“Deal of the Century”: American control over Caracas’ resources

XBR/USD

Key zone: 87.50 - 91.50

Buy: 91.50 (on a pullback after retesting 90.00); target 93.50-95.50; StopLoss 90.80

Sell: 86.50 (on strong negative fundamentals); target 83.50-81.50; StopLoss 87.20

Trump calls the agreement with Venezuela the largest oil deal in history. In practice, Washington is gaining unprecedented access to the country’s oil resources: the deal involves 17 fields with potential reserves of about 65 billion barrels and a project designed to last 100 years.

Through the private company North American Blue Energy Partners, headed by Venezuelan businessman Alejandro Betancourt, the U.S. will receive a 35% stake in the operator’s structure, a guaranteed right to purchase 20% of production at cost, and a preferential right to acquire the remaining volume.

This is an attempt to integrate the largest oil resources of a neighboring country directly into the U.S. energy system.

A reminder:

Venezuela is considering leaving OPEC following the UAE. No decision has been made yet. For the oil market, the danger is not the withdrawal itself, but the further weakening of the Cartel. There will be no immediate increase in supply: Venezuela produces about 1.2 million barrels per day and is already exempt from OPEC+ quotas. The short-term reaction in Brent should be limited.

The political structure of the deal looks even harsher than its economic terms — in effect, democracy is being exchanged for oil.

Washington gains access to resources, while Caracas gets investment and a chance to restore its devastated oil industry. This is exactly what Trump is selling as a mutually beneficial agreement. At present, the country is physically incapable of quickly turning these reserves into additional supply on the global market. Therefore, 65 billion barrels today does not mean 65 billion barrels of additional production tomorrow, or even in the near future.

About $100 billion is expected to be raised to restore the 17 fields. Even with capital and American technology available, this is a multi-year project. Experts warn that a significant increase in production will take years, not months.

Trump expects to simultaneously increase U.S. oil reserves, restore Venezuelan production, and reduce fuel costs for American consumers. But this is where politics collides with physics.

• Venezuelan crude is predominantly heavy. Its production and refining require specialized equipment, diluents, pipelines, electricity, processing capacity, and an almost entirely new logistics infrastructure.
• The impact on U.S. gasoline prices will also be delayed. The average gasoline price in the U.S. has already reached about $4.08 per gallon, roughly 28% above the level a year ago. Against the backdrop of high energy prices, Washington desperately needs a political result before the November elections, but Venezuelan oil will physically be unable to solve this problem within a few weeks.

American and international experts are already asking whether the agreement can survive a change of government in Washington or Caracas.

The more aggressively Washington tries to control Venezuelan oil, the greater the risk that it will scare away the independent investors who are supposed to produce that oil. Oil corporations are in no hurry to invest “in Trump.” For example, Chevron remains the only major U.S. company actively operating in Venezuela, while ExxonMobil and ConocoPhillips, which previously left the country after their assets were nationalized, declined to comment on the new arrangement.

For an investor, gaining access to reserves is not enough. Investors need property guarantees, a stable tax regime, contract protection, infrastructure, and confidence that the next president will not overturn the agreements. So far, none of these risks has been fully eliminated.

Both politicians and analysts view the deal as an effective transfer of control over national wealth to the U.S.

So, What Does This Mean?

For the oil market, this is not an immediate bearish factor. Additional production of millions of barrels per day is a prospect for several years from now. At present, the market is receiving not a new flow of oil, but a promise of future investment.

• For the U.S., this deal is strategically far more important than the short-term Brent price. Washington gains influence over a vast pool of Venezuelan resources, guaranteed access to part of the production, and the ability to channel oil into the U.S. energy system.
• Caracas gets what it critically lacks: money, technology, and an opportunity to restore its oil industry. The Delcy Rodríguez administration says that the country will retain sovereignty over its resources and that the agreement will make it possible to attract large-scale investment.
• The market will receive additional barrels only after billions of dollars in investment, infrastructure restoration, and the resolution of legal issues. And if the agreement survives all legal and political challenges, the oil market could indeed gain a new giant player.

The conflict is only beginning. Washington wants guaranteed access to oil. Caracas wants guaranteed investment. Investors want guarantees that the agreement will survive political changes. Meeting all three conditions simultaneously will be extremely difficult.

So we act wisely and avoid unnecessary risks.

Profits to y’all!