For a country sitting on the world’s largest proven oil reserves, Venezuela remains a surprisingly modest producer. Output has climbed to around 1.25 million barrels per day as Western companies return and Washington actively encourages investment, a revival given further momentum by the highly criticized oil agreement unveiled by Delcy Rodríguez in August. That represents a remarkable improvement from the depths of the pandemic-era crisis, when production briefly sank toward 400,000 to 500,000 barrels per day. Yet Venezuela was producing around 3 million barrels per day in the late 1990s.

The gap captures the paradox now confronting the country: an oil industry clearly recovering, but still operating at a fraction of its former potential after decades of underinvestment, political intervention, sanctions, and infrastructure decay. The question is no longer whether Venezuela can increase production, but whether it can rebuild an industry capable of sustaining it.

Luis Pacheco, a former senior executive at state oil company PDVSA and now a nonresident fellow at Rice University’s Baker Institute Center for Energy Studies, argues that the starting point matters: “Any assessment of Venezuela’s oil industry is relative,” he said in an interview. Compared with 2020, “the picture is somewhat better.” Compared with the industry Venezuela possessed before the Chávez era, however, it has lost production capacity and technical expertise, while PDVSA is financially close to bankruptcy.

Antulio Rosales, an assistant professor at York University who researches Venezuela’s political economy, is more severe: “The Venezuelan oil industry is in a deep crisis and, I would say, in profound decay,” he said. Mismanagement, corruption, and political infighting within PDVSA, combined with U.S. sanctions, have reduced what was once a major global producer to a secondary role.

Both assessments can be true. Venezuela has entered a genuine recovery. But recovering lost barrels and reconstructing its petroleum industry are two very different things.

An industry running into its physical limits

The causes of Venezuela’s oil collapse have been fought over politically for years. Washington’s sanctions played an important role, particularly after the United States sanctioned PDVSA in 2019 and restricted its access to what had historically been its natural export market. But the deterioration of the industry began much earlier.

Years of inadequate investment, nationalisations, political intervention in PDVSA and the departure of experienced personnel progressively weakened the sector. Sanctions then compounded those problems by restricting access to markets, finance, equipment and conventional trading relationships.

One industry expert interviewed for this article said sanctions are consequently no longer the best way to understand the industry’s principal constraint. Market access has improved, but Venezuela is increasingly encountering the physical limits imposed by aging infrastructure and years of inadequate maintenance.

Refineries built largely in the 1950s and 1960s are operating at roughly a third of capacity, the source said, while preliminary inspections of mature fields have sometimes revealed damage considerably greater than potential investors anticipated. In some locations, rehabilitation may mean replacing electrical systems, drilling equipment and other infrastructure rather than simply repairing existing installations.

Pacheco points to a similar problem: “One of the main reasons Venezuela cannot increase oil production is that the infrastructure simply isn’t there anymore,” he said. Some infrastructure connecting the Orinoco Belt to the José export terminal has survived comparatively well because it continued to be used. The picture elsewhere is substantially worse. Pacheco describes the western pipeline network and eastern Venezuela’s gas infrastructure as badly deteriorated, with enormous quantities of associated gas consequently being flared.

Lake Maracaibo, once one of the historic centres of the Venezuelan petroleum industry, presents an even greater challenge.

“It’s basically destroyed,” Pacheco said. Restoring production would require work not simply on wells, but on “the docks, the support vessels, the drilling rigs and much of the supporting infrastructure.” Rosales points to persistent oil spills and extensive gas flaring in Monagas as visible symptoms of the same decline. The fact that PDVSA struggles to control the environmental consequences of an industry producing considerably less than it did several decades ago illustrates the deterioration of its operational capacity.

The problem is increasingly visible at the other end of the supply chain too. As Venezuelan exports have accelerated, aging terminals, power problems and other bottlenecks have created difficulties getting additional crude onto international markets. In other words, every additional barrel potentially places more pressure on an industrial system that has received insufficient investment for years.

Yet this also explains why Venezuela is attracting renewed interest. The country is not building an oil industry from nothing. It possesses enormous known reserves, producing fields and an extensive, albeit degraded, installed infrastructure base. For oil-service companies and investors prepared to rehabilitate brownfield assets, relatively modest interventions could potentially unlock production much faster than developing entirely new fields.

Pacheco sees eastern Venezuela as particularly attractive because many fields are onshore and therefore easier to rehabilitate. The Maracaibo region also retains substantial potential despite the scale of its deterioration. The Orinoco Belt remains the much bigger long-term prize.

The return of foreign capital

Caracas has increasingly acknowledged that exploiting that potential requires something Venezuela currently lacks: capital. The government’s response has been a dramatic loosening of the petroleum model constructed under Hugo Chávez.

Reforms introduced in 2026 expanded the possibilities for private-sector participation and gave companies greater operational control. Rosales describes the change as both pragmatic and ideological, breaking with a tradition of Venezuelan oil nationalism that insisted upon high royalties, strong state control and PDVSA’s dominant position. “The reform therefore marks a dramatic shift away from both Chavista oil nationalism and the broader left-wing tradition of Venezuelan oil nationalism,” he said. International companies have responded.

Eni agreed in April to relaunch its Junín 5 heavy-oil project in the Orinoco Belt, while Chevron, Shell and Repsol have also pursued agreements as the sector has reopened. This week provided the strongest indication yet that the exploratory phase is becoming something more concrete. Chevron and Eni announced major expansion plans in Venezuela, with Eni planning around $1.5 billion of investment in Junín 5 and Chevron committing more than $7 billion as it seeks to substantially expand production.

That is an important change from the situation described by Pacheco during our interview in July. “A number of companies are positioning themselves, but nobody has actually signed any significant contracts yet,” he said at the time. “There are memoranda of understanding with all sorts of companies, but an MOU is not the same as an investment commitment.”

The subsequent announcements suggest that threshold is now beginning to be crossed. They do not, however, eliminate the fundamental problem identified repeatedly during interviews for this article: investors need to know not only whether a project is profitable today, but whether the rules governing it will still exist tomorrow.

One Venezuelan energy specialist said regulatory reform was insufficient without confidence that contracts would be respected, reforms would not be reversed, and investors would ultimately be able to recover their capital. The principal fear is therefore not necessarily a repeat of the physical expropriations associated with the Chávez era. A government can undermine an investment by altering contractual or fiscal conditions without ever physically seizing an asset.

Another expert described the current framework as an important but incomplete transition. Investors still face questions surrounding fiscal rules, arbitration and the government’s future take from projects. The distinction becomes particularly important because different kinds of investment carry radically different risk horizons.

A service company repairing pumps, pipelines or existing wells might recover its capital relatively quickly. A major oil company spending billions developing the Orinoco Belt, rebuilding Lake Maracaibo or constructing gas infrastructure is making a bet stretching decades into the future. “The contractual and legal guarantees you require are far more demanding,” Pacheco said.

Those concerns have hardly disappeared with the latest investment announcements. Opposition leader María Corina Machado argued recently that only a democratic government capable of reducing political risk could ultimately provide the stability required for truly long-term investment.

Venezuela therefore finds itself competing not simply on geology but on credibility. Companies looking at the region can also invest in countries such as Guyana, where the political and contractual environment is considerably more predictable.

Washington becomes part of the oil business

There is another unusual feature of Venezuela’s recovery: the extraordinary influence of the United States over who participates in it. Sanctions have evolved from a mechanism designed largely to isolate the Venezuelan government into an instrument capable of shaping the composition of the recovering petroleum sector.

PDVSA was sanctioned by the United States in 2019. Washington subsequently began creating exceptions, including the 2022 license that permitted Chevron to resume limited operations. Importantly, these measures were licenses within an existing sanctions architecture rather than its wholesale abolition.

That distinction matters because permissions can be altered as political circumstances change. “Venezuela is still more of a promise than an established investment destination,” Pacheco said during the July interview, arguing that the absence of political and institutional certainty continued to discourage companies from committing substantial outside capital.

Washington’s role has since become even more explicit. At the end of August, the United States and Venezuela unveiled an extraordinary agreement covering 17 Venezuelan oilfields containing tens of billions of barrels of crude. The arrangement would give the United States privileged access to production and potentially make the U.S. government itself an economic participant in Venezuela’s petroleum recovery. The opacity surrounding the agreement has already generated controversy. Lawyers and energy experts have questioned its legal structure, lack of competitive bidding and the protections available to other investors.

For Rosales, however, the increasing entanglement between U.S. policy and Venezuela’s petroleum industry is part of a broader transformation. “The United States has had a clear interest in redirecting Venezuela’s oil industry in a way that benefits U.S. strategic and economic objectives,” he said. He expects Washington to be considerably more accommodating towards European investment than towards companies associated with China, Russia or Iran, particularly where European participation helps increase Venezuelan production.

Beneath the geopolitics lies another obstacle: governance. Rosales argues that Venezuela’s dependence on subcontractors and intermediaries has historically provided fertile ground for corruption. Rather than being peripheral to PDVSA, networks of contractors have often acted as an additional layer between the state company, international markets, and foreign investors.

“Subcontractors frequently have direct or historical links to the governing elite,” he said. Sanctions subsequently created further incentives for opaque trading structures designed to keep Venezuelan crude moving despite financial restrictions.

Another expert interviewed for this article similarly described controls within PDVSA as weak and warned that decades of departures, political pressure, and low salaries have stripped the company of considerable technical expertise and institutional memory. This leaves Venezuela facing a reconstruction challenge that extends far beyond drilling.

The country has the oil. It has companies willing to invest. The Trump administration is actively seeking greater production, and its government has demonstrated a willingness to discard parts of the ideological framework that previously constrained private investment. For the first time in years, substantial recovery therefore appears possible. But getting from 1.25 million barrels per day towards the roughly 3 million Venezuela once produced will require rebuilding pipelines, electrical systems, refineries, terminals and fields. It will require attracting back expertise and restoring PDVSA’s operational capabilities. And, perhaps most difficult of all, it will require convincing investors that contracts signed today will remain credible years from now.

Venezuela has already demonstrated that it can put lost barrels back onto the market. The much larger experiment now beginning is whether it can reconstruct the industry that produces them.