World's Largest Oil Reserves, Yet Venezuela's Energy Sector Collapsed

In a dramatic overnight raid, US forces captured Venezuelan President Nicolas Maduro, and Washington officials made no secret of their primary objective: preventing America's adversaries from exploiting Venezuela's vast oil wealth.

At a press conference following the strike, US President Donald Trump emphasised oil far more than the drug-smuggling charges Maduro faces in a New York court. Calling Venezuela's oil sector "a total bust," Trump declared that the United States had once built Venezuela's oil industry with "American talent, drive, and skill," only for the socialist regime to "steal it." According to him, Venezuela seized and sold American oil assets and platforms, costing billions of dollars.

This statement underscores a paradox that has puzzled economists and energy analysts for years: how can a country with the largest proven oil reserves in the world fail so spectacularly at producing and profiting from them?

The Paradox Of Plenty

Venezuela holds more crude oil than any other nation on Earth. According to the Organisation of Petroleum Exporting Countries (OPEC), the country has 303 billion barrels of proven reserves-more than Saudi Arabia's 267 billion, Iran's 209 billion, and Iraq's 145 billion. By comparison, the United States ranks ninth with 48 billion barrels. On paper, Venezuela should be an energy superpower. In reality, it is anything but.

The decline is stark. In the 1970s, Venezuela was producing around 3.5 million barrels per day, accounting for over seven per cent of global output. Today, that figure has collapsed to just 960,000 barrels per day. The fall has been relentless since Nicolás Maduro assumed office in 2013. Production dropped from 2.68 million barrels per day that year to less than a million in 2024, according to data from the Energy Institute in London. A brief uptick in 2015 did little to reverse the trend.

In 2019, Trump, in his first presidential term, imposed an oil embargo on Venezuela. The embargo was slightly eased in 2023 to compensate for a shortfall of Russian crude after the invasion of Ukraine. However, it was reinstated when the US government said that Maduro was not meeting his commitment to hold a fair presidential election in 2024.

Can The US Intervention Revive Venezuela's Oil Industry?

Trump has announced plans to send "very large US oil companies" to Venezuela to repair its broken infrastructure and "start making money for the country."

Market analysts believe that if these plans materialise, Venezuela's output could rise gradually, increasing global supply and potentially putting downward pressure on oil prices over the long term. But the road to recovery is steep, and history suggests that fixing Venezuela's oil sector will require far more than foreign investment.

Why Did Venezuela's Oil Industry Collapse?

The roots of Venezuela's oil crisis lie in a toxic mix of economic mismanagement, international sanctions, and systemic corruption. The country entered a severe recession in 2016, with GDP contracting sharply and inflation spiralling out of control.

The International Monetary Fund (IMF) estimated inflation at between 254 and 500 per cent that year, while Venezuela's own central bank reported 274 per cent. Independent estimates were even higher. Hyperinflation eroded the government's ability to maintain oil infrastructure and pay for imports of equipment and chemicals essential for production.

The situation worsened in 2017 when the US imposed sanctions on Venezuela's state oil company, PDVSA, cutting off its access to global financial systems and key markets. This move choked off revenue and foreign investment, leaving PDVSA unable to service its debts or attract partners.

Years of underinvestment compounded the problem. Skilled labour fled the country amid economic chaos, corruption hollowed out the industry, and foreign partnerships dwindled. PDVSA's assets were seized in multiple jurisdictions due to unpaid debts, further crippling its operations.

A Cautionary Tale

Venezuela's story is a sobering reminder that resource wealth is not a guarantee of prosperity. Without sound governance, investment, and global integration, even the world's largest oil reserves can become a stranded asset. For now, Venezuela remains a paradox: a nation sitting on a fortune it cannot spend, trapped by the very resource that once promised its future.