A U.S.–Venezuela oil deal has been announced by President Trump and Interim President Delcy Rodríguez. The public knows virtually nothing about its details — nor do I, a Special Adviser to Venezuelan Congressman Antonio Ecarri on Economic, Monetary, and Energy Affairs. The agreement was clearly negotiated in secrecy, without public debate, and signed under duress. It is therefore illegitimate and probably illegal. The secrecy is especially striking given the stakes: Venezuela sits on what are widely recognized as the world's largest proven oil reserves, and any arrangement governing their development would shape the country's economic future for decades.

The deal took not only me but everyone I am in contact with in Caracas by surprise. That said, it is vital to understand why establishing clear private property rights over Venezuela's vast oil reserves matters. Such rights would give those reserves a positive present value — something they lack today, for reasons worth explaining.

PDVSA, the state-owned oil company, dominates Venezuela's economy and generates almost 95% of the country's foreign exchange earnings. Even by the standards of state-owned enterprises, PDVSA is grossly mismanaged, as its production and reserve figures attest. The company has also operated for years under sweeping U.S. sanctions, imposed beginning in 2017 and tightened in 2019, which cut off PDVSA from U.S. markets and restricted its dealings with foreign firms — compounding the damage done by mismanagement at home.

Under Luis Giusti's direction between 1994 and 1998, PDVSA's production soared. That changed in 1999, when Hugo Chávez became president and made Chavismo the country's guiding economic doctrine. Output began to stagnate, a situation that worsened after the coup attempt of April 2002. Chávez responded by purging PDVSA of its professionals en masse, replacing them with "reliable" hands loyal to his socialist regime.

After the 2002–2003 output plunge, production temporarily recovered. But following Chávez's death and Nicolás Maduro's assumption of the presidency in March 2013, another plunge began. Today, Venezuela's output is drastically lower than when Chávez took power in 1999 — down from roughly three million barrels per day at the turn of the century to well under one million.

PDVSA's physical capital has been consumed at an unsustainable rate, with capital expenditures falling far below the value of equipment consumed each year through depreciation and amortization. Alongside this shrinking and deteriorating capital stock, the stock and quality of its human capital have also declined. In 2017, for example, President Maduro appointed a National Guard general with no industry experience to lead PDVSA. The combination of plunging physical and human capital has left the giant state oil company in very bad shape. Equipment breakdowns and rising accident rates have added to long downtimes and further output declines.

Notably, PDVSA's falling output is not the result of dwindling reserves; it stems from changes in the rate at which those reserves are depleted. The depletion rate is the key to understanding an oil company's economics and the value of its reserves. Venezuela's depletion rate has fallen rapidly since 2007 and now sits at 0.124% per year — meaning it would take 558 years for PDVSA's reserves to be halfway depleted.

The economic implications are significant because of positive time preference and discounting. If you must wait 558 years to produce and sell a barrel of oil, that barrel is virtually worthless in today's dollars. At current depletion rates, most of Venezuela's oil reserves are therefore worthless.

For perspective, consider Exxon, one of the world's largest oil companies. Exxon's depletion rate is close to 9% per year, implying its reserves would be halfway depleted in 7.4 years.

I write as someone with experience in petroleum economics. I served on the United Arab Emirates' Financial Advisory Council from 2008 to 2014. There, I used a simple model I had developed, plugged in realistic numbers, and concluded that the UAE should be depleting its vast oil reserves far more rapidly than it was.

My advice to the UAE was to take the money and run.

The UAE agreed. For years, it sought a dramatic increase in its OPEC quota, but one never came. As a result, in May 2026, the UAE took the exit door and left OPEC.

It is time for Venezuela to kill inflation by mothballing the bolivar — putting it in a museum — and replacing it with the U.S. dollar. After that positive confidence shock, Venezuela must employ all legitimate means to privatize its oil industry and dramatically increase production. The practical questions any such transition would face — who holds claims to PDVSA's assets, how existing sanctions relief would be structured, and whether a legitimate Venezuelan legislature would ratify the terms — are precisely why the current deal's lack of public detail matters so much.

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