Venezuela Oil Output, Export Up; Politics, Quake Recovery Could Stymie Growth: Think Tank
Venezuela’s oil production and exports to the U.S. rose sharply in the second quarter compared to Q1, but a recent earthquake and political and regulatory uncertainty could curb further output growth, according to the Center on Global Energy Policy at New York’s Columbia University.
Luisa Palacios, adjunct senior research scholar at the energy think tank, said in a Monday report that significant easing of U.S. sanctions and the end of the U.S. blockade earlier this year boosted Venezuelan oil production to 1.2 million b/d, up 150,000 b/d, or almost 15%, from the previous quarter.
Another key change was a surge in Venezuela’s oil exports to the U.S. Gulf Coast, which are now averaging almost 600,000 b/d, a level last seen in 2018 before Washington placed oil sanctions on the country, Palacios said. Venezuela is now the second-highest oil exporter to the U.S. behind Canada.
While the oil and gas sector was relatively unaffected by the June 24 earthquakes, the event might still hinder the recovery of the country’s oil industry in the near term by souring the investment climate and delaying planned oil spending, given damage to some key infrastructure, Palacios said.
The World Bank last week estimated that Venezuela’s earthquakes caused $19.6 billion in direct physical damage, underscoring the importance of timely reconstruction for the country’s economic recovery.
On July 7, the Venezuelan interim government unveiled new oil regulations aiming to open the domestic oil industry to private-sector participation at all levels of the value chain, Palacios said.
The regulations also clarified fiscal terms, with royalty rates plus other production taxes ranging from 15% for offshore greenfield projects to 35% for onshore producing brownfields.
According to Palacios, the new rules have opened the midstream and downstream oil sectors to private-sector investments to address the “dire conditions” of the state-owned PDVSA-controlled oil and gas logistics, which should ease some of the current bottlenecks.
The regulations have also allowed private companies to participate in the refinery sector, but a lack of clarity about operating licenses and property rights could discourage any investment in new refineries and fail to solve the country’s fuel shortage, she said.
Palacios said while these regulatory changes may encourage some additional investment, particularly given continued geopolitical risks in the Middle East, further increases could be limited.
“A lack of progress in Venezuela’s governance and rule of law raises doubts about whether the country will be able to kick-start the type of investment cycle — and production growth — that other countries in Latin America such as Argentina, Brazil and Guyana have seen,” she said.
Venezuela’s oil production reached around 3.5 million b/d in the late 1990s and early 2000s. However, a combination of mismanagement, sanctions and underinvestment had undermined the country’s oil output.
Venezuela has the world’s largest proven oil reserves at about 303 billion bbl, accounting for around 17% of the global total, according to Energy Information Administration data.
–Reporting by Frank Tang, ftang@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
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