Protests are raging in Caracas, shoppers are fighting over chickens, and Venezuelan President Nicolás Maduro has amped up the anti-American rhetoric, blaming unrest on the American government andkicking diplomats out of the country.
While in the past, strained diplomatic relations between the the world’s most oil-rich country and the United States might have caused panic, America doesn’t need Venezuela’s oil nearly as much as it used to.
Former US ambassador to Venezuela and current Duke professor Patrick Duddy explains why:
The U.S. is still Venezuela’s largest market, but we do not buy nearly as much oil from Venezuela as we once did. The US has reduced its aggregate consumption by about 1 million barrels in recent years and we’ve also increased production, thanks largely to shale exploitation and horizontal drilling.
The US used to import more than 50% of the oil it consumed. Now, it imports substantially less than 50% of its consumption. We’re using less, producing more.
Production is also expanding in Canada. Mexico has recently changed its constitution to permit foreign participation in its energy sector and it is widely understood that they have very substantial shale reserves. Brazil has substantial off-shore reserves, known as the pre-salt deposits; Argentina has lots of shale as well.
Imports from Venezuela to the U.S. are down to, on average, 900k barrels a day or less, and sometimes it drop substantially below that. So, the relative importance of Venezuela to the U.S. has changed.
Duddy went on to explain why Venezuela probably needs the US more now than the US needs Venezuela.
“Oil represents over 95% of Venezuela’s export earnings. From those earnings, they finance 45-50% of government activities,” said Duddy. “If oil revenues slips, the situation there could become more urgent.”
Things were pretty different back in 2002, when a strike in Venezuela caused the country’s oil output to collapse from 3.1 million barrels a day to arround 200,000, causing oil prices to rise sharply to the highest prices since the Gulf crisis in 1990, according to Daniel Yergin’s “The Quest.” Crises like that led President George W. Bush to push for increased fuel efficiency aimed at getting Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chávez “out of the Oval Office.”
Even if America is less vulnerable than it used to be, however, Venezuela is still important to the global oil market. As predicted in a research note from UBS strategist Julius Walker:
Any production outage would cause a significant price spike. Any production shut-ins as a result of political unrest would almost certainly result in sharp price spikes, and a total production shortfall would severely strain global oil markets.