More than anything else, our leaders seem to be defined by hubris in their foreign policy. President Trump added Venezuela to the long list of autocratic regimes that enjoy American backing last Friday, announcing on Truth Social a deal he claimed would “substantially lower gas prices for all Americans long into the future.” As part of the deal, the Pentagon will acquire a 35 percent stake in North American Blue Energy Partners (NABEP), run by a businessman who is close to acting Venezuelan president Delcy Rodríguez.
While Americans do face pressures at the pump, brought on by the closure of the Strait of Hormuz, it is unlikely that President Trump’s deal will meaningfully alleviate these supply-chain issues in both the short and long run. However, his policies do have the guaranteed adverse effect of empowering a dictatorship and forestalling much-needed reforms in Venezuela.
To start off, why is Washington seizing the oil? Initially, the administration attempted to cajole private sector partners into revitalizing Venezuelan petroleum infrastructure. Exxon and ConocoPhillips refused. Physically, Venezuelan oil capacity is degraded by aging infrastructure, requiring over a decade of modernization and $100 billion in investment. If any company decides to take on that risk, it faces the difficult task of working with the Venezuelan government. Having seized American firms’ assets twice, US firms are loath to risk a third entry.
Barring direct seizure, Venezuelan regulations smother private enterprise as well. Under Nicolás Maduro, labor laws and price controls continued to raise the cost of doing business in the country. Despite reforms to the country’s hydrocarbon investment law, private firms are barred from undercutting state firms and must adhere to strict quotas. It’s no surprise that Exxon’s CEO called the country uninvestable during a meeting with the White House this year. But, rather than allow the capital-starved Venezuelan government to pass the reforms necessary for private investment, the White House solution involves US taxpayers subsidizing the risk. For example, the Pentagon’s arrangement could involve Washington handing out risky loans should NABEP fall into financial distress.
Even where oil investments are concerned, why should citizens underwrite one in Venezuela specifically? As an editorial in the Wall Street Journal mentions, new investments in Argentine shale and Guyanese wells are much more promising. Instead, US taxpayers will take on the task of modernizing Venezuela’s out-of-date infrastructure and building out the capacity needed to refine Venezuela’s heavy crude oil, which is costlier than both fracking and refining light crude of the type found in Guyana. It’s more likely the administration wants voters, weighing whether to extend the GOP’s legislative mandate another two years, to see its foreign adventurism as a strategic success before the midterms.
But this doesn’t do anyone any favors. By investing in Venezuela where the private sector refuses to do so, the US is giving Caracas a carte blanche to maintain its hostile business environment. So long as the regime has productive enterprises to tax, authorities can continue to attack private businesses, erode the rule of law, and siphon state funds for corruption and patronage. The complete breakdown of economic activity along with a major earthquake in June could have been a catalyst for the economic liberalization Venezuela desperately needs. Instead, US cash will now act as a lifeline that lets the state continue eroding its citizens’ fundamental freedoms.
All this has political consequences for the US as well. When we act irresponsibly overseas, it risks blowback from the people of Venezuela. Ms. Rodríguez—an unelected autocrat—may have agreed to American demands, but both left and right of the Venezuelan political sphere view the deal she signed as illegal. Unless Washington is willing to prop up Ms. Rodríguez indefinitely, the next Venezuelan government will likely try to renegotiate it. (In fact, that’s likely why the White House’s agreement secures a hundred-year lease to the country’s oil). Bankrolling the Venezuelan autocracy will put the United States in the bad books of the country’s future politicians as well as its people. We only need to look to Iran, where decades of propping up the Shah produced the Islamic Republic, to see what happens next. As Dr. Ron Paul famously reminds us:
When we went into Iran in 1953 and installed the shah, yes, there was blowback. A reaction to that was the taking of our hostages and that persists. And if we ignore that, we ignore that at our own risk. If we think that we can do what we want around the world and not incite hatred, then we have a problem. They don’t come here to attack us because we’re rich and we’re free. They come and they attack us because we’re over there. I mean, what would we think if we were—if other foreign countries were doing that to us?
Funding a dictatorship to secure strategic resources for the US has had disastrous consequences in the Middle East. America’s foreign policy establishment does the same in our backyard. Venezuelans today rightfully blame socialism for their country’s economic woes. In the future, if we keep making the same mistake, it’ll be Uncle Sam they blame next.
