Oil in Retrograde

Oil in Retrograde

“A diplomacy that promotes dialogue and seeks consensus among all parties is being replaced by a diplomacy based on force, by either individuals or groups of allies… The principle established after the Second World War, which prohibited nations from using force to violate the borders of others, has been completely undermined…. Instead, peace is sought through weapons as a condition for asserting one’s own dominion. This gravely threatens the rule of law, which is the foundation of all peaceful civil coexistence.” 

Pope Leo XIV addressing diplomatic representatives to the Vatican

“[The Venezuelan oil industry is] uninvestible… There are a number of legal and commercial frameworks that would have to be established to even understand what kind of returns we would get on the investment.” 

ExxonMobil CEO Darren Woods to Trump administration officials

Aside from his authoritarian goals, Donald Trump seems to be a leader mired in a different era, a neocolonialist making “might makes right decisions,” undoing most of the progress that made our economy explode in the post-WWII period. He seems to be living in an 18th and 19th century (or earlier era), a time of shifting alliances, never-ending conflict, in which monarchies and dictators sought to use their armies to conquer foes, garner access to natural resources at the expense of local people (often relying on slavery and other forms of cheap or forced labor). Even as demand for energy is rising fast, demand for fossil fuels is sinking faster. Frankly there’s an oil glut, even as so many nations (including the US) seem to be betting their future on oil and gas.

Reality is that China, strong only in never-clean-coal, has shifted full tilt towards alternative energy, where her BYD car EV carmaker is zooming past Tesla and where China accounts for 74% of the investment in the world’s alternative energy infrastructure and power sources. Ignoring the current glut of oil, and the soft price of a barrel of almost any category of petroleum, Trump might as well be a Middle Eastern monarch with his obsession over oil, a resource that even Saudi Arabia knows is not long for this world.

My Yale classmate, a brilliant economist, Daniel Yergin (vice chairman of S&P Global, author of “The Prize: The Epic Quest for Oil, Money and Power” and “The New Map: Energy, Climate, and the Clash of Nations”) describes it in the January 9th Wall Street Journal: “There’s certainly plenty of oil to be produced there. Venezuela holds the largest reserves in the world, more than Saudi Arabia and the U.S., and for decades was one of the stars of the oil world. But recent years have brought a crushing descent. Venezuela has been producing well under a million barrels a day—less than North Dakota—and accounts for less than 1% of world oil production.

“Estimates range widely for what it would cost to bring back the industry. One reasonable guess is $20 billion to boost Venezuela’s output to 1.5 million barrels a day from the 870,000 barrels it produced in November. To get back to the 3.4 million barrels a day of peak production at the end of the 1990s could cost $100 billion or even more, including new facilities, infrastructure and environmental remediation.

“But what will it take to persuade companies to make such big bets on Venezuela again? The country’s state-owned oil company, devastated by years of corruption and political turbulence, doesn’t have the money or technology for a recovery, let alone a massive upgrade. The international oil companies who do will want to be confident about security, regulation and the legal foundations of their investment, given that Venezuelans across the spectrum—including most of the 70% of the public that voted against Maduro in the last election—believe the country’s oil resources belong to the nation and are essential to the recovery of their battered economy. Any real plan for reviving Venezuela’s oil industry has to reckon with the political legacy of the country’s long, turbulent history with its petro riches.” And as the above Darren Woods quote suggests, Big Oil won’t make these investments without a huge guarantee from taxpayers, most of whom are wondering why Trump is so obsessed with conquering nations with essential natural resources (Venezuela and maybe Greenland), making the United States a global pariah.

Pillaging and looting seems far afield from global morality in the 21st century, but Trump does not appear to understand the harshest lessons of history nor where the vectors of progress were headed until he intervened. As Trump gathered executives from Big Oil on January 9th, he pushed hard for commitments, but, as Josh Boak and Aamer Madhani, writing for the January 10th Los Angeles Times/Associated press noted: “Trump, as he opened the meeting with oil industry executives, sought to assure them that they need not be skeptical of quickly investing in and, in some cases, returning to the South American country with a history of state asset seizures as well as ongoing U.S. sanctions and the current political uncertainty… ‘You have total safety,’ Trump told the executives. ‘You’re dealing with us directly and not dealing with Venezuela at all. We don’t want you to deal with Venezuela… Our giant oil companies will be spending at least $100 billion of their money, not the government’s money. They don’t need government money. But they need government protection.’” These executives were not biting.

Trump does not seem to be moved by obvious change once he has fixated. “A smooth-faced 41-year-old Donald Trump settled in before a live studio audience assembled for The Oprah Winfrey Show and held forth on how America should be getting a cut of Kuwaiti oil… ‘Kuwait is not paying us for all the oil they’re sending out,” said Trump, wearing a familiar solid red tie, as Oprah pressed him on his foreign policy views during the April 1988 interview. He complained that the Kuwaitis “live like kings” while the American military protected their tankers amid the Iraq-Iran War.... ‘Why aren’t they paying us 25% of what they’re making?’ Trump asked... In media interviews going back to the 1980s—long before he would dominate U.S. politics—Trump outlined his interest in the U.S. seizing oil from countries where Americans intervened. Now, in his second term as U.S. president, he’s making an audacious bid to turn his decadeslong fixation into a reality.” Wall Street Journal, January 8th. To Trump, having the ability to control a huge oil reserve gives him geopolitical power over Russia and Iran.

Writing for the January 10th The Guardian UK, Phillip Inman suggests that Russia isn’t collapsing anytime soon over oil sanctions: “Since the full-scale invasion of Ukraine in early 2022, Moscow has bought a huge secondhand fleet of more than 400 vessels to ship oil to Turkey, India and a host of other countries. That “shadow fleet” has shrunk since 2024 to about half its former capacity, forcing Russia to rely on European-insured vessels to ship its oil… If European financial centres – London chief among them – were to take a tougher line on what they insure, Russian oil revenues could be severely hit.

“Yet this analysis ignores the successful rewiring of the economy by Putin’s administration, which has proved more adept in its handling of domestic politics and the government’s finances than it did the military in the first three years of the war… Russia can, and should, be hurt financially by further sanctions. But European leaders and Ukraine’s valuable allies in the US Congress, who have done so much to prevent Trump from siding wholeheartedly with his kindred spirit Putin, should not delude themselves into thinking that the Russian economy is on the brink of collapse… While economic growth has slowed to a near standstill, the broader strategy resembles a medically induced coma – designed to insulate the patient from unwanted outside interference.”

There’s been a leadership change in Venezuela, but not a regime change (as long as the next set of leaders play Trump’s oil game). The country is as repressive as ever… and has never been a significant player in the US narcotics market.

I’m Peter Dekom, and I suspect that this ill-planned adventure will join the litany of international failures witnessed in recent memory as the US just acts without truly understanding the people of the subjugated nations… or the genuine economic costs inherent in their assumptions.