Pitts: How Venezuelan Elections Impact Texas and Louisiana

The ramifications of Venezuela’s contested July 28 presidential election are felt far beyond the South American country’s borders. This is especially the case for the U.S. energy sector’s connections to crude supply chains and refinery operations.

With Chevron operating in Venezuela under a unique set of circumstances, and a handful of U.S. Gulf Coast refineries built to process the thick, sour Venezuelan crude, the latest developments in Caracas—with the ruling party claiming an allegedly false victory in the election—will continue to have significant impacts, particularly in the Lone Star State.

Venezuela, a founding member of OPEC and a past oil-producing and exporting powerhouse, was for decades a crucial supplier of heavy oil to U.S. refiners. And Texas and Louisiana refineries were major beneficiaries.

Companies such as Valero Energy, Phillips 66 and, of course, Venezuela’s Houston-based refining arm, Citgo Petroleum, depended on a steady flow of imports from state-owned Petroleos de Venezuela (PDVSA) to maintain strong refining levels.

Things took a 180-degree turn in 2019 when then-President Donald Trump imposed sanctions on Venezuela with an eye on regime change. Sanctions, coupled with the COVID-19 pandemic, saw those oil import flows from Venezuela slow to a trickle as PDVSA crumbled.

Venezuela’s production peaked at 3.2 MMbbl/d in 1997, according to the U.S. Energy Information Administration (EIA). The same year, Venezuela exported a record 1.8 MMbbl/d to the U.S. (56% of Venezuela’s total production). In the first six months of 2024, Venezuela exported an average 194,000 bbl/d to the U.S. (23% of Venezuela’s total production) of its total 827,000 bbl/d production, according to the EIA.

The fallout is significant for U.S. Gulf Coast refineries that were forced to seek alternative heavy oil sources at higher prices. It impacted profit margins and, ultimately for U.S. motorists, prices at the pump.

Heavy crude alternatives from Canada, Colombia and Mexico have filled the gap, but typically at higher costs. This has forced refiners to adjust their operations and product mixes to remain competitive and accommodate more lighter U.S. oil volumes.

Under the weight of sanctions, internal mismanagement and the continued exodus of what remaining skilled workers there are, Venezuela is producing at a mere shadow of its former self. Even after managing a partial recovery in production in recent years, due to concerted efforts by Chevron, Venezuela isn’t expected to regain its former glory unless there is a drastic change in U.S. foreign policy or in the ruling regime.

Importantly, the U.S. has allowed Chevron to continue operating in Venezuela despite the stricter sanctions on almost all other companies looking to do business with the government of President Nicolas Maduro.

Part of the reason is to allow Chevron to recuperate its unpaid debts in Venezuela. The other part relates to Washington’s beachhead theory to maintain an U.S. presence in Venezuela to hold off Russian, Chinese and Iranian influences, and to have a so-called energy foothold in Venezuela if and whenever a regime change occurs.

Chevron’s ability to maintain this foothold is a key strategic advantage that could provide a lifeline to U.S. refineries if international relations were to eventually change for the better. Assuming the Maduro regime stays in power, another potential change would not technically emerge until 2030.

The administration of the next U.S. president—be that Vice President Kamala Harris or Trump—is expected to take a hard line on Maduro, especially in the wake of more election fraud allegations.

Another round of U.S. sanctions could further limit Chevron’s ability to engage with Venezuela’s oil industry. While unlikely, such a drastic measure could lead to a further tightening of supply, while boosting the costs for Texas and Louisiana refineries.

While Washington ponders its next steps, impacted U.S. companies are forced to continue to navigate an increasingly complex web of sanctions, legal battles and shifting oil supplies. Whether through Chevron’s continued operations or the uncertain fate of Citgo—still being shielded from creditors seeking compensation for wrongful expropriations in Venezuela—Texas will remain a key player in the ongoing telenovela that is U.S.-Venezuelan political and energy relations.