War in Iran will trigger another crisis of abundance in Venezuela

Every time a war breaks out in the Middle East, Venezuela receives the sinister privilege of a considerable increase in its oil revenues. The major consuming powers react nervously and, fearing oil shortages and rising prices, rush to buy large quantities of crude for their reserves. The scarcity and increased demand send prices soaring. The country is flooded with petrodollars, and the pathologies of rentier Venezuela are exacerbated.

This cycle has repeated itself time and again without Venezuela learning to manage the alternation between periods of abundance and scarcity without trauma. When prices rise, we become intoxicated by the feast of plenty. We believe that oil revenues will continue to grow and we don’t prepare for times of scarcity. And when prices plummet and production falls, we convince ourselves that the oil era has come to an end. Even then, we fail to prepare ourselves to intelligently manage the next crisis of abundance.

This is the most critical moment in the history of rentier Venezuela. The licensing system prevents oil revenue from reaching the national treasury directly. Its clientelistic distribution ceases to be a mechanism of power and domination and becomes an instrument of control and subordination.

According to Executive Order 14373 issued by Donald Trump, revenues from Venezuelan crude oil sales are deposited directly into accounts at the U.S. Treasury Department. They do not necessarily have to pass through the account initially created in Qatar to protect those revenues from the plundering of creditors seeking substantial compensation for expropriations.

As is well-known, the overseas assets of the Republic of Venezuela and its state-owned oil company PDVSA are threatened by lawsuits from numerous creditors, holders of defaulted bonds, or arbitration awards from foreign corporations seeking to collect their debts using Venezuelan oil revenues. In this context, the aforementioned executive order protects oil revenues from any attempt at seizure by private creditors. Any court judgment in their favor is considered null and void if it undermines U.S. Security by diverting resources intended for humanitarian aid or the economic stabilization of Venezuela to curb illegal migration.

In fact, the executive order is called “Safeguarding Venezuelan Oil Revenue for the Good of the American and Venezuelan People” and forms the basis of the financial architecture designed by the Trump administration to control Venezuela’s oil revenues.

To that end, the Foreign Government Deposit Funds category was created. These funds are financed by revenues derived from the sale of Venezuela’s natural resources — oil, gas, and gold — as well as from the sale of diluents to PDVSA, the supply of machinery and equipment to other Venezuelan state-owned enterprises, and contracts with U.S. Companies to upgrade the country’s infrastructure.

Unlike previous arrangements, this order centralizes control within the U.S. Executive branch. The funds must be held in designated U.S. Treasury accounts. The Trump administration acts as custodian: it acknowledges that the money belongs to Venezuela, but it remains under the administrative control of the Secretary of State in coordination with the Secretary of the Treasury. Both have the authority to instruct and authorize how these resources are moved or spent.

The Trump administration thus controls Venezuelan oil revenues. Under strict supervision, it transfers a portion to the national banking system to fuel the foreign exchange market. Another portion is used to finance U.S. Exports to Venezuela and to fund projects to upgrade the country’s electricity, water, gas, and telecommunications infrastructure.

Venezuela can and should reclaim independent and autonomous control of its oil revenues. To achieve this, it would be necessary to convert the currently managed accounts into sovereign wealth funds. Their mission would be to invest oil revenues in deposits, stocks, securities, or profitable projects that generate interest, dividends, and profits, thereby increasing the size of the fund.

In this way, Venezuela would stop spending all its oil revenue during boom times and begin saving for lean periods. A portion of the profits would be allocated to modernizing the oil industry and generating income to permanently replenish the fund. Another portion would be reinvested in safe and profitable projects to further increase its growth. And the government in power would no longer be able to squander oil revenues: it would only be authorized to use a fraction of those profits to finance the national budget.

With the creation of sovereign wealth funds, the clientelistic distribution of oil revenue would cease to be a mechanism of domination used to reward loyalists, buy off the undecided, and punish opponents. It would mark the end of rentier Venezuela, in which the discretionary use of oil revenue sustained political control of the Venezuelan economy and society for decades.

Víctor Álvarez R., Venezuelan economist, former Minister of Basic Industries and Mining under Hugo Chávez. Researcher, National Science Prize winner. Twitter: @victoralvarezr

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