The United States’ oil deal with Venezuela is unlikely to lower US crude or fuel prices in the near term, analysts say. President Donald Trump announced the agreement on August 28 and said it would substantially reduce gasoline prices, but Venezuelan production faces costly extraction, ageing infrastructure and limited refining capacity.
The agreement gives the United States control of more than 65 billion barrels of Venezuela’s proven reserves through a private joint venture, while the market remains focused on supply disruptions linked to the closure of the Strait of Hormuz.
Why the deal will not quickly lower prices
Johannes Rauball, a senior crude oil analyst at Kpler, said Venezuelan output could take years to increase meaningfully because of degraded pipeline systems, inadequate electricity support and a shortage of specialised crude upgraders. US refiners are already operating at maximum capacity to meet domestic and overseas demand, leaving little room to process substantially more oil.
The deal may improve supply and market sentiment over the longer term, but access to Venezuelan crude is not expected to provide immediate relief at the pump. Tracy Shuchart, a senior economist at NinjaTrader, said Venezuela’s recent production increase came mainly from Chevron restoring existing wells rather than new drilling, while converting reserves into sustained production could take decades. For additional context, see “Brent crude climbs as Strait of Hormuz deal remains uncertain”.
Key points
- The joint venture is being created with North American Blue Energy Partners, which is owned by Venezuelan businessman Alejandro Betancourt.
- The Pentagon’s Office of Strategic Capital will hold a 35 percent stake in the venture.
- The United States will have the right to buy 20 percent of the venture’s output at cost.
- The venture has capacity to produce about 200,000 barrels of crude oil per day.
- Venezuelan crude is heavy and sour, meaning it requires specialised refining and competes mainly with other heavy crude supplies.
What it could mean for global oil markets
The agreement’s immediate effect on global crude prices is expected to be neutral because markets are focused on short-term shortages associated with the Strait of Hormuz. More than 20 percent of global oil and natural-gas shipments pass through the strait in peacetime, and its closure pushed Brent crude above $100 per barrel after it had been trading near $66 before the war.
Frederic Schneider of the Middle East Council on Global Affairs said Venezuela could not replace the oil removed from the market through Hormuz. Venezuelan crude is a different grade from much of the lighter Gulf oil, and only a limited number of countries have refineries equipped to process it. Hamad Hussain of Capital Economics said investment costs, political instability and the time needed to develop Venezuelan fields could also restrict future production growth. A related part of this story is covered in “Oil prices reach one-month peak as US-Iran conflict disrupts Strait of Hormuz shipping”.
US oil companies are positioned to benefit most directly from the agreement. Chevron’s shares rose 2.2 percent after the announcement, and Energy Secretary Chris Wright said companies including Chevron, Eni, ONGC, GeoPark and GE Vernova were expected to sign or expand oil-related deals in Caracas.
What happens next
The joint venture is expected to expand operations in Venezuela, while additional companies are expected to sign oil agreements in Caracas. Any effect on global supply depends on how quickly production and infrastructure can be expanded. The development of this issue can be followed in “US strikes on Iran trigger rise in oil prices and fall in global stocks amid Hormuz tensions”.
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