Lux Take
The near‑term investment appetite among global oil majors for upstream expansion in Venezuela will remain limited despite recent U.S. policy engagement and export discussions. Venezuela’s under‑investment, heavy crude characteristics and political uncertainty mean upstream exposure functions as a long‑dated optionality play that should not drive material strategy shifts unless oil price fundamentals and governance conditions improve significantly.
What happened?
Venezuela holds the world’s largest proven oil reserves and was once a significant player in the global oil and gas sector. However, political instability, sanctions, and economic deterioration have eroded its position. Production has fallen from peak levels of roughly 3.5 million barrels per day (bpd) to just under 1 million bpd today.
After months of mounting political pressure and regional oil tanker blockades, the U.S. escalated its involvement in Venezuela with a military operation that captured President Nicolás Maduro and his wife. While officially tied to charges of drug trafficking and weapons offenses, the action was clearly influenced by strategic energy interests. In the days following the capture, President Trump met with oil and gas executives, declaring plans to increase output from Venezuela. Meanwhile, the U.S. seized a Russian-flagged tanker en route to the country in the Atlantic.
How will the oil and gas industry respond?
Restarting Venezuelan oil and gas production would be neither cheap nor quick. Returning output to historic levels would require at least USD 180 billion in investment between now and 2040, according to Rystad Energy. Responses throughout the value chain will be mixed.
Downstream refiners are best positioned to respond quickly. We’ll likely see downstream refiners announcing they’re willing to accept Venezuelan crude as Phillips 66 has already done, as they don’t need to make any significant investments to existing refineries designed to process the heavy crude from Venezuela. Services companies will embrace the reopening of Venezuela’s oil market, which could require large investments and extensive work to modernize decades‑old infrastructure. Venezuela’s aging oil systems need broad upgrades before production can grow, offering significant opportunities for engineering, equipment, and supply firms. China had taken most of Venezuela’s remaining exports under the old arrangements, but that is expected to shift as crude flows toward U.S. refineries built to handle heavy grades. Even so, redirecting Venezuelan output would only represent a modest increase in U.S. supply (~5%) relative to domestic production.
Upstream investment, however, remains the critical uncertainty. From a strategic perspective, exposure to Venezuelan upstream assets is best understood as a real option: Companies can take low-cost steps today: technical (frontend engineering design) studies, relationship building, preliminary agreements to preserve the right, but not the obligation, to invest in the future. Exercising that option would require confidence in several conditions simultaneously: sustained high oil prices, favorable heavy-light spreads, credible political stabilization. These companies still remember the significant losses they suffered when Venezuela nationalized its oil industry, forcing many foreign companies to cede control or exit operations entirely. With Maduro’s recent capture leaving the country’s leadership in flux, uncertainty will temper executives’ enthusiasm. Reviving Venezuela’s oil production will require massive investment and technical work to modernize deteriorated infrastructure, and meaningful output growth will take a decade or more. That long timeline will only appeal to companies confident in resilient global oil demand through 2040.
While nurturing Venezuela as a low-value real option, a final investment decision is unlikely to happen in the coming years. Such a decision is currently being made in a low oil price environment, not typically a time when you consider expanding production. Investing in Venezuela requires you to overlook better opportunities. Wood Mackenzie estimates that the breakeven cost of Venezuelan oil is USD 80/barrel, while in neighboring Guyana, ExxonMobil has claimed breakeven at USD 30/barrel; additionally, falling new rig counts in the U.S. suggest that if oil and gas companies are eager to expand, there are opportunities to do so more quickly and safely within in U.S.
As a result, companies are likely to walk a tightrope: maintaining visible engagement to preserve optionality, while deferring firm investment decisions until price signals, spreads, and political conditions materially improve. Any activity in the near term is more likely to reflect option preservation than a meaningful reallocation of capital. Anything oil companies do in the coming year should be interpreted as buying a real option at a low cost, but don’t expect companies to be ready to pull that option.
How should innovation teams respond?
While these events are certainly significant from a geopolitical perspective and the situation remains very fluid, it’s difficult to draw any specific lines to how an innovation team — such as R&D teams, tech scouting functions, corporate venture capital teams, etc. — should adjust course. This neither creates opportunities to pilot novel technologies nor does it harm opportunities to pilot technologies domestically. Most of the technical challenges involved — processing heavy crude, maintaining aging assets, rehabilitating infrastructure — are well understood and rely on established solutions rather than breakthrough technologies.
While direct links to specific technologies are tenuous at best, it is still possible to draw conclusions about the types of technologies oil and gas companies will prioritize. Increased production from Venezuela will further supply an already oversaturated oil market, keeping oil prices low. In a prolonged low-price environment, the focus of innovation typically shifts away from external, breakthrough technologies and back toward the core business. For oil and gas, this means further doubling down on existing assets: reducing upstream breakeven costs and improving operational efficiency downstream.
Ultimately, this is a development with strong political and economic impacts but weak effects on the future of technology innovation.
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