The mechanism means that Venezuela, “an impoverished country, is subsidizing a rich country like the United States,” the economist said
Neirlay Andrade.— Venezuela could face a fiscal sacrifice of around US$6 billion under the terms of the new oil agreement with the United States, according to an estimate presented Tuesday by economist José Guerra, who questioned the sale of part of Venezuela’s crude at cost and the absence of an upfront payment for access to the country’s oil fields.
“I estimate that Venezuela’s fiscal sacrifice amounts to 6 billion dollars,” Guerra said during a conference at the Central University of Venezuela (UCV), where he analyzed the economic terms of the agreement and their potential effects on public finances and the oil industry.
The economist bases his estimate on two components: the tax revenues Venezuela would forgo by selling part of its oil production at cost, and the opportunity cost associated with the absence of so-called “entry bonuses,” payments that, according to Guerra, the government could have demanded in exchange for the right to develop its oil fields.
For Guerra, the terms of the agreement mean that Venezuela is giving up current revenues in exchange for the expectation of higher production and future investment. That relationship is precisely what leads him to describe the mechanism as a subsidy from Venezuela to the United States.
US$6 billion Venezuela would forgo
For the first component of his calculation, Guerra estimated the fiscal impact of selling one-fifth of the oil produced at cost. Under a scenario of 100,000 barrels per day and a benchmark price of US$70 per barrel, he calculated a sacrifice of approximately US$408 million in royalties, US$383 million in integrated taxes and US$700 million in income tax revenue.
Together, those items represent nearly US$1.5 billion in fiscal revenue that Venezuela would forgo under that scenario.
The calculation starts with the difference between the benchmark price and the estimated total production cost. Guerra argued that the latter should include not only direct extraction expenses but also indirect costs, transportation, and insurance. In his calculation, he placed the total cost at around US$40 per barrel, compared with an assumed selling price of US$70.
“How much do we make on each barrel? Thirty dollars,” he explained.
He then added the second component of his estimate: the money Venezuela could have obtained by charging an entry bonus for access to the oil fields.
As a reference, Guerra cited the 1997 oil opening, when 16 companies paid about US$2.17 billion to participate. Adjusted to current values, he estimated that the amount would equal approximately US$4.5 billion.
“That is what Venezuela failed to collect, in my opinion, give or take. There is a sacrifice there, because they handed the fields to one company without competitive bidding,” Guerra said, comparing the current terms granted to North American Blue Energy Partners (NABEP) with those of the oil opening in the late 1990s.
“If you had opened up the oil fields — which are very productive — other companies probably would have come in and put several million dollars on the table for the right to access those fields,” he added.
Adding both components leads the economist to estimate the fiscal sacrifice associated with the agreement’s terms at around US$6 billion.
For Guerra, the central issue is not simply how much oil Venezuela may produce in the coming years, but how much revenue the Venezuelan government will forgo under the agreed terms.
“This can only be understood as a subsidy from an impoverished country like Venezuela to a rich country, because it is selling the oil at cost,” he said.
The promised investment: a benefit that has yet to materialize
The fiscal sacrifice outlined by Guerra comes with the expectation of a major expansion of the oil industry. However, the economist questioned whether the announced US$100 billion in investment represents funds that investors have already committed.
“I haven’t seen the United States government say, ‘I commit 100 billion dollars.’ No. They will seek the money. Where? In the international market,” he said.
The question, he added, is whether NABEP will have the financial capacity to raise the resources needed to develop the projects.
“We’ll see whether NABEP has the financial muscle to raise 100 billion dollars to invest in Venezuela,” he said.
As a reference, Guerra noted that Chevron has moved forward with about US$7 billion, an amount that represents only a fraction of the total planned investment.
The challenge, he explained, becomes even greater in new or greenfield projects, where companies must build infrastructure and secure basic services before production can begin.
Roads, electricity, water, materials, camps and labor are among the requirements he identified.
“Developing one of these fields takes between a year and a year and three months,” he said.
Thus, while Guerra’s estimated fiscal sacrifice involves revenue that the government would forgo under the terms of the agreement, much of the expected benefit depends on whether the announced investments actually arrive and lead to higher oil production.
More oil, but no new economic boom
Guerra does not rule out a significant increase in Venezuela’s oil production. However, he believes expectations of a rapid economic recovery should remain moderate because the country’s domestic industry has deteriorated.
He estimated that production could reach around 1.2 million barrels per day in 2026 and recalled that U.S. Energy Secretary Chris Wright has set a target of 1.5 million barrels per day. Reaching that level would require adding around 300,000 barrels per day to current production.
The impact on the rest of the economy, however, will depend on Venezuela’s ability to supply the goods and services that the oil industry requires.
According to Guerra’s estimate, a 10% increase in oil production could directly add around 2.5 percentage points to GDP. Still, the indirect impact would be much smaller because industries such as steel, cement and chemicals would deteriorate.
“Sidor doesn’t produce a speck of steel,” Guerra said, arguing that Venezuela would have to import a significant share of the necessary supplies.
For that reason, he warned that increased oil activity could benefit foreign suppliers — particularly those from countries such as Colombia or Mexico — more than Venezuela’s own industry.
“The value chain is fractured, and that is why oil has such a low impact on the non-oil economy — only 0.8% for every 10%,” he explained.
On the fiscal front, Guerra believes increased production will generate more revenue for the government, although nowhere near the scale of the oil booms Venezuela experienced during other periods of its history.
“They will clearly increase,” he said of fiscal revenues, but warned that “this is not the oil boom of the 1970s or the 1990s, because we don’t have the capacity.”
“If we were producing three million barrels of oil, then I would say yes. But we’re barely scratching 1.2 million barrels; we’re at one-third of what we had before,” he said.
The dispute over oil revenues
Despite his criticism, Guerra believes the agreement represents an opportunity for Venezuela, particularly because of its geographic proximity to the U.S. market and current conditions in the international energy market.
“This is very clearly an opportunity for Venezuela. I think it may be the last opportunity,” he said.
In his view, the country has advantages over other producers and markets, including its location and its ability to ship crude to the United States through the Caribbean.
“Venezuela has all the right conditions; we cannot lose this opportunity. It is a country without political, religious, or tribal conflicts. There are no Houthis here, nor the whole set of problems that have the Strait of Hormuz closed today. None of that exists here. Ships can leave through the Caribbean Sea for the United States without any problem,” he said.
However, the economist believes that increasing extraction will not represent Venezuela’s main political challenge. The fundamental dispute will center on who captures the oil revenues and how the country distributes them.
“Venezuela’s problem will not be the dispute over oil production; it will be the distribution of oil revenues. That will be the country’s political issue,” he said.
From that perspective, Guerra called for a new agreement on how Venezuela uses its oil revenues and urged the country to avoid repeating the management model it followed over the past several decades.
“Never again the oil policy of 1999 to 2017,” he said.
The economist argued that during that period the country squandered “one trillion 50 billion dollars on subsidies, on grocery stores and supermarkets selling practically free food; on companies that were taken over and bankrupted; on foreign subsidies that were lost; and on defaults.”
For Guerra, the challenge will be to ensure that any eventual expansion in production actually translates into benefits for the Venezuelan population, rather than merely creating greater opportunities for the companies participating in the development of the fields.
The former lawmaker therefore called for “a new oil pact, a new agreement, where oil revenues reach the Venezuelan people.”
