Venezuela's Deepening Oil Crisis Exposes Fragility Behind the World's Largest Reserves

Venezuela holds the world's largest proven crude oil reserves. According to the U.S. Energy Information Administration, the country's oil reserves total 303 billion barrels — around one-fifth of the global total — making it the largest single known crude reserve worldwide. Current crude output stands at roughly one million barrels per day.

Renowned Venezuelan petroleum expert Ramiro Royero argues that the country's petroleum potential extends well beyond existing estimates, underscoring the strategic value of Venezuelan crude. He notes that undiscovered oil and gas resources could boost reserves by an additional 30%. With technological advances, Venezuela is expected to emerge as a central supplier by around 2050, when global oil and gas reserves are projected to decline sharply.

Petroleum remains the backbone of the national economy. In 2024, oil export taxes accounted for more than half of Venezuela's fiscal revenue, reaffirming its status as a petroleum-dependent state. Despite abundant reserves, however, Venezuela's GDP ranks in the lower-middle tier among South American economies. Experts largely attribute this disparity to long-standing U.S. economic sanctions. Royero emphasises that the scope of sanctions is exceptionally broad — restricting free trade, blocking technology transfer, and constraining currency flows, all of which are vital for national development. He adds that ongoing military and psychological pressure further impedes progress, deters foreign investment, and is reinforced by U.S.-imposed border closures that obstruct the entry of international capital.

A poll released by a Venezuelan survey agency on 2 December shows that 90% of respondents believe recent U.S. threats aim to overthrow the Maduro government and seize control of oil resources. Addressing why the U.S., itself a major oil producer, covets Venezuelan crude, Royero explains that heavy crude offers a richer array of derivatives than light crude due to its condensate output during refining, aligning with global demand for these by-products.

Royero further notes that due to insufficient domestic heavy crude production, U.S. refineries rely on imports to efficiently produce heavy diesel, marine fuel oil, lubricants, and asphalt. Venezuelan crude is also comparatively low-cost, with some projects producing at below USD 20 per barrel — significantly cheaper than U.S. production.

Despite sanctions and rising geopolitical pressure, Venezuela continues to export around 200,000 barrels of crude per day to the United States, representing about 27% of total U.S. imports from South America. This underlines the ongoing strategic importance of Venezuelan oil in the global refined-product supply chain.

Royero argues that U.S. military operations seek both geopolitical dominance and control over Latin America's raw materials. Nevertheless, he stresses that Venezuela retains its sovereignty and will resolve its internal challenges independently, without external interference.

Market sources say recent U.S. military operations in the Caribbean — resulting in suspended international flights and constraints in naphtha supply — may pressure Venezuela's heavy-crude output. Venezuelan oil production has held at roughly one million barrels per day since January. But following the launch of U.S. naval operations last September, reduced naphtha deliveries and operational disruptions appear to be affecting output. Industry sources report that Venezuela needs additional diluents — including condensate and naphtha — to sustain production, with three of four heavy-oil upgraders currently offline. Under conditions of airspace restrictions and intermittent maritime blockades, current output levels are increasingly unsustainable.

On 27 November, U.S. President Donald Trump signalled that ground operations in Venezuela would begin shortly. Last Friday, the final remaining international airline suspended its commercial flights to the country, preventing the arrival of technical staff and spare parts. Kpler data shows Venezuela imported around 50,000 barrels per day of naphtha in November, down from 89,000 barrels per day in October. Chevron — operating under U.S. sanctions exemptions — supplied roughly 18,000 barrels per day of naphtha in October and November, with additional volumes sourced from Russia. Industry sources estimate Venezuela requires about 150,000 barrels per day of diluent to maintain crude output near one million barrels per day.

The consequences are beginning to surface. Analysts expect U.S. intervention to trigger an immediate spike in global oil prices, although prices could later fall if a change in government results in sanctions being lifted.

Venezuelan heavy crude is optimally suited for U.S. Gulf Coast refineries, meaning a resurgence in Venezuelan supply would compete directly with Canadian heavy oil. With more than 300 billion barrels in reserves, Venezuela represents a major long-term geopolitical and economic interest.

Speculation about direct U.S. intervention has intensified since President Trump ordered the first strike on a vessel off the Venezuelan coast. Much of the discussion centres on oil. A U.S.-backed regime change in Caracas would carry profound global implications.

Venezuela's heavy crude reserves — largely compatible with U.S. Gulf Coast refinery configurations — created short-term challenges during Trump's first term as sanctions expanded beyond their initial 2005 scope. During this period, Canadian heavy crude increasingly filled the gap left by declining Venezuelan imports. A potential regime change could similarly reshape Canada's oil sector. The immediate impact for the Trump administration would be higher oil prices. Since sanctions were enacted, Venezuela's output and exports have plunged, though November shipments rebounded to about 900,000 barrels per day — the third-highest monthly level this year, according to Reuters.

Wood Mackenzie estimates Venezuela's current annual average output at about 900,000 barrels per day — far below the peak of three million barrels two decades ago and the two million barrels per day recorded in 2017. Sanctions and years of mismanagement have deepened the sector's challenges, though some U.S. analysts believe a government change would reshape the oil landscape, potentially allowing American producers to return. Wood Mackenzie's Ed Crooks referenced comments from Treasury Secretary Scott Bessent, who suggested that developments in Russia-Ukraine and Venezuela could drive oil prices lower. Bessent noted that oil and petrol prices have fallen significantly during Trump's presidency, arguing that genuine affordability requires lower energy costs.

Energy analyst David Blakemon recently said that a surge of Venezuelan crude into Gulf Coast refineries would negatively affect demand for Canadian oil. He suggested that Canada should accelerate efforts to expand market access beyond the United States, including to China.

Venezuela's 300-billion-barrel oil reserve — around 20% of the global total — remains a highly coveted asset. But securing access would trigger an oil-price shock, conflicting with what Bessent defines as 'the key to affordability'. Analysts remain wary as tensions escalate, leaving uncertainty about Washington's ultimate intentions and injecting fresh volatility into global oil markets.

Energy analyst David Blakemon noted in a recent podcast that increased Venezuelan crude returning to Gulf Coast refineries would impact Canadian crude demand, and not favourably. Against this hypothetical backdrop, it would be prudent for the Canadian government to expand access for Canadian crude to markets beyond the United States, such as China.

Venezuela possesses over 300 billion barrels of oil reserves, accounting for 20% of the global total – an undeniably coveted prize. However, achieving this objective would entail an oil price shock, which contradicts what Scott Bessent describes as 'the key to affordability'. The situation remains tense, keeping analysts on constant alert regarding the Trump administration's ultimate objectives – and consequently uncertain about how the US President will ultimately handle the Venezuelan issue. All this adds fresh uncertainty to the oil markets.