On Saturday, the U.S. took effective control of the world’s largest oil reserves when it captured then-Venezuelan President Nicolás Maduro and his wife, Cilia Flores, in Caracas and flew them to New York, where Maduro faces narcoterrorism charges.
U.S. President Donald Trump said on Saturday that “we will run” Venezuela, at least in the short term.
What are the implications for Canada, the world’s fourth-largest holder of proven oil reserves and fourth-largest oil producer?
The chief concern for Canada is that Venezuelan oil, trapped in the ground for decades by internal political strife and external sanctions, could surge onto the global market, sinking an already weak world oil price at the expense of Canadian oil producers.
Oil and gas production, one of Canada’s largest industrial sectors, accounts for more than seven per cent of the Canadian economy. Regime change in Caracas could alter Prime Minister Mark Carney’s intended transformation of Canada into an energy superpower.
If U.S. Gulf Coast refineries geared to processing heavy oil, used in production of diesel, gasoline, chemicals and jet fuel, opt for cheaper Venezuelan crude, Canada’s heavy oil producers could see a decline in U.S. exports.
More reason, some experts now say, for Canada to proceed with a second West Coast pipeline to tap markets in Asia Pacific and the Indo-Pacific.
The Trump administration promises to politically stabilize Venezuela, a prerequisite to investment required to rebuild the country’s oil industry. But the U.S. record on restoring normality to countries it invades is not good, judging from Iraq and Afghanistan.
Venezuelan oil production is a modest 1 million barrels per day (bbl/day), a fraction of Canada’s output of almost 5.8 million bbl/day. Venezuela accounts for less than one per cent of world oil production. Canada accounts for about six per cent, trailing the U.S. (22 per cent), Saudi Arabia (11 per cent) and Russia (11 per cent).
But Venezuela possesses colossal proven oil reserves, estimated at about 303 billion barrels at year-end 2024. Saudi Arabia ranks second with 267 billion barrels, followed by Iran (209 billion), Canada (163 billion) and Iraq (145 billion).
Increased amounts of Venezuelan oil will someday get to market. Assuming Venezuela remains in OPEC, it will be pressured to align with OPEC’s objective of keeping prices high by refraining from overproduction.
But that discipline can’t be counted on. Members of OPEC have routinely cheated on their production quotas. With $160 billion (U.S.) in debt to restructure, Venezuela will be tempted to overproduce once it can, driving down the world price for the Canadian oilpatch.
Experts think full Venezuelan production is at least a decade away, but a doubling of current production is possible within five or six years. That assumes billions of dollars are made available to rebuild Venezuela’s severely degraded oil infrastructure.
In the meantime, the huge overhang on the global oil market of potential Venezuelan oil production will exert downward pressure on the world oil price if Venezuela shows signs of regaining its previous 1970s peak production of nearly four million bbl/day — about four times its current production.
Canadian companies might eventually play a prominent role in restoring Venezuelan oil production.
Trump said Saturday he wants U.S. companies to take control of the Venezuelan oil industry. That would seem to give the inside track on reaping Venezuela’s oil wealth to U.S. oil majors.
They include Chevron, which already operates in Venezuela under a special licence from the U.S., and American oil majors ConocoPhillips and Exxon Mobil, which quit Venezuela in the mid-2000s after then-president Hugo Chavez nationalized their assets.
But the world capital of heavy oil expertise is Calgary. Canada mostly produces heavy oil, and it has been developing heavy oil extraction and processing methods for more than 70 years.
Canadian access to the world’s largest oil reserves could figure into Canada-U.S. trade talks. Regardless, Canadian oil majors can be expected to someday participate in one of the planet’s biggest oil plays.
And that will figure into the pricing of stocks in Canadian oil majors Suncor Energy, Canadian Natural Resources, Cenovus Energy and Imperial Oil (an affiliate of Exxon Mobil).
The return of U.S. gunboat diplomacy in the Americas must be a concern for Canada after Trump’s declaration Saturday that the U.S. “will dominate the Western Hemisphere.”
But the greater immediate worry is the prospect of hostilities between the U.S. and China, which is heavily invested in Venezuelan power utilities, telecoms and other assets. Most of Venezuela’s oil is sold to China, which is at risk of being cut off by a Venezuela run by the Trump administration.
The U.S. and China will be uneasy co-inhabitants of a country in the U.S.’s sphere of influence. As if the world needed more trouble spots, Canada has a new one close at hand if the U.S. and China can’t reach a peaceful entente in this corner of their competing empires.
