President Donald Trump is irrationally exuberant about rebuilding Venezuela’s economy and its oil industry. The reality on the ground is far less encouraging. Venezuela is a broken nation-state. Over the past decade, its economy has contracted by roughly 75%. The country’s institutions have collapsed, and its currency is effectively worthless after years of hyperinflation.
Rebuilding Venezuela’s economy will require far more than optimism and prodding by Trump. The new government, led by acting President Delcy Rodriguez, will need to act quickly, with significant input from American financial experts, in order to curb inflation and stabilize the Bolívar currency.
Responsible fiscal and monetary policy is essential to restoring confidence. Money supply must be strictly controlled, and an independent central bank must be established if Venezuela is to regain even basic monetary credibility. Ending hyperinflation will also require Venezuela to reengage with the global financial system. That means reaching out to the International Monetary Fund, the World Bank, and regional development institutions to regain access to international credit markets. Major U.S. banks could play a critical role in restoring Venezuela’s creditworthiness. Just as important, the country must restructure its sovereign debt.
Beyond macroeconomic stabilization, Venezuela must revive its private sector. That will require the reestablishment of the rule of law, enforceable contracts, and the sanctity of private property rights, all of which have been systematically dismantled over the past two decades. Failed state-owned enterprises should be privatized. U.S. legal firms with expertise in international law and finance would be indispensable in rebuilding the legal architecture of a functioning market economy.
The most critical and most difficult task, however, will be reconstructing Venezuela’s oil industry. Doing so will require massive foreign investment, particularly from American oil majors and energy service companies capable of rebuilding production, pipelines, refineries, and export infrastructure. Clear, enforceable legal frameworks will be essential to attract that investment.
But the key question remains: Will U.S. oil companies be willing to invest without firm profit guarantees from the Trump administration?
Energy experts estimate that roughly $20 billion in capital investment would be needed just to increase oil production by 500,000 barrels per day from today’s level of approximately 1 million barrels per day. That is a daunting sum in an environment of relatively low oil prices. Rystad Energy, a respected industry consultancy, is even less optimistic. Rystad estimates that $53 billion in upstream and infrastructure spending would be required over the next 15 years merely to keep Venezuela’s crude oil production flat. Increasing production by 2 million barrels per day would require an additional $45 billion. Capital, however, is only part of the challenge. Venezuela no longer has the skilled workforce needed to rebuild its oil industry. Many of its best engineers and technicians are scattered across the globe, having fled the socialist regimes that destroyed both the industry and the broader economy.
Meanwhile, political instability remains acute. Venezuela’s authoritarian security apparatus is reasserting itself. Heavily armed forces and pro-government motorcycle gangs known as Colectivos patrol Caracas. Criminal organizations such as Tren de Aragua also remain powerful.
Before rushing to invest in Venezuela or in oil companies that might profit from the arrest of former Venezuelan dictator Nicolas Maduro, individual investors should proceed with caution. The obstacles to profit are high, and Trump’s time in office is limited.
Caveat emptor, buyer beware.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society.