President Donald Trump’s decision to grant waivers to U.S. oil interests from Venezuelan sanctions looks particularly brilliant in light of the recent attack on Saudi Arabian oil refineries which temporarily shut down the availability of more than 5 percent of the world’s oil supplies.
Given the United States’ status as the world’s top oil producer, the impact on America is less than in China which has become increasingly dependent upon Saudi oil supplies. In 2018, China was the top overall importer of oil in the world with Saudi Arabia being the Middle Kingdom’s second largest oil source. Overall in 2018, the Middle East exported more than $107 billion of oil to China, out of the overall $239 billion they imported, meaning 44 percent of China’s oil imports were from the Middle East.
Somewhat surprisingly, the United States remains the second largest importer of Saudi oil with Canada topping the list, Mexico coming in behind Saudi Arabia and Venezuela fifth just behind Iraq. The United States, which currently exports nearly as much oil as it imports, gets 55 percent of our foreign oil from Canada, Mexico and Venezuela.
Why does this matter?
Venezuela has the largest known oil reserves in the world. Middle Eastern oil supply line fragility puts the Chinese economy at extreme risk. While last year Venezuela supplied about $7 billion of oil to the Chinese, abandonment of the United States’ integral position in Venezuelan oil production would open the door for the Chinese government to grab, along with the Russians, the primary position in the huge Caribbean oil fields, utilizing their possession of the Panama Canal to easily create a non-stop flow of their economic lifeblood.
Add to the Chinese immediate interest in dramatically expanding their Venezuelan oil supply line, a recently released report on Russia’s increased influence in Venezuela and you have a double warning shot proving the wisdom of the Trump oil sanctions waiver.
The Atlantic Council report details Russian President Vladimir Putin’s ongoing and increasing interest in establishing Venezuela as a forward threat to the U.S. The study found that, “Kremlin policy seeks to undermine the international liberal order by supporting a friendly authoritarian ruler fraudulently ‘re-elected’.”
This influence extends to military, economic and direct support for the flagging Venezuelans oil industry where the Atlantic Council reports, “Under Kremlin guidance, Gazprom and other Russian hydrocarbon firms formed the National Petroleum Consortium, which in 2010 signed a contract with Petroleos de Venezuela to set up a joint venture to extract heavy oil reserves in the Orinoco River Basin. In 2014, Rosneft, the largest oil producer in Russia and the number two gas producer, bought out Gazprom and the other Russian firms to take control of the National Petroleum Consortium. Led by Putin intimate Igor Sechin, Rosneft’s activities frequently reflect the Kremlin’s geopolitical ambitions. Rosneft’s role in Venezuela was to provide a major subsidy to the government in the form of $6.5 billion in loans to Petroleos de Venezuela (PDVSA).”
While the Venezuelan government has not been able to provide more than half of the oil which underlay this subsidy, Russia continues to double down in their support for Maduro even as the economic conditions continue to crumble in Venezuela. It is clear that Russia, with their own robust petroleum industry, will move, along with the Chinese to fill any void created by a U.S. government mandated withdrawal of U.S. companies.
On top of the obvious need to prevent hostile foreign powers from gaining a stronghold in the Western Hemisphere, America cannot plan for a successful restoration of Venezuela without the ongoing involvement of U.S. energy companies. These companies have decades-long presence in this now desperately poor country. As Venezuela moves forward beyond Maduro, these companies will be crucial partners in the revival of the economy by helping to ramp-up energy output, rebuild the infrastructure of the nation, and provide humanitarian relief. The oil fields in Venezuela, if properly managed and further developed, could match or exceed those of the Permian Basin in Texas, and now is the exact wrong time to abandon them to the Russian and Chinese interests which view them not only as an expansion of their global footprint, but as a source of future reliable energy wealth.
President Trump has been right to extend the waiver for U.S. energy companies to operate in Venezuela, and now he would be wise to extend these waivers indefinitely to create a certain offset for Chinese and Russian influences in this geo-politically important South American country.
Rick Manning is the President of Americans for Limited Government.