What Chevron's New Venezuela Deal Actually Means

On September 2, Chevron made public new terms for its joint ventures in Venezuela. Those terms reportedly outline new fiscal, commercial, and legal conditions intended to facilitate long-term investment and expanded production. As part of the agreement, Chevron will receive new acreage in the Orinoco Belt in addition to existing acreage Chevron is already developing. This would normally be considered a standard corporate statement. However, reading this alone does not provide much insight into what is happening in Venezuela today. When read along with everything else that has occurred in Venezuela in the past nine months, it gives a significant indication of where Venezuela's current priorities lie.

Venezuela's current situation began with a series of events in January. On January 3, the US conducted airstrikes in Caracas and multiple other states throughout Venezuela. The Maduro government quickly declared a national emergency and just a few hours later President Trump stated that Maduro and his wife, Cilia Flores, had been captured and taken to the US to face narcoterrorism charges. Two days later, Delcy Rodríguez, then Vice President, assumed the duties of Acting Head of State due to Maduro's removal. Ms. Rodríguez was not elected to serve in this position; rather she assumed it because the person above her was gone.

In accordance with the Constitution of Venezuela enacted in 1999, an acting government may assume the powers of the executive branch for up to 180 days. Ms. Rodríguez's acting government exceeded that time frame in early July and remains in power. In May, opposition leader María Corina Machado stated that elections could potentially be held in as short a period as 40 weeks and that she was working with US officials to coordinate her return to Venezuela. Diosdado Cabello, Interior Minister and one of the most influential individuals remaining from the Maduro administration, has indicated that he will not engage in any negotiations with her.

After nearly seven months without formal talks between the acting government and the opposition, official negotiations began on August 1. Jorge Rodríguez, brother of Delcy Rodríguez and President of the National Assembly, is negotiating on behalf of the government while Dinorah Figuera, former President of the last National Assembly controlled by the opposition, is negotiating on behalf of the opposition. Their initial session was conducted via telephone instead of meeting in person. Chatham House analysts characterized the beginning of these talks as discouraging, and it is difficult to disagree with that characterization.

Some developments have occurred since then. The Amnesty Law approved earlier this year permitted more than 800 political detainees to be released from prison between January and May. However, that law did not include most military personnel or opposition figures in exile (including Ms. Machado), and many of those who were released remain under government surveillance. Foro Penal, a Venezuelan organization advocating for human rights and tracking detentions, reported that 382 political detainees were still being detained as of early August.

And then there was the earthquake. In June a massive double earthquake hit Venezuela, killing more than five thousand people, displacing thousands more, and inflicting approximately $37billion in damages based on UN estimates. Therefore, a government whose legitimacy is uncertain is now also charged with managing a reconstruction process on such a large scale.

This is the backdrop against which Chevron decided to increase its operations.

Petroleum has played a significant role in how Venezuela conducts itself for a century. At the end of the 20th Century, Venezuela produced over three million barrels per day. By 2020, following decades of mismanagement, corruption, and sanctions, petroleum production had decreased to less than one million barrels per day. Chevron was the only major American oil company that continued to operate throughout the worst of it, continuing to work pursuant to various US-issued licenses that were modified to varying degrees dependent on the political climate regarding Venezuela in Washington DC. Generally speaking, Chevron's ability to continue operating has served as a barometer; when Chevron receives more latitude, it generally indicates that the US Government desires increased flow of Venezuelan crude and is willing to give something in exchange for it.

Therefore, Chevron's decision to expand its operations can be viewed two different ways, and likely both perspectives are correct. First, Chevron believes that sufficient stability exists or will exist soon enough for Chevron to enter into long-term contracts with the acting government. Second, Washington is using Chevron's license as leverage over the transition itself. Analysts at the Atlantic Council have suggested that licenses for companies operating in Venezuela should only be expanded if the transition talks make sufficient progress, with sanctions reinstated if they stall. Regardless of whether this is the specific policy of the US Government or not, Chevron's decision to expand demonstrates that someone in the US Government is comfortable with the trajectory of developments even though the transition talks appear stalled from an external perspective.

It does not indicate what benefits or harms accrue to ordinary Venezuelans from these developments. Increased petroleum production could lead to greater revenues and a more stable currency, permitting funds to be used for rebuilding efforts. Conversely, higher petroleum production could permit an illegitimate government (i.e., one not democratically elected) to utilize its resources to maintain itself in power longer. These are both possible outcomes consistent with Chevron's press release.

At present, however, it is clear that petroleum-related matters are advancing more rapidly than the governmental processes. To a great extent, what ultimately occurs depends upon what transpires in the negotiating room or over the telephone lines during the coming several months.

Gustavo G.