If done right, Trump's oil plans could benefit Venezuelans

“We’re going to run the country,” President Trump said regarding Venezuela at a press conference just hours after Venezuelan President Nicolás Maduro’s capture in a U.S. military raid in Caracas.

To do so, the Trump administration has begun taking charge of Venezuelan oil shipments and selling them directly in international oil markets. The U.S. plans to make sure that these revenues are used only to buy imports from American companies.

Whether this will at some point transform into a net benefit for the Venezuelan people depends on the granular details of the plan, which currently we know little about.

The broader outlines of the vision are of course enough to make the blood of any Latin American nationalist boil. It has not been since the early 20th century that the United States has sought to play such a direct role in running the economies of countries in the region. One could hardly imagine a darker irony for Hugo Chávez’s Bolivarian Revolution, which had vowed to retake sovereign control of the country’s oil wealth, than to have the president of the United States and executives from major oil companies deciding how to divvy up the country’s oil without the presence of any Venezuela representative.

Yet when all is said and done, the economics from this arrangement have the potential to bring sizable gains to Venezuela and to fuel an economic recovery — if the system is set up with consideration for the short-term implementation risks.

What is most meaningful economically in this arrangement is that it lifts the ban on Venezuelan oil trade with the United States imposed by Trump during his first term in 2019. Just as the economic losses from losing access to U.S. oil markets were huge, the economic gains from regaining it are sizable.

The devil, as always, is in the details. Yet if, as Venezuelan authorities have insisted, the plan ensures that the Venezuelan economy receives its legal share of the proceeds from oil sales, then those proceeds will fuel a much-needed economic recovery.

Many of the executives that Trump called to his meeting last Friday expressed skepticism about investing in Venezuela’s oil sector. This is not surprising: recovering Venezuela’s oil production will take money and the country is still subject to significant political uncertainty — some of it generated by the authorities in Caracas, some of it generated by Trump himself.

Yet the dynamics of the meeting were also deeply familiar to those of us accustomed to studying private sector–government relations in personalist regimes like Trump’s. The political subtext was that oil majors were asking Trump for guarantees for their investments, guarantees that Trump seems all but ready to give. And, when you think of it, it is hard to imagine a better scenario for Venezuela’s oil industry than having the U.S. government roll out financial guarantees (ultimately funded by U.S. taxpayers) to subsidize the recovery of Venezuela’s oil production.

But while Trump’s oil plan could bring substantial economic benefits to Venezuela in the long term, it also carries sizable short-term risks. This is because any attempt to implement the White House idea that the U.S. will run Venezuela could bring the country’s battered economy to a standstill, causing a major foreign exchange and food supply crisis.

Venezuela’s oil revenues fell to zero when President Trump imposed a blockade on oil exports to third countries in December. According to recent reports, Venezuela received $500 million from the first oil sales on Wednesday through direct sales to private banks, in a system similar to that which had been used in the past for revenues obtained through the authorization granted by the Biden administration to Chevron to sell Venezuelan oil.

Trump’s requirement that proceeds from the sale of Venezuelan oil be used to fund imports from the United States - which apparently is not being enforced in this first sale - adds a layer of complexity. In Venezuela, non-oil imports are carried out by the private sector. There is no way to carry out Trump’s plan for the administration of foreign exchange in Venezuela without setting up exchange controls which are administratively complex, economically inefficient, and highly vulnerable to arbitrage and corruption.

The delays associated with setting up this plan pose a serious risk to the Venezuelan economy. Inventories of food and essential items are dangerously low. Unless the country is provided with an immediate mechanism to carry out essential imports, there will be a short-term economic collapse in production. As sources of foreign exchange dry up, the currency’s depreciation could accelerate rapidly, and Venezuela could very likely enter once again into hyperinflation, derailing any plan for political and economic stabilization.

In order to avoid this crisis, the U.S. government must take several decisions rapidly.

The first is to provide a source of foreign exchange with which Venezuelan authorities can fund essential imports in the near-term. One possibility is to continue to allow rapid disbursement of oil proceeds to Venezuelan authorities. Other funds exist and are also readily available. Venezuela has more than $10 billion in liquid offshore deposits (including gold reserves at the Bank of England, Special Drawing Rights at the International Monetary Fund, and PDVSA deposits in Portugal) which it has been blocked from accessing because of sanctions and the non-recognition of the Maduro government.

Washington should also discard any plan for a complex system of administrative allocation of foreign exchange in Venezuela. It would be absurd for the United States to force Venezuela to adopt administrative controls that the country ditched years ago. If the U.S. wants to make sure that American companies benefit from access to Venezuelan markets, it should propose an agreement with Venezuelan authorities for Venezuela to commit to zero tariffs on imports from the United States. The U.S. should reciprocate by lowering tariffs on Venezuelan oil sold through the government deposit funds.

Recognition of Venezuelan authorities will also be essential to allow an International Monetary Fund mission into the country. Together with the World Bank, the Inter-American Development Bank, and CAF, it should put together a multilateral assistance program within the next six months to support the country’s medium-term economic recovery. The World Food Program and non-governmental organizations should play a key role in ensuring a rapid flow of near-term food and humanitarian assistance.

Many Venezuelans would have liked to see a different economic transition, one accompanied by political change and by the assumption of power by a popularly elected government that represents the will of the Venezuelan people with the authority and international respect to take sovereign decisions. Maduro was clearly unpopular and there is little doubt that the opposition would win a free and fair election if it was held today — as it clearly won the 2024 presidential election that Maduro brazenly stole.

But countries rarely get the transitions that they hope for. Today, the most viable road to building a democratic and prosperous future for Venezuelans requires first stabilizing the country and the economy, avoiding an economic crisis, and paving the way for Venezuela to take advantage of the sizeable benefits for its people from restoring its trade with the United States.