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Biden is Losing His Grip Over South America – and Its Oil

On October 18, the Biden administration unveiled the landmark Barbados agreement signed in conjunction with the Venezuelan government and opposition. The agreement authorises six-month licenses for oil and gas transactions, dealings with Venezuela’s state-run gold mining firm, Minerven, plus the lifting of a trading ban on certain sovereign bonds, equity, and debt from Venezuela’s state oil-firm, PDVSA. In exchange, Caracas agreed to lift bans on opposition candidates, allow foreign electoral observers in next year’s presidential election, and begin releasing political prisoners including “wrongfully detained US citizens.”

As expected, the agreement has been a boon to Venezuela’s hydrocarbons industry. Venezuela is now expected to boost oil production to more than 1 million barrels a day, a 25 per cent increase, with an additional increase of 300,000 barrels per day (BPD) by 2025 – though this is still a far cry from the 3.5 million BPD in 2010. The trouble for Washington, however, is that the regime has not upheld its end of the bargain thus far. On the contrary, Caracas has shown repeated contempt towards both the Venezuelan opposition and its backers in the White House. 

Since October, the regime has released only five political prisoners and went as far as to arrest a US citizen soon after the agreement took effect. Days later, the opposition held presidential primaries where Maria Corina Machado secured a resounding nomination. Machado, however, is currently banned from assuming elected office with Washington giving Caracas until November 30th to lift the suspension. Just hours before the deadline, Caracas acquiesced with a half-measure: the opposition can now legally contest candidate suspensions before December 15.

Further complicating matters is Venezuela’s increasing belligerence over a border dispute with its Caribbean neighbor, Guyana. On December 3, Venezuela held a referendum authorising the annexation of the region known as the Esequibo – a largely untouched but Guyanese administered territory bordering the two countries. 

The Esequibo harbors the bulk of Guyana’s newfound oil and mineral wealth, including the entirety of the offshore Pomeroon, Roraima, Kaieteur, and Demetara fields as well as most of the prized Stabroek oil field. Together, these concessions represent more than 11 billion barrels of Guyana’s proven oil reserves, with Exxon and Hess holding the most lucrative contracts – the latter of which will pass to Chevron ahead of next year’s planned $53 billion acquisition. Barring a major disruption, Guyana is on course to see oil production increase to one million BPD by 2027. 

To that end, Caracas has moved aggressively to claim sovereignty over Guyana’s resource wealth. In the wake of the vote, Maduro announced the creation of a special military zone near the disputed border with Guyana. In a similarly symbolic gesture that has nonetheless spooked Exxon, Maduro announced the creation of PDVSA Esequibo and CVG Esequibo, claiming that the regime will begin offering “operating licenses for the exploration and exploitation of oil, gas and mines in our Guayana Esequiba”. 

With all this in mind, the threat of an invasion is not trivial. Yet, the motives behind Maduro’s belligerence are mostly electoral and diplomatic. On the one hand, the dispute over the Esequibo serves the electoral purpose of dividing the opposition. By fostering a climate of war and stoking nationalist grievances, Maduro may be able to prevail (with minimal fraud) over the opposition or outright suspend presidential elections in 2024. On the other hand, by threatening Guyana, Caracas now has an additional bargaining chip that it can leverage over the Biden administration. 

The referendum seems to have already served its intended purpose, with the opposition playing straight into the regime’s trap. In the lead up to the vote Maria Corina Machado urged a boycott while others such as former presidential candidate Henrique Capriles participated in the initiative on patriotic grounds. In turn, Caracas proceeded to arrest members of Machado’s campaign on charges of treason for “destabilising and conspiratorial actions” against the referendum. 

What explains the Biden administration’s inaction? The answer likely lies with Big Oil and oil prices. Thus far, the administration has refused to even partially revoke licenses despite increasingly brazen acts from the regime. The White House, it seems, is more concerned with lowering gas prices than fortifying Venezuela’s democratic opposition. This might seem disingenuous considering that the US is currently undergoing a renewed oil boom. After years of setbacks due to the demands of climate activists as well as oil producers’ refusal to invest in pumping oil over stock buybacks, the administration is finally on course to oversee record oil production. It may be that Biden is concerned he may further lose support from progressives if he continues to boost domestic production. 

Another more salient factor is that Biden is caving to the interests of multinational oil producers now active in Venezuela. In the weeks and months before October 18th, Venezuelan bonds jumped as investors bet big on a détente citing leaks from the negotiations between Washington and Caracas. As I write this, Repsol and Eni are negotiating contract terms with PDVSA over rights to the largest offshore gas field in South America. Both they and other multinationals appear unconcerned by the threat of snapback sanctions. It may well be that the electoral stipulations of the Barbados agreement served as nothing more than cover for key stakeholders in the Venezuelan oil market.

Having previously defended the stated premise of the Barbados agreement, the administration has none but itself to blame for enabling a regional adversary. Indeed, analysts such as Edgar Beltrán at The American Conservative warned us in 2022 that Biden was giving the regime a blank check even during prior negotiations. Paradoxically, the agreement might have yielded better results had a Republican seen to its execution – an impossibility considering that a Republican administration could never broker such a deal in the first place. 

The sad reality is that neither Democrats nor Republicans seem capable of pursuing thoughtful realpolitik on Venezuela. Just as the Republican approach favours attempted coups and forever sanctions, Democrats opt for appeasement with questionable benefits. As of this writing, the latter seems likely to last until the terms of the Barbados agreement expire in March (or until 2025 when Biden likely leaves office). For the time being, the signs from Biden and Big Oil are clear: Venezuela is open for business.

Source: The Telegraph