What it would take for Trump to drag Big Oil back into Venezuela

Almost a month after the U.S. raid that plucked Venezuela's repressive leader Nicolas Maduro out of his country, most American oil giants are still dug in against restarting operations — for now.

Relations between Washington and Caracas are steadily mending after an extraordinary intervention that ousted its leader and killed 100 people. The Venezuelan government under interim leader Delcy Rodríguez has taken steps to ease economic restrictions and encourage more foreign investment in the oil sector.

In turn, the Trump administration issued a general license allowing U.S. oil companies to operate in the country, including for selling and storing light crude. U.S.-imposed restrictions over Venezuela's commercial airspace ended this week as well.

But there's an asterisk to these developments: The two countries aren't in peacetime either, with Washington dictating policy to Caracas and threatening military force if it doesn't comply. The U.S.'s belligerent style of foreign affairs has fostered a uniquely unpredictable environment likely to scare off U.S. oil and gas companies from establishing a Venezuelan presence in the near-future.

"Legal documents have been created to ensure the [oil] sector is not as state dominant. It has relaxed some of the strongest restrictions," said Javier Corrales, a professor of Latin American affairs at Amherst College. "It's not enough what they've done, but this is not insignificant."

A complete rewrite of Venezuela's laws governing oil production has been at the top of the wishlist from U.S. oil giants. For firms such as ExxonMobil $XOM and ConocoPhillips $COP, memories of their equipment and property getting expropriated under Maduro's predecessor Hugo Chavez two decades ago are fresh. During a White House summit earlier this month, ExxonMobil CEO Darren Woods described Venezuela as "uninvestable."

The Venezuelan National Assembly took a big step this week to mollify those fears.

'The recovery of oil industry can only be done by private investment'

Venezuelan lawmakers on Thursday approved so-called "hydrocarbon reform" legislation that will give foreign companies operational control in oil ventures. Since 2006, the state-owned oil company Petroleos de Venezuela (PDVSA) had called the shots since with a majority stake in every project.

That won't be the case anymore. PDVSA, though, was left under state control in the reforms. It was neither privatized nor broken up. PDVSA has piled up an enormous amount of debt, totaling $150 billion to $170 billion, that the bankrupt government simply cannot bear.

"The recovery of the oil industry can only be done by private investment for two reasons," said Luis Pacheco, a former PDVSA executive who is now at Rice University’s Baker Institute for Public Policy. "The first reason is that the amount of money is very large and neither PDVSA nor the state can face that sort of investment. They cannot afford it."

Current Venezuelan oil production hovers around one million barrels per day. Chevron $CVX is the only U.S. oil giant operating with a special license granted by the U.S. government. It pumps about a quarter of Venezuela's daily production, though oil prices are half of what they were in the heyday of the early 2000s.

That's far from the only barrier. The same authoritarian political apparatus that Maduro oversaw remains embedded in daily life, signaling that Rodriguez isn't keen on providing space for an opposition party to flourish. The Trump administration's critics — particularly in the Venezuelan opposition — argue that the U.S. is prioritizing stability at the expense of democracy.

Secretary of State Marco Rubio was blunt this week in relaying that the administration doesn't intend for democratic change to sweep Venezuela overnight.

"We're dealing with people who spent most of their lives living in a gangster paradise. So it's not going to be from one day to the next," he said Wednesday during testimony to the Senate Foreign Relations Committee. "But I think we're making good and decent progress. It is the best plan, and we are certainly better off today in Venezuela than we were four weeks ago."

U.S. oil companies have demanded some form of security guarantees for their personnel. However, Energy Secretary Chris Wright has ruled out deploying U.S. soldiers to protect oil installations earlier this month.

A role for smaller oil companies

Trump has retained an interest in personally controlling Venezuelan oil sales and steering the revenue as he sees fit. At one point earlier this month, he kept open the possibility of shutting out ExxonMobil following Woods' harsh criticism.

Some U.S. restrictions are gradually loosening, though experts are skeptical about whether the maneuvers are legal. The administration brokered a Venezuelan oil sale generating $500 million, and deposited the revenue into a Qatar-based account. Just over half of that money was transferred back to the Venezuelan government, which channeled it into fortifying its shattered currency, the bolívar.

The U.S. government still has over 400 sanctions in place on Venezuela, complicating plans to draw private investment if investors are sanctioned for cutting deals with certain Venezuelan officials or PDVSA.

Smaller oil companies may be more willing to enter Venezuela in the short-term. Eric Smith, associate director of the Tulane University Energy Institute, pointed to oil service companies like Halliburton $HAL that possess the expertise to fix broken equipment without assuming the risk of owning oil fields in an impoverished country. Halliburton executives have said thy can return to the country once they get a green light from the U.S. government.

"They have a lot of intellectual capital, but they're not investing in money in the ground," Smith said. "So they have a tendency to be able to work in places where they the oil companies themselves won't go forth."