The Daily Journal — The recent reform of Venezuela’s Organic Hydrocarbons Law has sparked an intense debate about the future of the country’s primary source of income. While the government argues that the changes aim to attract investment and increase oil production, energy economists warn that the new framework significantly reduces the state’s share of hydrocarbon revenue.
Researchers Blas Regnault and Carlos Dürich argue that the reform alters the three traditional pillars through which the nation earned income from the oil industry: royalties, taxes, and dividends derived from state ownership stakes.
According to both experts, the result is a substantial reduction in the share of oil wealth flowing into public coffers at a time when the country faces pressing investment needs in infrastructure, healthcare, and education.
Royalties: The Nation’s First Source of Revenue
For Blas Regnault, the most significant change concerns royalties, which have historically reflected the nation’s ownership rights over oil reserves.
“Royalties stem directly from the nation’s ownership of the reservoirs,” he explained.
The economist challenged the argument from some government sectors that classify royalties as a production cost.
“Royalties are not a production cost. They come before wages, before taxes, and before capital profits,” he said.
According to his analysis, the new law allows royalties to fall to 5% and, under certain contractual arrangements, even to 0%, a scenario he considers highly unusual in the global oil industry.
“No oil-producing country in the world gives up royalties. What this law allows is extraordinary,” he argued.
To illustrate the impact, Regnault used the average prices of Venezuelan crude between January and March 2026. With oil selling at $86 per barrel, a 30% royalty would have generated approximately $25.80 per barrel for the nation. A 5% royalty reduces that amount to just $4.30 per barrel.
Billions Less for Public Finances
Using 150 million barrels sold during the first quarter of 2026 as a reference—a figure attributed to U.S. Energy Secretary Chris Wright—and an average price close to $60 per barrel, Regnault calculated that oil activity generated approximately $9 billion in gross value during those three months.
According to his estimates, the previous system of royalties, taxes, and state participation would have generated roughly $5.535 billion in public revenue.
Under the new legal framework, public income would fall to approximately $1.576 billion.
“That means public participation falls to 17.5%. The global oil industry has never seen anything like it,” he said.
The difference exceeds $3.9 billion in a single quarter.
To put the figure into perspective, Regnault noted that those resources could have financed dozens of medium-sized hospitals or hundreds of thousands of classrooms.
“We are talking about enough money to finance between 60 and 70 medium-sized hospitals or nearly 500,000 elementary school classrooms,” he said.
In his view, the debate over oil revenue extends far beyond the energy sector and directly affects the state’s ability to sustain social programs.
“What is at stake is a substantial reduction in the nation’s ability to support social investment, public healthcare, and education,” he stated.
From a 42% Fiscal Burden to a 15% Tax
Carlos Dürich focused his criticism on the transformation of the oil tax system.
The economist recalled that previous legislation included several taxes tied to petroleum activities, including surface taxes, extraction taxes, export taxes, self-consumption taxes, general consumption taxes, and contributions to special funds.
“All those taxes created a fiscal burden of roughly 40% to 42%,” he explained.
According to Dürich, the reform replaced that entire framework with a single levy known as the “hydrocarbons fee,” set at 15%.
“We moved from nearly 42% to 15%, which means one-third of the previous level,” he said.
Dürich emphasized that the reduction extends beyond sector-specific taxes. When authorities combined petroleum income taxes and other contributions under the previous legislation, the state’s effective fiscal participation ranged from 55% to 60% of net industry revenues.
“Today that fiscal burden can fall to 30% or 35%, which means less than half of what it used to be,” he warned.
Fewer Dividends and a Smaller State Presence
The specialists also highlighted the weakening of state ownership participation.
Dürich explained that dividends represent the third channel by which the nation participates in the oil business, via the ownership stake of Petróleos de Venezuela (PDVSA) in joint ventures.
However, he argued that the new legislation allows structures in which state participation can fall below the traditional 50% threshold, thereby reducing dividend income as well.
“That directly affects the dividends that flow to the nation,” he said.
Protected Contracts and International Arbitration
Dürich also expressed concern about several provisions that, in his view, limit the state’s future ability to alter the economic terms of contracts.
One example is Article 26, which establishes contractual stability mechanisms.
“I have not seen a similar system in any other hydrocarbons law anywhere in the world,” he said.
He also questioned Article 8, which allows certain disputes to go before foreign courts, and Article 36, which permits joint ventures and production associations to maintain funds or bank accounts abroad.
“That runs contrary to the national interest,” he argued.
The Elimination of Windfall Revenue Mechanisms
Another controversial change involves the repeal of mechanisms that allowed the state to collect additional revenue when international oil prices rose sharply.
Dürich recalled that previous legislation included special contributions tied to periods of elevated crude prices.
Using an average Merey crude price of $86 per barrel in March 2026 as a reference, he estimated that eliminating those levies would result in a significant fiscal loss.
“Just from that repealed tax alone, the country has lost an average of six to seven dollars for every exported barrel,” he said.
Transparency and Social Legitimacy
Beyond fiscal and contractual issues, Regnault argued that the reform revives a broader discussion about the relationship between oil and Venezuelan society.
According to the researcher, political legitimacy within Venezuela’s oil model historically relied on the perception that a substantial portion of oil wealth returned to the country through public services, infrastructure projects, and social investment.
For that reason, he stressed the importance of making the economic terms of new contracts fully transparent.
“It is time for transparency. It is time for public oversight,” he said.
In his view, citizens cannot determine how much the nation truly receives from hydrocarbon exploitation without clear information regarding sale prices, discounts, royalties, taxes, payment mechanisms, and the final destination of revenues.
For both specialists, the debate surrounding the new Organic Hydrocarbons Law extends beyond attracting investment or increasing production. The central question, they argue, concerns how much of Venezuela’s oil wealth will remain in state hands and how much will transfer to new operators under the framework established by the reform.
