President Donald Trump’s invasion of Venezuela and his pledge to control the country’s oil sales “indefinitely” raises massive geopolitical issues and unleashes new uncertainty on Venezuelans. But, it’s not likely to have a big impact when it comes to Alaska’s oil industry.
At least for now.
That’s the takeaway of Alaska Institute of Social and Economic Research Brett Watson, who studies Alaska’s energy industry and how it fits into the world market. It’s an important area of study because Alaska’s oil industry plays a key role in the state economy and the taxes it pays fund a sizeable chunk of state services, outpaced only by investment income from the Alaska Permanent Fund.
With legislators set to return to session in less than two weeks, the price of oil will be closely watched, as a small change can mean hundreds of millions of dollars in tax revenue.
But, as of Tuesday, Watson said the global market appeared largely unmoved.
“While there’s been some volatility in commodity oil prices, either West Texas Intermediate or Brent, whatever index you want to look at, the market’s reaction has been mostly a shrug,” he said, explaining that all indicators are suggesting relative stability in prices. “Markets may be waiting to see exactly how this materializes, but their immediate reaction, again, is kind of a shrug.”
Watson attributed that relative indifference to the increasingly complex global oil market, where prices have already been slumping due to larger factors beyond Venezuela. The biggest issue is that the world is already producing plenty of oil and faces a surplus thanks to tepid economic growth and increased production from OPEC member countries, who have an advantage of sitting on oil reserves that are much cheaper to produce and process than Venezuela’s heavy crude, as well as record production in the U.S. and Canada.
Those already low prices – sitting around $56 to $60 a barrel – will make it a hard sell for investors to supply the money needed to expand and modernize Venezuela’s oil fields. Venezuela’s breakeven point is about $80, according to Claudio Galimberti, the chief economist at independent research firm Rystad Energy, who told NPR that it’s currently not an attractive field for investment.
“These companies would not go there if they know that the breakeven is $80 per barrel and that the prospects are for the next two, three, four years, oil prices stay between $60 and $70 per barrel,” Galimberti says. “They won’t do it, because it makes no sense.”
While Trump has signaled interest in having the U.S. and its energy companies take over Venezuela’s oil fields, saying this week that he plans to “indefinitely” run the country’s oil sector, oil development is not nearly as simple as flipping a switch.
As we’ve seen in Alaska, which has its own challenges and additional development costs compared to low-cost regions like OPEC member countries, these projects have five- or ten-year timelines before oil starts flowing, a point highlighted in the analysis by Canada-based TD Securities.
“Investment to drive any significant increase in Venezuela’s capacity is measured in years, not months,” the analysis explained, adding that the expected costs for energy infrastructure will be considerable.
That’s because Venezuela’s oil industry infrastructure is not just aging, but because it sits atop reserves of heavy crude oil, which is more expensive to produce than, say, the sweet crude produced by OPEC member countries.
“At least $20 billion worth of investment and a timeline spanning towards 10 years would be needed to add an incremental 500,000 barrels per day worth of production, with some $50 billion — $60 billion of investment required to return to 1998 levels,” it explained. “Such production increases would also require the U.S. oil majors to buy in, which is far from certain given current weakness in prices and the elevated risk profile.”
In plain language, Watson said that wary investors may not be particularly eager to invest in Venezuela given the high cost, the long timeline to a return, and the overall political uncertainty in the region. He said there’s been a trend in recent years of investors turning away from oil toward tech investments, which are seen as offering faster returns.
“If there’s any risk to that capital, either because of some geopolitical event or a natural disaster, that sort of thing that puts that capital at risk, you’ve got to discount the potential payoff of that investment,” he said. “That’s something that companies will be thinking about as they weigh investment right in a global market of Venezuelan opportunity versus an opportunity in the Lower 48 or Canada or Alaska or anywhere in the world.”
Because of already low oil prices, excess oil supply, high investment costs, uncertainty and long timelines, Watson said he’s not expecting any major changes in the near- or mid-term, but cautioned that things can always change. U.S. subsidies for development in Venezuela, for example, could change the calculus on investments.
While Alaska’s oil industry isn’t likely to be upended by the anticipated U.S. takeover of Venezuela’s oil industry — good news to those who’ve been watching the oil prices ahead of this year’s budget process — Watson stressed that it doesn’t discount the importance of what’s happening there.
“It’s not that this is an inconsequential event, but it may not be consequential for Alaska’s oil market in the short-term, medium-term,” he said. “There are many reasons that it might be consequential for regional oil markets, for people in Venezuela and maybe Gulf Coast oil refiners in the United States, but it’s difficult to see the impacts of that on global oil markets, at least in the next couple of years.”
“I think that the most important regional impact is what this means for Latin America and what this means for Venezuela, particularly, right? This is going to have big impacts on that country, politically and economically. Oil represents something like 90% of that country’s exports, and so I think not to get lost in the sauce here is the fact that there’s been a major regime change in a large Latin American country,” he said. “This is going to have big social, political, and economic implications for that country in particular. And those are, I think, the first-order impacts here.”
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Bluesky.
