We are trading between$55 and$60 a barrel And President Trump in the past has talked about getting American oil, West Texas Intermediate, down to$50 a barrel. And he won the price of gasoline down to$2.50. I think he will be very happy. The U.S. produces a lot of oil and has access to oil from Latin America, from Canada. How much influence does that give the U.S.? The Americas today, all the way from Alaska to Patagonia in Argentina, produce about 40 % of the world's oil. That's not research. That's actual production today.

7:59So President Trump is in the fortunate position that this is happening under his watch. Some of it he's trying to engineer, but a lot of it will be happening, nonetheless, because of discoveries in Brazil, in Guyana, the growth of the industry in Canada, and certainly the growth of the US shale industry. That means that there is a surplus of oil today in the market, and that means that prices are going to stay lower than that has been the case in recent years. But it also means that that buffer allows for the market to carry on if there is some kind of shock. And what could be a shock? That the U.S.

8:39decides to do something about Russia or Iran. The American military adventures in the past were constrained by the impact that those will have in the price of oil. And today, the Pentagon really is unrestrained in a way that I don't think we have seen in America probably in the last half a century. James Monroe, the president more than 200 years ago, who coined this fair of influence for the United States across the Americas and then Donald Trump. So we get the Don't Row doctrine. Secretary Marco Rubio has made very clear this is this is our backyard. This is our area of influence, keeping the Americas for the U.S.

9:20preventing other countries to set any kind of footprint, and I'm thinking mostly about China, and also controlling the natural resources of the region. The U.S. can do things today that previous presidents probably could not do because the price of oil will have gone to more than$100 a barrel, and then gasoline prices will have increased. Javier, President Trump says Venezuela is going to turn over 30 to 50 million barrels of oil to the U.S. Here's what his Energy Secretary, Chris Wright, said about that on Wednesday at a Goldman Sachs conference. Look, I'm working directly in cooperation with the Venezuelans.

9:57And we are going to, this is the crude that's backed up in onshore storage and that's in offshore floating storage. We're just going to get that crude moving again and sell it, just like we did in our businesses. 30 to 50 million barrels sounds like a lot of oil. Is it in the grand scheme of things? It's not. I mean, that is at the high end of that range. 50 million barrels is only half of what the world consumes in one day. So it's basically 12 hours of global oil consumption. But you put 50 million barrels of Venezuelan oil into the U.S. Gulf of Mexico coast kind of refining system, that's going to have an impact.

10:36I mean, that is really going to overwhelm the market and send prices down. But also, more importantly, getting that oil flowing will allow the Venezuelans to keep production where it was in December, close to a million barrels a day, because they were in a position where they will have to shut down production because they didn't have anywhere to put the oil because they were not able to export the oil. So it's not only the impact that oil that is in the storage will have on the American market, it's also that Venezuela can start the recovery process, although these are really baby steps. What U.S.

11:12control of Venezuela's oil could mean for two of its biggest rivals, Russia and China? That's coming up.

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12:29Are you concerned about increasing tensions with Russia because of the tanker seizures? and how does the U.S. action in Venezuela impact the ongoing relationship with China and the president's relationship with President Xi? I think the president has very open, honest, and good relationships with both President Putin of Russia and also President Xi of China. The effects of President Trump's attack on Venezuela and the arrest of President Nicolás Maduro are being felt beyond the Western Hemisphere. We've seen now five vessels seized after the latest action reported by U.S. Southern Command today.

13:09U.S. forces seen boarding that vessel identified as the Olena. On Friday, the U.S. Coast Guard seized another sanctioned oil tanker as the Trump administration continues to crack down on so-called shadow vessels. These are tankers using murky tactics to transport oil from countries facing U.S. sanctions like Russia and Iran. A lot of that oil winds up in China, which has been a big investor in Venezuela. It's poured money into the country's infrastructure and oil refining capacity, part of its Belt and Road Initiative that includes extending and consolidating Chinese influence around the world, including in Latin America.

13:47So Javier, what does it mean for the world's second largest economy, Maduro being removed and President Trump promising these big changes to Venezuela's oil industry? I think that for China, I mean, first of all, they are going to lose access to a source of cheap oil. Venezuela was forced to sell his oil at a significant discount to China because China was the only buyer. So China all of a sudden is going to have to find a replacement. There is oil in the market that can be used to replace Venezuelan oil. Canadian oil is of similar quality, but Canadian oil trades around$8 to$10 higher. So that's an extra cost.

14:23I mean, is that going to really have a massive impact on the Chinese economy? As you said, the second largest economy is not big enough to really move the needle of the GDP. But for some oil refiners in China, they are going to notice. More importantly, I think, is the signal that the Chinese authorities get out of the Americas. That seems to be the message from the Trump administration. These are the countries where we have influence, and this is our oil, and it's for us to decide. For Russia, that's more complicated. President Trump is really driving the price of oil down. Russia is selling now oil as low as$40 a barrel.

15:01And by now, Vladimir Putin also has lost a tool that I think he was trying to use with President Trump, which was in exchange for some kind of deal in Ukraine, look at the oil fields of Siberia, your American oil companies can have access to the Russian oil riches. Well, President Trump can turn around and say, Vladimir, thank you very much for your offer, but I control Venezuela now, so, you know, get lost.

15:31American refiners, particularly those in Texas and Louisiana, love Venezuelan oil. Most of the Venezuelan oil looks more like syrup or even marmalade. It's really viscous, very dense, and therefore relatively more difficult to refine. The refineries in the U.S. are built precisely to process that kind of crude. So while the quality is low, it would be a mistake to think that low quality means, oh, we don't like this oil. Any plan to rebuild and exploit Venezuela's oil production capacity would be complicated. It could take years and cost upwards of$100 billion, according to some estimates. But if all goes well, big oil could make a lot of money in Venezuela.

16:18Chevron, the second biggest U.S. oil company, operates there and accounts for about 25 percent of the country's output. And refiners like Citgo in the Gulf of Mexico are uniquely poised to benefit. Did they know exactly what was going to happen? I doubt it. I don't think that the American oil industry have knowledge of exact military plans or even that Trump has already taken the decision to take Maduro. I will be very, very surprised about that. oil companies are, in some cases, when you are talking about big oil, it's always the case. They're like mini countries. They have almost like their own diplomatic service, who is working on potential outcomes in potential scenarios in oil-rich countries like Venezuela.

17:01It's more than interest. Chevron is already there. Let's not forget that American's second largest oil company has stayed in Venezuela, has fought very hard over the last 25 years, not only with the government in Venezuela, but also with several administrations, both on the left and on the right in the White House to be able to keep his operations there in some way. So there is interest. I mean, is that interest means that everyone in big oil is going to be investing billions of dollars in Venezuela tomorrow? No. I mean, the price of oil is low. Investors are putting pressure on companies to go easy on spending.

17:34So the interest may not transform in immediate spending. But oil companies always go to where the oil barrels are. President Trump has floated reimbursing companies for spending money on improving infrastructure in Venezuela, even using taxpayer dollars to do that. In your view, is that essential? Would they do this otherwise or do they need to have some sort of incentive like that? I think that probably they would like some backstop by the government, perhaps loans back up by the Export Import Bank of the United States. Again, that's not new. It happens in many other projects. At the moment, some of the biggest oil companies in America have some kind of loan guarantees from the U.S.

18:14to invest in places like, say, Mozambique on natural gas LNG projects. So that's what I think that they are talking about. Direct subsidies, I would be very surprised about that. I mean, what the hell? The U.S. governments will be subsidizing the oil industry when they can make a buck perfectly fine in drilling in, say, Texas, New Mexico, Oklahoma. I would not understand it. But what I know, David, over the last few months, I have been surprised of what the Republican Party does to the American capitalist system. I mean, I thought I was about getting the government out of companies and the White House is about getting equity in companies.

18:51So I don't know. I mean, will I be surprised if the U.S. owns an equity stake in oil fields that they are owned by American oil companies in Venezuela? Yeah, a year ago, I would have said yes. I would be very surprised that's not going to happen. Today, I don't know. Maybe. We hear President Trump making this geopolitical argument for taking control of the Venezuelan oil industry. He's making an economic case to the American people as well. What is the reward he's promising U.S. citizens and how long does he have to make good on that promise? I think that the reward he's promising to U.S. citizens, and particularly ahead of the mid-term selection, is, I get it.

19:32Inflation has been a big problem, and I'm fixing it. And at least he's fixing one of the most visible prices for Americans on a daily basis. Almost everyone who is commuting to work, going to drop the kids at school, etc., etc., sees the price of gasoline on the big signs of the pump stations. And I think that that's his promise to the American citizens is we're going to fix the price of oil. We're going to fix the price of gasoline. And by the way, this is not a quagmire in the Middle East, 7 ,000 kilometers away, in a place that you have never heard of. This is it by doing it just around the corner across the Caribbean in our backyard.

20:20This is The Big Take from Bloomberg News. I'm David Gurra. The show is hosted by me, Wan Ha, and Sarah Holder. The show is made by Aaron Edwards, David Fox, Eleanor Harrison Dengate, Patty Hirsch, Rachel Lewis-Kriskie, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Chauvin, Alex Kura, Julia Weaver, Yang Yang, and Taka Yasuzawa. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.

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