Venezuela has the world's largest proven oil reserves at an estimated 304 billion barrels (18% of global reserves) as of 2020. The country was once one of the world's largest exporters of oil. Oil production peaked in the late 1990s and early 2000s.
In 2008, crude oil production in Venezuela was the tenth-highest in the world at and the country was also the eighth-largest net oil exporter in the world. Venezuela is a founding member of the Organization of the Petroleum Exporting Countries (OPEC).US Energy Information Administration, "Country Energy Profiles: Venezuela", US Energy Information Administration).
Pre-discovery Indigenous usage The Indigenous peoples in Venezuela, like many ancient societies, already utilized crude oils and asphalts from petroleum seeps, which ooze through the ground to the surface, in the years before the Spanish conquistadors. The thick black liquid, known to the locals as mene, was primarily used for medical purposes, as an illumination source, and for the caulking of canoes.
Spanish colonization Upon arrival in the early 16th century, the Spanish conquerors learned from the indigenous people to use the naturally occurring bitumen for caulking their ships as well, and for treating their weapons. The first documented shipment of petroleum from Venezuela was in 1539 when a single barrel of oil was sent to Spain to alleviate the gout of Emperor Charles V.
1908–1940
Despite the knowledge of the existence of oil in Venezuela, significant drilling started only in the early 1910s. In 1908, Juan Vicente Gómez replaced his ailing predecessor, Cipriano Castro, as the president of Venezuela. Over the next few years, Gómez granted several concessions to explore, produce, and refine oil. Most of these oil concessions were granted to his closest friends, and they in turn passed them on to foreign oil-companies that could actually develop them. One such concession was granted to Rafael Max Valladares, who contracted to General Asphalt for exploration and development of oil fields. The geologist Herbert Hoover, then in London as a consulting engineer for Gold Fields, Ltd. of South Africa, recommended the geologist Ralph Arnold to that company for a survey of oil resources in Venezuela. At that time there was a single oil-well in Venezuela producing 40 gallons of oil per day. Arnold's survey, conducted for Caribbean Petroleum Company (a subsidiary of General Asphalt Company) in Northern Venezuela, employed a staff of 52 geologists, engineers, and drillers. So successful was this venture that Royal Dutch Shell paid General Asphalt $1,000,000 for 51% in Caribbean Petroleum Company. On 15 April 1914, upon the completion of the Zumaque-I (now called MG-I) oil well, the first Venezuelan oilfield of importance, , was discovered by Caribbean Petroleum in the Maracaibo Basin. This major discovery encouraged a massive wave of foreign oil-companies to Venezuela in an attempt to gain a foothold in the burgeoning market.
From 1914 to 1917, several more oil fields were discovered across the country, including the emblematic Bolivar Coastal Field; however World War I (1914-1918) slowed the development of the industry significantly. Due to the difficulty in purchasing and transporting the necessary tools and machinery, some oil companies were forced to forego drilling until after the war. By the end of 1917, the first refining operations began at the San Lorenzo refinery to process the Mene Grande field production, and the first significant exports of Venezuelan oil by Caribbean Petroleum left from the San Lorenzo terminal. By the end of 1918, petroleum appeared for the first time on the Venezuelan export statistics at 21,194 metric tons.
It was the blowout of the well in Cabimas in 1922 that marked the beginning of Venezuela's modern history as a major producer. This discovery captured the attention of the nation and the world. Soon dozens of foreign companies acquired vast tracts of territory in the hope of striking it rich, and by 1928 Venezuela had become the world's leading oil-exporter. Oil ended Venezuela's relative anonymity in the eyes of world powers, making it a linchpin of an ever-expanding international oil-industry and a new consideration in global policymaking.
Cabimas still plays an important role in production from the nation's largest oil fields, which are located around and beneath Lake Maracaibo. Other fields are increasing in importance, mainly in eastern Venezuela, where the Oficina Formation was discovered in 1937. About twenty years after the completion of the first oil-producing well Venezuela had become the largest oil exporter in the world and, after the United States, the second-largest oil-producer. Exports of oil boomed between 1920 and 1935. By the end of the 1930s, Venezuela had become the third-leading oil-producer in the world, behind the United States and the Soviet Union, as well as the leading exporter..
Growth of the oil industry By 1929, the dramatic development of the Venezuela oil industry had begun to dominate all other economic sectors in the country, however, agricultural production began to decrease dramatically.
In the 1930s Germany, re-arming and industrialising under Hitler, depended on Venezuela for almost 50% of its petroleum imports, but this trade plumetted in 1939 following the imposition of the Allied blockade of Germany.
1940–1976
By 1940 Venezuela was the third largest producer of crude oil in the world with more than 27 million tonnes per year – just slightly less than the production in the USSR. In 1941, Isaías Medina Angarita, a former army general from the Venezuelan Andes, was indirectly elected president. One of his most important reforms during his tenure was the enactment of the new Hydrocarbons Law of 1943. This new law was the first major political step taken toward gaining more government control over its oil industry. Under the new law, the government and the oil companies share the oil wealth approximately 50-50. The new legal framework was reached amicably: oil companies had the choice to operate under the existing concession terms, or to agree to the less favourable terms, but for an extended period of time (40 years starting in 1943). Whereas the old concessions varied significantly, the new 40 year concessions were uniform for all concessionaires. The government revenue was generated from a land tax calculated per hectare and a royalty of per cent of oil produced. The exemption from import duties for the oil companies was mostly revoked in an attempt to stimulate domestic economic growth in sectors that the oil industry depended on. Once passed, this piece of legislation basically remained unchanged until 1976, the year of nationalization, with only two partial revisions being made in 1955 and 1967.
In 1944, the Venezuelan government granted several new concessions encouraging the discovery of even more oil fields. This was mostly attributed to an increase in oil demand caused by an ongoing World War II, and by 1945, Venezuela was producing close to .
Being an avid supplier of petroleum to the Allies of World War II, Venezuela had increased its production by 42 percent from 1943 to 1944 alone. Even after the war, oil demand continued to rise due to the fact that there was an increase from twenty-six million to forty million cars in service in the United States from 1945 to 1950.
By the mid-1950s, however, Middle Eastern countries had started contributing significant amounts of oil to the international petroleum market, and the United States had implemented oil import quotas. The world experienced an over-supply of oil, and prices plummeted.
Creation of OPEC
In response to the chronically low oil prices of the mid and late 1950s, the Venezuelan hydrocarbons and mines minister Juan Pablo Pérez Alfonzo proposes to the oil producing countries Iran, Saudi Arabia, Iraq, and Kuwait met in Baghdad in September 1960 to form the Organization of the Petroleum Exporting Countries (OPEC). The main goal of the OPEC member countries was to work together in order to secure and stabilize international oil prices to ensure their interests as oil producing nations. This was managed largely via maintaining export quotas that helped prevent the overproduction of oil on an international scale.
Oil embargo of 1973
In the early 1970s, oil producing countries of the Persian Gulf began negotiations with oil companies in attempt to increase their ownership participation. In 1972 they rapidly obtained a 25 percent participation, and less than a year later they revised those agreements to obtain up to 60 percent participation in the ownership of the companies. By 1973, OPEC Persian Gulf states members decided to raise their prices by 70 percent and to place an embargo on countries friendly to Israel (the United States and the Netherlands). This event became known as the 1973 oil crisis. Following a culmination of conflicts in the Middle East and the oil producing countries of the Persian Gulf no longer exporting to the United States and oil prices rising steeply, Venezuela experienced a significant increase in oil production profits. Between 1972 and 1974, the Venezuelan government revenues had quadrupled. With a new sense of confidence, Venezuelan president Carlos Andrés Pérez pledged that Venezuela would develop significantly within a few years. By substituting imports, subsidies, and protective tariffs, he planned to use oil profits to increase employment, fight poverty, increase income, and diversify the economy.
Nationalization
Well before 1976, Venezuela had taken several steps in the direction of nationalization of its oil industry. In August 1971, under the presidency of Rafael Caldera, a law was passed that nationalized the country's natural gas industry. Also in 1971 the law of reversion was passed which stated that all the assets, plant, and equipment belonging to concessionaires within or outside the concession areas would revert to the nation without compensation upon the expiration of the concession. The movement towards nationalism was experienced once again under decree 832. Decree 832 stipulated that all exploration, production, refining, and sales programs of the oil companies had to be approved in advance by the Ministry of Mines and Hydrocarbons. Led by finance minister Luis Enrique Oberto, nationalization led to the Venezuelan economy reaching an average growth of 5% between 1970 and 1973.
Nationalization became official when the presidency of Carlos Andrés Pérez, whose economic plan, "La Gran Venezuela", called for the nationalization of the oil industry and diversification of the economy via import substitution. The country officially nationalized its oil industry on 1 January 1976 at the site of Zumaque Oil Well 1 (Mene Grande), and along with it came the birth of Petróleos de Venezuela S.A. (PDVSA) which is the Venezuelan state-owned petroleum company. All foreign oil companies that once did business in Venezuela were replaced by Venezuelan companies. Each of the former concessionaires was simply substituted by a new "national" oil company, which maintained the structures and functions of its multi-national corporation (MNC)-predecessor.
All the new companies are owned by a holding company, Petroven or PDV, which in turn is owned by the state. Ultimately not much had changed in this regard, as all Venezuelans with leading positions in the MNCs took over the leading positions of the respective new companies, and therefore still securing their interests in Venezuela's oil. PDVSA controls activity involving oil and natural gas in Venezuela.
1977–1998