(Not So) Fun Fact: Since the beginning of the conflict with Iran, higher energy prices in the United States have cost U.S. businesses and consumers an additional $96 billion – over $730 per household.

Venezuela and Iran: What is Going on with Oil?

What’s Happening: There have been a lot of headlines lately surrounding Venezuela’s oil reserves and developments in the Strait of Hormuz, both of which have major ramifications for global energy markets. On August 31, the White House issued a fact sheet providing more details on President Trump’s recently touted deal for U.S. control of 65 billion barrels of oil from Venezuela’s proven reserves. This follows the U.S. military’s January operation to seize Venezuelan leader Nicolás Maduro and comes after months of speculation regarding U.S. energy companies’ possible reentry into the country. According to the fact sheet, the interim government of Venezuela has given North American Blue Energy Partners (NABEP) – the second-largest private oil company operating in the country – 17 oil fields with an estimated 65 billion barrels of oil. The award is for a period of 100 years. NABEP has granted the U.S. government a 35-percent stake in the company as well as the right to purchase 20 percent of the off-take from all operated oil fields at cost. Additionally, the United States is granted the right of first refusal to purchase the remaining 80 percent of production, meaning NABEP first asks the U.S. government if it will purchase oil before the company sells to other parties. The U.S. government will also hold veto power over the appointment of board members – the majority of whom must now be U.S. citizens.

Meanwhile the on-again, off-again conflict with Iran continues to generate uncertainty about the global supply of energy. Two tankers were struck by projectiles this week after attempting to transit the Strait of Hormuz, marking one of the latest episodes of escalation. The United States has continued to strike Iranian targets that threaten shipping through the Strait while also launching Operation Economic Outcast against Iran. The Trump Administration has called this new offensive an “economic D-Day” campaign. Recent military strikes have led to Brent crude oil prices spiking back above $90 a barrel, with U.S. energy costs continuing to mount because of the prolonged disruption of oil and gas. Notably, the U.S. military has opened a shipping route through the Strait of Hormuz allowing shipment of an average of 10 million barrels of oil a day. This represents about half of pre-war levels, and has been ongoing for about 2 months, mitigating the conflict’s impact on global oil prices.

Why It Matters: Setting aside the controversy surrounding the U.S.-Venezuela oil deal, the reality is that if it comes to fruition – a dubious prospect to be sure – there will be profound long-term consequences for the U.S. energy industry, U.S. national security, and the overall global economy. Venezuela holds roughly 17 percent of the world’s proven oil reserves – over 300 billion barrels of oil. The Venezuelan National Assembly has granted the U.S. Department of Defense equity stake and preferential access to over 21 percent of the country’s oil – or about 4 percent of global reserves – which expands upon the list of Trump Administration stakes in various private companies. In theory, this raises U.S.-controlled oil reserves by 140 percent from the 46 billion barrels of proven reserves in the United States. As AAF’s Shuting Pomerleau has pointed out, Venezuela’s oil production has fallen significantly over the decades as a result of mismanagement, deteriorating infrastructure, and sanctions. The investment required to keep oil production at its current level of 900,000 barrels per day is estimated to be $65 billion; ramping production up to 2 million barrels a day would require over $100 billion. Despite the uphill battle, these investments may be possible, as NABEP reportedly plans to invest $100 billion into oil infrastructure to ramp its production up from 200,000 to over 1 million barrels daily. Chevron plans to double its oil production in Venezuela with a $7 billion investment over the next five years, raising output to 600,000 barrels a day. If NABEP, U.S.-Venezuelan officials, and other private oil companies cooperate effectively to return the country to historic oil output levels, it would make Venezuela the world’s 10th–12th largest oil producer. This would further reduce the world’s reliance on Iran and Russia as well as put about 4 percent of China’s oil imports under the control of the United States. It is unclear for now how the U.S. government will proceed with its newfound financial stake in Venezuela, but President Trump has repeatedly expressed interest in filling up the Strategic Petroleum Reserve (SPR) –currently at a historic low. The oil deal does provide the benefit of purchasing oil at the cost of production – which is estimated to be between $42–$56 per barrel – providing a sharp discount compared to market prices. The caveat is that Venezuelan oil is heavier than what U.S. oil currently stores, meaning it may be logistically challenging or cost prohibitive to refine Venezuelan oil for the SPR.

Shifting focus to shorter-term implications for global oil markets, the U.S. military’s efforts to keep a shipping lane through the Strait of Hormuz running for months seems to have had some success. Since May the U.S. Navy has helped roughly 1,300 vessels transit the strait carrying roughly 660 million barrels of oil, and it appears that daily flows have slowly risen in recent weeks to around 50 percent of pre-war oil flows. While the Strait of Hormuz is still far from reaching regular transit levels, the fact that not insignificant amounts of oil have been entering the global market is important to note. This may partially explain why global oil prices – although volatile and elevated – have remained below the worst-case scenario estimates that had oil sticking in the $120 range or hitting a high of $200 a barrel. Despite this glimmer of hope in an otherwise dreary situation, the Iran conflict has amounted to over $96 billion in additional energy costs for U.S. consumers and businesses. National average gas prices are also up nearly 30 percent compared to 2025, meaning current operations in the Strait of Hormuz are mitigating, but not eliminating, the overall impact to American pocketbooks.

Looking Ahead: It is worth flagging that the future of the U.S.-Venezuela oil deal depends almost entirely on the status of U.S.-Venezuela relations as well as the stability of the Venezuelan government going forward. Venezuela has a history of nationalizing private industries and has seized the assets of U.S. oil companies in the past. While the oil deal is with NABEP rather than current Venezuelan officials, this does not guarantee that a future Venezuelan government won’t take steps to invalidate a U.S. equity stake in the country’s oil reserves or even that a future U.S. president or Congress won’t abandon the deal altogether. This uncertainty will continue to act against any incentive for more oil companies to enter and may cast a shadow on NABEP acquiring funding for its $100 billion investment plans. Furthermore, if U.S. officials are now financially invested in the success of a foreign oil company, that prompts the question of how U.S. companies might have to compete against their own government.

In Other News

The Return of IEEPA: On August 26, President Trump declared a national emergency regarding national security risks associated with importing bulk-power-system electric equipment. This executive order cites authorities under the International Emergency Economic Powers Act (IEEPA) and National Emergencies Act in to prohibit the import or installation of foreign-produced bulk-power-system electric equipment as well as associated software, firmware, and remote-access capabilities that stem from a Covered Foreign Entity (countries or individuals subject to an embargo or sanction). Many will recall the Trump Administration used IEEPA to impose last year’s “Liberation Day” tariffs imposed. Equally as memorable was this year’s Supreme Court decision to strike down those IEEPA tariffs and rule that the executive branch does not hold the authority to impose such sweeping import taxes. It appears President Trump is once again relying on the IEEPA authority, albeit this time to introduce import restrictions in the name of national security concerns such as potential sabotage, subversion, supply disruption, or other malicious activity. In contrast to the use of IEEPA to impose tariffs, these import, installation, and transaction restrictions have a more solid legal footing given the law’s text and the recent opinions of the Supreme Court. Regardless of whether this use of IEEPA faces legal backlash, it marks a major use of executive authority that remains ambiguous as to the scope of products that might be impacted and will undoubtedly have downstream economic ramifications for U.S. firms. This order will go into effect within 120 days, pending further rules and clarity regarding the Covered Foreign Entity list.