The Peter Zeihan Podcast Series - Venezuelan Crude Is Off the Menu…But You Can Still Get It Around Back || Peter Zeihan

Episode Date: March 10, 2025

Venezuelan oil is getting the boot from the US. Well, kinda, sorta, not really. Let me walk you through what’s going on.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/venezuelan-crude-is-off-the-menu

Hey everybody, Peter Zeyn here coming to you from Colorado, and today we're going to talk about Venezuela, specifically the Trump administration has recently revoked an operating contract that allows U.S. Super Major Chevron to import about a quarter million barrels a day of Venezuelan crude. This is unwinding some of the things that I think was one of the dumber things that the Biden administration did. To explain that, I need to go back and explain why the Biden administration did what it did. Okay, so step one, if you go back to the transition from Trump one to Biden, both leaders were basically competing for our affections. And in doing so, they decided to do the great American political thing and bribe everybody. So in his last month in office, Donald Trump pushed through a, or two months in office, he pushed through a stimulus program that put up trillion dollars into Americans' pockets.

And the first thing that Biden did in his first free weeks is do the same thing. So we have two trillion dollars of stimulus spending, cash put money. in everyone's pockets, even though COVID was already fully in the rearview mirror, and there was no sign that we needed the stimulus at all. That $2 trillion generated inflation over the next two years, which eventually caused Joe Biden some political headaches, and then he started to obsess about bringing inflation down. But the Biden team, like the Trump team, has no one on it that can really do math. So they kind of did their best guest based on ideology and past history, of which Joe Biden has a lot, in order to decide what needed to be done. and Joe Biden settled on gasoline prices.

He specifically believed that as long as OPEC was producing large volumes of crude that could then flow throughout the world, OPEC and other producers, that gasoline prices in the United States would stay under control and he wouldn't have to deal with that political headache. It's not that the math is completely bad. The U.S. does have a semi-open energy market, specifically the shale oil that is the vast, vast, vast majority of American energy production is super light and super sweet.

It's not really hard to refine, but the American refining complex was designed for something else. Back in the 1980s and 1990s, when we knew, knew that the global crude stream was getting uglier and more sour and more polluted,

we retooled our refineries to be the best in the world, which would allow them to take any crude no matter how crappy and turn it into any product, no matter how nice, most notably gasoline, diesel, jet fuel. Well, Shell Revolution came along,

turned that math on its head. And so now the United States, States exports a lot of light sweet crude and imports a fair amount of heavy sour crude and then makes bonkers money on the difference taking in cheap crude and turn it into high-end product. Anyway, that was kind of lost. And so he just thought more was better. So he looked at Russian crude and was like, you know what? I don't like the Russians and I want them to suffer for the Ukraine war.

But we need their crude to keep gasoline prices in the United States under control. So let's work out a regime where they can still export. they're crude, but they don't get all the cash. And it was, you know, squirrelly. In the case of Iran, something similar. Let's bring them in partially from the cold so they can officially export more crude in order to keep crude prices under control. And then, of course, the same with Venezuela. Now, with Venezuela, it was a little bit more of a matchup because Venezuelan crude is that heavy sour that U.S. refiners really crave. But we're only talking about total production here of under a million barrels a day, with the exemption that was granted to Chevron only for

less than a quarter of that. Most of the heavy crude that the United States imports comes from Alberta, our Canadian neighbors. That's like 3 million barrels a day. So apples and oranges, well, not opposite, it was in oranges, but like apples and trees full of apples. In addition, 250,000 barrels a day in a good month compared to a total market in the U.S. of 20 million

barrels a day. Didn't really move the needle very much. Joe Biden got some crap, deserved it, for cutting the deal because it basically said that in exchange for this oil access, the Venezuelan government has to have real elections and they didn't. So basically Maduro, who is the dictator down in Venezuela, got all the benefits without having to pay anything. And now the Trump administration is, in my opinion, rightly unwinding this. But of course, we have to talk about what's happening now with the American Venezuelan relationship.

Because while Biden was all about gasoline prices and probably did it wrong, Donald Trump is all about illegal migration and is probably doing it wrong. because most of what he has been hammering on the Venezuelan government with is about taking back Venezuelan migrants. Now, the Venezuelans have a special dispensation from the U.S. government. So while they may have started a flow that was originally illegal, most of these guys are now registered now. Part of it is really real political asylum, unlike folks who are applying from, say, Central America. And as a rule, Venezuelan migrants tend to be much higher skilled than whatever else is crossing the southern. border. Keep in mind that until Hugo Chavez, who is Maduro's predecessor and idol, until Chavez took

over Venezuela in the early 2000s, this is one of the most skilled labor markets in the Western hemisphere, probably third or fourth behind the United States, Argentina, and Canada. So the kind of migrants that we say that we want, most of them were in some sort of legal system, and now the Trump administration is sending them home. Maduro agreed to take them. He has no problem budding heads together for people who might be his opponents. And that's going to be in a little bit of a drama down the line now that the people who try to get away are now back. And at the end of the day, the energy thing probably isn't going to matter too much anyway. One of the things people forget about crude refining is because the U.S. complex is so good.

Not a lot of places can process Venezuelan crude. So what will probably happen next is what happened before in that, uh, Venezuelan crude will probably be purchased by some Chinese state major, which will be then sold to a middleman and then sold back to the United States. marketed as something that's not Venezuelan crude. We'll be a little bit of a market because of the middle bin, but the flows will continue. We've seen something very similar with Iran in the past as well. Anyway, that's what's going on. See you next time.