Caracas, 1976: The Apogee of Petro Power

The ongoing Iran war has unleashed one of the most severe energy shocks in decades. Our five-part series explores decisive moments when turmoil in the energy world changed the trajectory of geopolitics.

Barrels and Power - Part 5

Before striking Iran, Donald Trump shocked the world when American forces struck Caracas, captured Venezuelan President Nicolás Maduro and spirited him out of the country. Within hours, Trump went further when he declared he would “run” Venezuela while American oil companies would help rebuild - and profit from - the country’s shattered petroleum industry.

Trump’s brazen statement was revealing as Venezuela, home to the world’s largest proven oil reserves, was now no longer merely a failed petrostate but an ‘asset’ under American management. Power passed to Delcy Rodríguez whose authority has since rested on a delicate balance between domestic control and American backing.

Juan Pablo Pérez Alfonzo

The timing was hardly accidental. As the daily escalating conflict Iran threatens supply routes through the Strait of Hormuz, Venezuela’s dormant reserves acquired renewed strategic value. But this is not the first time Venezuela has appeared as a geopolitical prize

In the aftermath of the First World War, oil ceased to be merely a commodity and became an instrument of power. As demand surged, fears of shortage proliferated and petroleum’s strategic value (as demonstrated on Europe’s battlefields) reordered priorities in boardrooms and chancelleries alike.

Strategic Prize

Near the top of the priority list stood Venezuela. Its appeal lay in its politics. While Mexico, convulsed by revolution, had become inhospitable to foreign capital, Venezuela, by contrast, offered ‘predictability’ - though of a rather brutal kind.

Juan Vicente Gómez

That stability was the creation of Juan Vicente Gómez, who ruled from 1908 to 1935. Gómez, every inch the unenlightened despot, governed Venezuela as his fief. Illiterate but shrewd, he centralised power by ruthlessly subduing rivals and putting his personal network of sycophants in their place.

While he was a tyrant to foreign political observers, he was ‘reliable’ according to oilmen. For Gómez, oil was both fortune and foundation of Venezuela. It enriched him personally while underwriting the machinery of rule.

By 1913, Royal Dutch Shell was exploring around Lake Maracaibo. After the First World War, Standard Oil of New Jersey followed. While conditions in the unmapped terrain were appalling – floods and mosquitos being legion - the prize was irresistible.

The breakthrough came in 1922 with the Barroso No. 2 gusher near Cabimas, which blew out spectacularly, spilling tens of thousands of barrels a day and signalling to the world that Venezuela had joined the front rank of oil producers. By the late 1920s, it had become the world’s second-largest exporter.

The struggle for Venezuela marked the emergence of a new order in which oil, capital and state power became inseparable. Gómez’s death in 1935 left behind a country poor in development but rich in hydrocarbons. By the late 1930s, oil accounted for over 90 percent of its exports. Yet, the wealth flowed outward as the state remained a bystander.

Oil Sovereignty

That began to change with a new political generation. Among them was diplomat and politician Juan Pablo Pérez Alfonzo, who would help redefine the relationship between states and oil.

The Second World War sharpened Venezuela’s importance to the United States, creating the necessary space for reform. The result was the Petroleum Law of 1943 which birthed the ‘fifty-fifty’ principle wherein the state would claim half the profits. It was revolutionary. For the first time, a producing country asserted parity with the companies that extracted its resources.

Under Rómulo Betancourt, this principle deepened as Venezuela not only taxed oil but entered the market itself, selling crude directly.  However, Pérez Alfonzo, deeply wary of the volatility of oil markets, came to see petroleum as both a blessing and a curse. He called it the “the devil’s excrement.”

Drawing lessons from the dominance of Western majors, he worked with Saudi Arabia’s Abdullah Tariki to found the OPEC in 1960. Venezuela’s role was pivotal as it was a Latin American democracy that helped design a cartel later to become synonymous with Middle Eastern power.

If Venezuela pioneered oil sovereignty, it did so cautiously at first. Betancourt understood the risks. Oil already underpinned the economy. Nationalisation, he warned, would be reckless. Instead, the state tightened control without dismantling the system.

However, by the early 1970s, the concessionary model was unravelling. The Law of Reversion of 1971 ensured that oil assets would revert to the state. Investment faltered.

The final step came under Carlos Andrés Pérez. In January 1976, Venezuela formally nationalised its oil industry, creating the PDVSA. It was the high point of petro power. Venezuela’s nationalisation was distinctive for its pragmatism. Unlike more abrupt seizures elsewhere, it preserved human capital. By 1976, roughly 95 percent of the industry’s workforce including senior management was already Venezuelan. PDVSA was structured as a holding company overseeing a network of operating subsidiaries and, for a time, functioned with technocratic discipline and managerial autonomy.

At its height, PDVSA produced over 3 million barrels a day and expanded globally, acquiring refining assets abroad, including the CITGO network in the United States.

But if oil made Venezuela, it also unmade it. Pérez’s first presidency coincided with the windfall of the 1973 oil crisis of which the country was a major beneficiary as its revenues quadrupled. And with it, soared Pérez’s ambition. “We are going to change the world,” he declared.

For a moment, it seemed plausible as the middle class expanded and the state invested heavily. Venezuela appeared destined for modernity.

Petro-State in Crisis

But the boom masked a structural flaw. The state became dependent on oil revenues just as it expanded its commitments. When prices fell in the 1980s, the system strained under its own weight.

By the late 1980s, Venezuela had become the archetypal petro-state in crisis - its revenues shrinking even as obligations mounted. A growing share of income was diverted to servicing international debt, while economic distortions multiplied.

State controls multiplied as it fixed prices on almost everything from basic foodstuffs to coffee and even funerals, creating a rigid, overregulated economy unable to adapt. A rapidly growing population intensified the strain.

When Pérez returned in 1989 with a programme of reform, the backlash was violent. The Caracazo riots, which left hundreds of protestors dead, exposed the fragility beneath the petro-state.

Into this crisis stepped Hugo Chávez. His rise was as dramatic as it was improbable. In February 1992, as a young lieutenant colonel, Chávez had led a failed coup against Pérez.

Though the uprising collapsed, his calm and defiant televised address transformed him overnight into a national figure. Released from prison in 1994, he reinvented himself as a political insurgent, railing against corruption and inequality. Chávez harnessed public anger and reshaped the system, bringing the PDVSA firmly under state control.

Chávez’s worldview was profoundly shaped by his alliance with Fidel Castro, whom he regarded as mentor and ideological guide. Venezuela became Cuba’s banker, supplying heavily subsidised oil in exchange for doctors, intelligence support and political counsel. Through initiatives like Petrocaribe, Chávez extended this model across the Caribbean, turning oil into a tool of regional influence and anti-American solidarity.

Domestically, Chávez dismantled PDVSA’s autonomy. Its revenues were redirected into the central government, funding expansive welfare programmes and political projects, but at the cost of investment and long-term capacity. A devastating strike in 2002–03 led to mass dismissals of skilled staff, hollowing out the company’s technical expertise.

By the time Maduro took power, mismanagement, corruption and sanctions triggered a collapse in production. Venezuela, once a titan of oil, became a basket case.

Production, which had surged by nearly 40 percent during the 1990s under the policy of ‘La Apertura’ - a pragmatic reopening to foreign investment championed by PDVSA chief Luis Giusti, now went into reverse. The Orinoco heavy oil belt, the future of Venezuelan output, languished without capital and technology.

By the late 2010s, output had fallen below one million barrels per day as hyperinflation ravaged the economy, and millions fled the country, creating one of the largest migration crises in the modern Americas.

Yet, Venezuela still sits atop more than 300 billion barrels of proven reserves, much of it concentrated in the Orinoco Belt - the single greatest accumulation of extra-heavy crude on the planet. If the Maduro coup is anything to go by, it reinforces the fact that however battered a petrostate Venezuela may be, in an age of tightening supply and unceasing conflict, it remains too vast a prize for any superpower to ignore.