Bringing Venezuela under the “Donro-ism” energy umbrella
Discussion about Nicolas Maduro’s recent arrest has largely revolved around legal issues, such as potential violations of U.S. or international law. It’s also touched on the diplomatic consequences. However, this narrow focus misses a more substantial economic narrative. You see, the U.S. seems to be quietly creating something akin to an energy dominance in the Western Hemisphere, and the effects are just starting to unfold.
Let’s dive into the statistics for a moment. Together, the United States, Canada, and Latin America represent more than a third of the global oil output. There’s talk that this could soon rise towards 40 percent, according to Javier Blas, who writes about commodities and energy for Bloomberg. Interestingly, from 2012 to 2022, the Americas’ share of global oil production rose from 27 percent to 34 percent, and, notably, all increases during that time came from this region. Factors like the shale revolution, Canada’s oil sands, and Brazil’s offshore finds, along with emerging producers like Guyana, have significantly shifted the global energy landscape.
Venezuela stands out as the centerpiece of this transformation. The country, known for having the largest proven oil reserves, produced around 3.7 million barrels daily during its peak in the 1970s. Unfortunately, years of poor governance have slashed that number to just a few million today. Sure, even getting back to a fraction of that output won’t happen overnight. Reviving Venezuela’s oil infrastructure, which has seen better days, will be a long, costly process. Plus, a change in political leadership that’s more stable than the Chavismo-Maduro regime is crucial. Still, the key may not be about immediate production increases. It’s about long-term energy security derived from managing these vast reserves.
According to French economist Gabriel Zucman, although his critique of U.S. motives is clear, he highlights the economic stakes involved. Back in 1957, when U.S. investment in Venezuela was at its peak, American oil companies earned profits equivalent to what U.S. multinationals as a whole made in the rest of Latin America and Europe combined. About 12% of Venezuela’s national income went to U.S. shareholders, as Zucman points out.
“Venezuelan growth largely benefited American investors and expats,” Zucman notes, reflecting on how communities of American expatriates thrived there, complete with modern amenities. This came to an end when nationalization took place in 1976, leading to an eventual collapse in production under state control. Zucman speculates that if Venezuela could boost output and profits to levels similar to those of Saudi Aramco, which reports profits annually in the realm of $100 to $150 billion, the stakes would be monumental.
De-risking the U.S. economy through abundant energy
But really, the strategic value extends far beyond just profit margins. Energy security truly matters. Historically, significant U.S. recessions since 1973 have been linked to shocks in oil prices. Remember the 1973 Arab oil embargo that caused prices to skyrocket? Or the Iranian revolution that saw prices double in a year? Each time, those oil price hikes played key roles in triggering economic downturns. In fact, just in 2022, Russia’s actions in Ukraine sent prices soaring over $120 per barrel, contributing to the highest inflation in four decades and substantial Federal Reserve intervention.
In essence, fluctuations in oil prices stemming from geopolitical tensions have jeopardized economic stability time and again. Evidence suggests that a sudden 20% rise in oil prices could lead to a 1% decline in U.S. manufacturing jobs within 18 months. We could see tens of thousands lose their jobs as energy-heavy industries grapple with surging costs for transport and heating. Addressing these external risks indeed paves the way for sustainable prosperity.
The COVID-19 pandemic also served as a wake-up call regarding America’s susceptibility to external shocks. Disruptions in supply chains made it painfully clear: the U.S. still relies on far-flung and inconsistent sources for critical resources. The current administration’s energy strategy focuses on securing hemispheric oil through the so-called “Donroe Doctrine,” alongside promoting peace in the Middle East and bolstering domestic production. It seems there’s a lesson learned and a shift in perspective toward making the U.S. economy less vulnerable to outside disruption.
But, you know, that vision could be even more extensive. It aligns with Nassim Taleb’s concept of an “anti-fragile” America—a system that not merely survives shocks but emerges stronger from them. When energy operations falter in other parts of the world, the U.S. and the Western Hemisphere stand to gain. A future oil crisis might not only mitigate the impact on the U.S. but could also accelerate a shift towards more investments and strategic advantages in the Americas.
America First, AI, and Energy Independence
This situation has potential implications that go beyond just energy independence; it might lead to a safer, more prosperous world overall, allowing the U.S. greater freedom in its foreign policy. Historically, disruptions in oil supplies have constrained American actions. Large military operations near oil-rich regions, for example, always had to weigh the potential for price hikes that could destabilize the domestic economy. Now, that calculation appears to have fundamentally shifted. The U.S. can act without fearing the repercussions of supply weaponization by adversaries. We’ve already seen this in actions like the strikes on Iran’s nuclear sites and the enabling of Ukrainian attacks on Russian facilities.
At the same time, there’s an increased capacity to steer clear of foreign conflicts. Traditionally, U.S. policy hinged on maintaining control over oil supplies in the Persian Gulf. In a scenario where the Western Hemisphere offers abundant energy resources, that focus loses its significance. This reflects the evolving nature of America’s energy strategy. The left has long called for a “no blood for oil” approach, but the current administration seems committed to creating conditions where such trades become unnecessary.
Timing is crucial, especially with the unpredictable dynamics unfolding. The American economy is becoming more energy-intensive—not less. For a long time, analysts assumed we’d shift toward lesser energy use per GDP unit thanks to efficiency gains and a move toward service-oriented sectors. But that outlook has changed, particularly with the rise of artificial intelligence.
The scale of AI technologies demands vast energy resources. Simply put, data centers handling large AI models can consume energy comparable to that of a small city. And it appears this demand will grow significantly as these technologies expand. Major tech firms are racing to secure reliable energy. In our AI-driven era, having dependable and abundant energy is emerging not just as a luxury but as a critical competitive edge.
It’s quite ironic that an industry largely seen as moving away from fossil fuels is creating a situation where energy security and abundance are becoming paramount. Reliable power is essential for AI, much of which still stems from fossil fuels that will likely continue to be utilized for the foreseeable future.
This scenario leads to a notable imbalance in the competition with China. While the U.S. enjoys unprecedented energy security through domestic production, China remains highly reliant on oil and gas imports, much of which traverse vulnerable routes from the Middle East and Russia. This disparity presents a formidable edge in the long-term battle centered on energy-intensive innovations like AI.
Ultimately, the situation unfolding in Venezuela is less about a single nation’s oil production and more about solidifying the Western Hemisphere’s journey to energy independence, alongside acknowledging the ongoing dominance of fossil fuels in global energy production. The economic ramifications here are noteworthy—from bolstering manufacturing resilience to cutting recession risks and enhancing technological competitiveness. After decades of oil crises that limited both economic growth and flexibility in foreign policy, the U.S. might finally be nearing a state of energy security.
