Canada, Venezuela, Oil and Geopolitics

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By Dr. Robert (RJ) Johnston, Director of Energy and Natural Resources Policy

 

The seizure and arrest of Venezuelan President Nicolás Maduro by U.S. forces in Caracas on January 3rd raises both geopolitical and oil-sector questions for Canada. The geopolitical questions are complex and daunting. The oil market questions are complex but more manageable.

Understanding the complexity of these questions requires an evaluation of how we got here.

Venezuelan oil first became critical to U.S. energy security following the oil shocks of the 1970s. The country, a founding member OPEC, was emboldened by its production success, and by 1999 the government of Hugo Chávez sought to establish stronger state control of joint ventures with American and European “super-major” oil companies.

As Venezuelan production subsequently declined, the impact on U.S. energy security was dampened by two factors – the rise of Canadian oil sands production and the surge in U.S. shale oil production.


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At odds with Washington, the Chávez/Maduro governments turned to China and Russia for investment in their increasingly beleaguered oil sector. Both countries gained strategic footholds in Venezuela by leveraging its oil for loans, arms sales, and exports through a “shadow” fleet of oil tankers.

The legal, security, and operational challenges meant a return to the glory days of Venezuelan oil production was out of the question, but even after years of sanctions and political chaos, nearly 800,000 barrels per day of Venezuelan oil still reaches global markets, particularly China.

However, China’s need for Venezuelan oil is much less acute than it was, thanks to its own electrification policies and its ability to access similar heavy oil grades from Canada since 2024 with the Trans Mountain pipeline expansion.


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Both the U.S. energy and strategic positions are not obviously enhanced by control of Venezuelan oil in the short term. Critical minerals might be more promising but, as with reviving oil production, that prospect could take many years to materialize.

Venezuelan heavy oil projects are risky and complex. Under optimal conditions, production costs are lower than for Canadian heavy oil, and these are far from optimal conditions.

International oil companies that have been streamlining their global upstream spending will have high hurdle rates of return for any new investments in Venezuela given its highly uncertain security and political environment.

 

After the U.S. invasion of Iraq in 2003, it took 10 years for the country to get back to its pre-war production levels – an indication that sizable, low-cost reserves are not enough to guarantee investment.

 

More entrepreneurial firms with political connections in Washington will likely emerge to rebuild the sector but they could lack the balance sheet and/or technical expertise to succeed.

For comparison, after the U.S. invasion of Iraq in 2003, it took 10 years for the country to get back to its pre-war production levels – an indication that sizable, low-cost reserves are not enough to guarantee investment.

Although Trump’s geopolitical motives remain murky, his endgame may be to deny the Venezuelan oil prize to China and Russia by sending more barrels to Houston.

Even still, the prospect of more Venezuelan oil moving across the Caribbean to the U.S. should reinforce Canadian efforts to diversify its export markets for our heavy oil.

Disruptions to supply or demand in a concentrated market — like the one Canada has with U.S. Midwest and Gulf Coast refineries — create price vulnerabilities. Diverting Venezuelan exports from China to the U.S. could lead to short-term lower prices for Canadian heavy crude.

In the big picture, China and other Asian refiners will want to avoid overdependence on a volatile supplier like Venezuela. More Venezuelan heavy oil production would likely widen price differentials and encourage more global investment in refineries that process heavy oil.

For Canada, an expanded West Coast pipeline capacity is required to fully adjust to these market conditions.

Under the right circumstances, with a legitimate, internationally recognized government in Caracas, Canada could be a valuable partner in rebuilding Venezuela or even working with the U.S. and other regional actors to develop an oil recovery and export strategy that benefits all parties.


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Such an approach is at least partially consistent with past interventions by the U.S. in Latin America where unilateral action was bracketed by a larger diplomatic and economic framework, including development assistance, foreign investment, and even free trade – carrots as well as sticks.

However, the current U.S. administration’s preference for unilateral action and the use of sticks over carrots to achieve results is clear. It’s particularly concerning should the Trump agenda be directed north to Greenland – and Canada.

The Carney government in Ottawa has no crystal ball on this matter, but it would be well advised to continue broadening its alliances in parallel to its energy and natural resource-led market diversification efforts.

Whether an expansion of Canadian energy partnerships with China — the world’s largest oil importer and home to the largest heavy oil refineries outside the U.S. — will provoke a response from the Trump administration, is yet to be determined.

RJ Johnston is the Director of Energy and Natural Resources for the University of Calgary School of Public Policy.

This article was originally published in Policy Magazine on January 6, 2026.

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Source: Policy Magazine