Trump and Venezuela's Oil

Yesterday I wrote about a political science framework proposed by Stacie E. Goddard and Abraham Newman that explains the behavior of cult leader, convicted felon, and failed President Donald Trump. A few hours after I published that post, Trump provided an excellent example of the theory in action. As such, today I am going to apply Goddard and Newman's theory to Trump's announcement that "the Interim Authorities in Venezuela will be turning over between 30 and 50 MILLION Barrels of High Quality, Sanctioned Oil, to the United States of America."

First, some background. The idea advanced by Goddard and Newman is that the importance of national governments has been replaced in many countries, including the United States, by ruling "cliques," which are networks of elites seeking to establish material and status hierarchies based on the extraction of tributes from those lower in the hierarchy. Goddard and Newman labeled this neo-royalism. Trump's clique is easily identifiable, involving family members and devoted loyalists. For instance, Trump's son-in-law, Jared Kushner, who has no official role in government, has been routinely involved in international negotiations on behalf of the United States. In neo-royalist regimes, laws and legal structures have little meaning. Instead, what is important is what will benefit the ruling clique.

Even before launching the military operation in Venezuela that resulted in the seizure of Venezuelan President Nicolás Maduro and his wife, Trump claimed that Venezuela had stolen oil from the United States. By this, Trump was likely referring to Venezuela's nationalization of its oil industry in the 1970s and additional restrictions placed by former President Hugo Chávez. After the military intervention in Venezuela, Trump reiterated this claim:

Venezuela unilaterally seized and sold American oil, American assets, and American platforms, costing us billions and billions of dollars … We are going to have our very large United States oil companies, the biggest anywhere in the world, spend billions of dollars, fix the badly broken infrastructure … and start making money for the country.

Contrary to Trump's claims of theft by Venezuela, a fairly strong argument can be made that what has actually happened is the theft of Venezuela's oil assets by Trump's ruling clique.

A couple of background points should be understood. First, the world does not really need additional oil at the moment. Most economies are moving away from petroleum and investing in renewable energy. The United States, in particular, does not need more oil. The U.S. is currently an oil exporter. Moreover, lower prices are not good for U.S. producers. Ryan Lance, chairman and CEO of ConocoPhillips, recently said that "At $60-$65 a barrel WTI [West Texas Intermediate] oil prices, the US is probably plateau-ish." As I write this, WTI is selling at $56.05. At these prices, Americans will be losing jobs.

As for Venezuela's oil industry, there is also important background information. Venezuela's reserves consist of heavy, sour-grade oil. In contrast, the U.S. produces light-grade oil. A refinery has to be purpose-built to process heavy-grade oil. Citgo, which until recently had been owned by Venezuela’s state oil company PDVSA, owns three such refineries on the Gulf Coast. Trump blocked imports of Venezuelan oil (with an exception for Chevron), forcing Citgo to rely on more expensive sources of oil and making the company unprofitable. Unable to service its debt, PDVSA was forced to sell Citgo.

Not only does the U.S. not need Venezuelan oil and, in fact, increasing production of Venezuelan oil will cost U.S. jobs, but U.S. oil companies are not even interested in returning to Venezuela due to the likely unprofitability. In fact, Trump has suggested that the U.S. may be forced to reimburse oil companies for rebuilding Venezuela's infrastructure in order to coax them back. A traditional analysis based on national interest would suggest that there is no U.S. interest in rebuilding Venezuela's oil industry. To the contrary, as a matter of national interest, the U.S. probably would prefer the industry to remain in decline. This is where the neo-royalist framework is helpful to explain Trump's motivations.

When PDVSA was forced to sell Citgo, it was purchased by billionaire investor Paul Singer. Singer was able to pick the company up at a firesale price, paying $5.9 billion for assets that court advisors had valued at about $13 billion. According to Judd Legum of Popular Information, Singer:

donated $5 million to Make America Great Again Inc., Trump’s Super PAC. Singer donated tens of millions more in the 2024 cycle to support Trump’s allies, including $37 million to support the election of Republicans to Congress. He also donated an undisclosed amount to fund Trump’s second transition.

It is safe to say that Singer is a member of Trump's clique. While imports of Venezuelan oil will likely cost many Americans their jobs, those imports will personally benefit Singer and, by extension, Trump.

As noted in the introduction to this post, yesterday Trump announced that Venezuela would be turning over between "30 and 50 MILLION Barrels" of oil to the United States. Trump went on to say that "This Oil will be sold at its Market Price, and that money will be controlled by me". As described by Trump, this arrangement would be highly illegal. Even if there were a mechanism for the U.S. to receive and sell oil, any revenues would go to the U.S. Treasury and then be spent only if appropriated by Congress. But, as with tariff revenues, Trump is attempting to account for them separately so that only he controls them, in effect setting up his own slush fund. If this were to come to pass, Trump could operate almost entirely independently of Congress. This is completely consistent with Trump acting as the leader of a clique rather than the leader of the U.S. government.

Trump was able to extract this concession from the Venezuelan government due to the blockade on Venezuelan oil exports being enforced by the U.S. military. Since it can't be exported, oil is filling up storage facilities at Venezuela's oil terminals. Presumably, Venezuela was faced with choosing between halting production or giving oil away to Trump and chose the second option. The current government probably hopes that, in return, it can continue having a free hand to suppress opposition.

To summarize what has occurred, Trump used U.S. laws to force a Venezuelan-owned company to be sold. It was then bought by a member of Trump's clique. Trump then used the U.S. military to extract free oil from Venezuela, which Trump plans to sell and keep control of the resulting revenue. The oil will likely end up benefiting Trump's clique member who, if he understands the rules, will be sure to funnel some back to Trump. This is neo-royalism in action.