Venezuela, holder of the world's largest oil reserves, is negotiating with Washington to lease its most productive oil fields to the United States for 100 years in exchange for leaving the Organization of the Petroleum Exporting Countries, according to people familiar with the talks. The Trump administration has turned to the arrangement after the U.S.-Iran war drove the country's strategic petroleum reserve to a 40-year low and pushed domestic prices higher.
Bloomberg reported on the 27th, citing multiple sources, that Venezuela is considering an OPEC withdrawal following discussions with senior U.S. officials. Axios reported the same day, citing senior U.S. administration officials, that an oil field deal with Venezuela is under discussion. If completed, the transaction would more than double U.S. oil reserves. A U.S. official said calling the agreement merely "huge" was not enough, describing it instead as "massive."
The two sides have put more than a dozen of the country's most productive fields on the table. The assets were previously controlled by close associates of the former Venezuelan government or by Chinese capital, according to people familiar with the matter. Venezuela, whose output has been constrained by U.S. sanctions, has also been receptive to the talks. A senior U.S. official told Bloomberg that through an alliance with Venezuela, President Donald Trump envisions the creation of an "oil superpower" that would sharply reduce OPEC's influence, adding that freeing Venezuela from production quotas would allow it to maximize output over the long term and bring prices down.
OPEC has been shaken by a string of departures in recent months. Founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, the group later expanded to 12 members with the addition of countries including the United Arab Emirates and Nigeria. The UAE announced its withdrawal four months ago, and Iraq and others have voiced discontent publicly. A Venezuelan exit would further diminish the clout of the Saudi-led group.
In return for handing over stakes in the fields, Venezuela would gain access to investment from private U.S. oil companies. Normalizing development at long-neglected fields is expected to lift the country's oil revenue. Once South America's largest crude producer, Venezuela has seen output plunge over several years because of a prolonged economic crisis, aging facilities and U.S. sanctions. Production last month averaged about 1.16 million barrels a day, less than half the level of a decade earlier. Officials are discussing raising output free of OPEC quotas as a way to overcome the economic crisis.
Relations between the two countries began to thaw in January, immediately after U.S. forces detained Venezuelan leader Nicolas Maduro and a cooperative leadership took power in Caracas. In March, the two governments announced they would restore diplomatic and consular ties after seven years, and talks on cooperation and investment in oil and mining have followed. Some analysts say the deal could become a signature achievement of Trump's "Donroe Doctrine," an effort to expand U.S. political and economic influence in the Western Hemisphere. Trump has called Venezuela the "51st state" and has said the United States controls the country's crude.
A Venezuelan withdrawal from OPEC would make clearer the scale of the political realignment underway in Caracas since Trump ousted Maduro and took control of the country's oil sales. Bloomberg described the case as virtually unprecedented U.S. intervention in another country's economy.
The administration is pressing the negotiations with unusual force because rising international oil prices have spilled into consumer prices. Dollar General, the largest U.S. discount retailer, posted second-quarter sales growth of more than 16% on the strength of its "Value Valley" $1 merchandise section. Trump also eased restrictions on cheap meat imports over the objections of Republican district lawmakers, a move reflecting concern about public sentiment on prices.
