People often quip that history is doomed to repeat itself.
The quote was originally coined from a book that was published back in 1905 by a philosopher named George Santayana. In The Life of Reason: The Phases of Human Progress, the full version of the quote reads that those who cannot remember the past are condemned to repeat it.
And you know just as well as I do that people have poor memories today.
Two months ago, President Biden suspended some of the sanctions that had been placed on Venezuela’s oil sector.
It was a last-ditch effort to boost global oil supply and ease crude prices, which at the time had surged back towards $90 per barrel after the Oct. 7th attacks in Israel. All the US asked for in return was for Maduro to hold free and fair elections in his country. Well, good luck with that.
We talked a little about the insanity of mending ties with Venezuela a few months ago. And while reverting some of the sanctions levied against the country’s oil sector might provide a small bump, sanctions weren’t the biggest obstacle PDVSA was facing. There are much greater issues for PDVSA to solve first, including the poor state of its infrastructure and production equipment, which has been progressively abandoned, dismantled, and sold for scrap. Another major problem has been the rampant corruption that has plagued the national oil company for decades at this point.
Earlier this year, Reuters reported that $21.2 billion was lost after PDVSA turned to dozens of intermediaries to sell its oil under the United States’ radar. It turns out they just absconded with a lot of cash and left PDVSA out to dry.
Not to mention the fact that PDVSA’s former vice president and more than 60 government officials and businessmen were arrested on corruption charges last April.
Keep in mind, these are the same people we’re hoping will miraculously save an oil industry that has been collapsing for decades now. And if you think things couldn’t get any worse, hold onto your seat. Well, if you can’t save your own oil production, just steal it.
And now it seems that Maduro is taking a page right out of Putin’s playbook.
Last Sunday, the Venezuelan President held a referendum on whether or not the country should claim sovereignty over a territory named Essequibo.
Never heard of it? Take a look:
Don’t blame yourself too much, because not many people have. The 160,000-square-kilometer makes up roughly 66% of neighboring Guyana.
It also happens to be incredibly oil-rich.
Just to put a little more perspective on this, Guyana is one of the hottest upcoming oil regions in the world.
When it comes to global oil supply, there are only a few countries that are capable of significantly boosting oil output. The United States, Brazil, and Guyana have been the key drivers of global supply growth in 2023.
But here’s where Guyana is even more crucial to global supply…
U.S. oil output is currently at record highs, and it’ll take some ingenuity and a lot of luck to see output go much higher from here, especially with so much headwind-facing drillers today.
As global oil consumption continues to break new record highs going forward, bringing new oil online is paramount.
Guyana, which currently produces about 400,000 barrels per day, is expected to boost output to 1.2 million barrels per day thanks to a string of massive offshore discoveries by Exxon.
This referendum also came despite a warning by the UN’s International Court of Justice.
Perhaps Exxon is getting a little déjà vu from when Chavez suddenly seized every oil asset the company owned overnight back in 2007.
Maduro isn’t waiting around for someone to stop him, too. Two days ago, he ordered PDVSA to start granting licenses to go after oil deposits in the area.
Things are going to get worse before they get better. The risk of losing Guyana’s offshore oil blocks, however, is far more dangerous than most people realize.
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