The cur­rent lev­el of nat­ur­al gas pro­duc­tion can on­ly keep some of the plants op­er­at­ing at re­duced ca­pac­i­ty. Train 1 and oth­er petro­chem­i­cal plants are closed be­cause there just isn’t enough gas. There­fore, every ef­fort must be made to find ad­di­tion­al nat­ur­al gas sup­plies through ex­plo­ration, de­vel­op­ing small­er unutilised fields, and ac­cess­ing gas in Venezuela wa­ters if pos­si­ble. Pre­vi­ous ar­ti­cles in this col­umn eval­u­at­ed the ap­proach to Venezuela’s Drag­on Gas field ar­gu­ing that the ab­sence of any de­fin­i­tive le­gal arrange­ments, like the award of a pro­duc­tion li­cence means that Drag­on does not sat­is­fy the de­f­i­n­i­tion of a project.

Be­fore pro­ceed­ing, as a first step, the po­lit­i­cal risk re­gard­ing the de­vel­op­ment of the Drag­on field must be eval­u­at­ed. Po­lit­i­cal risk is the risk that an in­vest­ment could be neg­a­tive­ly af­fect­ed by po­lit­i­cal de­vel­op­ments or in­sta­bil­i­ty in the coun­try where the in­vest­ment is lo­cat­ed. Po­lit­i­cal in­sta­bil­i­ty aris­es in many forms: from a change in gov­ern­ment, leg­isla­tive bod­ies, oth­er for­eign pol­i­cy­mak­ers, or mil­i­tary con­trol. The pro­posed in­vest­ment in the Drag­on de­vel­op­ment is sub­ject to at least five pri­ma­ry risks.

The first risk is the out­come of the pro­posed Venezuela elec­tions. The agree­ment to hold elec­tions has led to the se­lec­tion of Maria Co­ri­na Macha­do as the Op­po­si­tion can­di­date who won by a land­slide in an op­po­si­tion pri­ma­ry to choose a can­di­date for next year’s pres­i­den­tial elec­tion. Ei­ther Macha­do or Maduro can win. If Macha­do wins, will her ad­min­is­tra­tion be as dis­posed to ne­go­ti­a­tion with GORTT? This is un­known. What is al­so un­known is how the Venezue­lan mil­i­tary (which has close ties to the Maduro regime) will re­act. Fur­ther, if Macha­do wins and de­cides to take le­gal ac­tion against Maduro, this could make the sit­u­a­tion even more un­sta­ble. There hasn’t been a suc­cess­ful coup in Venezuela for many years, but that is still pos­si­ble.

The sec­ond is a geopo­lit­i­cal risk in the form of US sanc­tions, im­posed in re­sponse to Maduro’s re-elec­tion in 2018, which the US and EU deemed fraud­u­lent. This cre­at­ed a “bound­ary con­di­tion.” Even if T&T ne­go­ti­a­tions go ahead, the US must ease its sanc­tions to fa­cil­i­tate any deal. Af­ter more than a year of se­cret ne­go­ti­a­tions, the US has made a risky bet on Venezuela, eas­ing sanc­tions that had barred gold and oil ex­ports, hop­ing that in ex­change, Venezuela’s long-rul­ing so­cial­ist pres­i­dent Nicolás Maduro would hold a com­pet­i­tive elec­tion next year and re­lease po­lit­i­cal pris­on­ers. Hence T&T’s OFAC li­cence.

Macha­do is an ob­sta­cle. She is banned by law from par­tic­i­pat­ing in any elec­tions for 15 years. She re­fus­es to ne­go­ti­ate with the Gov­ern­ment, wants Maduro tried for crimes against hu­man­i­ty and has in the past ad­vo­cat­ed for­eign mil­i­tary in­ter­ven­tion in Venezuela, a po­si­tion that could be deemed trea­so­nous. The eas­ing of sanc­tions has led to more com­pli­ca­tions. The US has re­laxed sanc­tions in the ex­pec­ta­tion of a spe­cif­ic time­line for free and fair elec­tions. A lot now de­pends on how the Maduro regime re­sponds. What if the re­spons­es are deemed in­ad­e­quate? Why would the regime re­in­state Macha­do if she is a cred­i­ble elec­tion threat? What will be the Re­pub­li­can po­si­tion on sanc­tions against Venezuela in the run-up to the 2024 US pres­i­den­tial elec­tion?

While the Maduro gov­ern­ment wants to im­prove the econ­o­my and nor­malise the coun­try af­ter a decade of hard­ship, the rul­ing Chav­ista move­ment in­tends to win next year’s elec­tion and re­main in pow­er. How will the US re­spond should Maduro win and how would the US ad­dress the tem­po­rary ease in sanc­tions if US soft pow­er does not achieve its in­tend­ed re­sult?

The third po­lit­i­cal risk re­lates to Venezuela’s ter­ri­to­r­i­al dis­pute with Guyana. Venezuela claims 160,000 square miles (two-thirds of Guyana), the oil and min­er­al-rich Es­se­qui­bo re­gion. This dis­pute start­ed in 1899 and was reignit­ed in 1962. The re­gion is shown as “Zona Recla­ma­da” on all Venezuela maps. This week Cari­com is­sued a state­ment con­demn­ing Venezuela’s in­tent to hold a ref­er­en­dum on de­fend­ing Venezuela’s claim to the Es­se­qui­bo re­gion, the out­come of which could lead to an an­nex­a­tion of the ter­ri­to­ry.

Per­haps Venezuela’s ac­tion is sabre-rat­tling. Even if it is on­ly that, pur­su­ing T&T’s na­tion­al in­ter­est does cre­ate a diplo­mat­ic co­nun­drum. How does T&T ne­go­ti­ate with Venezuela as it pres­sures Guyana? What spin would be ac­cept­able to T&T’s re­gion­al part­ners and our big US broth­er? Last week US Am­bas­sador Bond and the US South­ern Com­mand Deputy Vice Ad­mi­ral Holsey met with the Prime Min­is­ter and the For­eign Af­fairs min­is­ter to dis­cuss con­tin­ued se­cu­ri­ty co­op­er­a­tion be­tween the US and T&T. Per­haps the meet­ing was mere­ly a cour­tesy call.

The fourth risk is al­so geopo­lit­i­cal. War is asym­met­ric mean­ing that it is fought in dif­fer­ent forms si­mul­ta­ne­ous­ly. The US now finds it­self chal­lenged in two wars con­cur­rent­ly, in the Ukraine and the Mid­dle East. There are fields on both sides of the Drag­on where the op­er­a­tors have in­ter­ests in both spheres of in­flu­ence. Chi­na, Rus­sia, and Iran have strate­gic in­ter­ests in Venezuela,

The fifth is Venezuela’s track record in en­er­gy sec­tor deals. Cono­coPhillips’ le­gal ac­tion con­cern­ing the PetroZu­a­ta project rais­es is­sues that a po­ten­tial op­er­a­tor can­not ig­nore. Shell prac­ti­cal­ly in­vent­ed sce­nario plan­ning and has un­doubt­ed­ly ex­am­ined the risks. There are 23 sim­i­lar cas­es. Be­fore se­ri­ous ne­go­ti­a­tions be­gin, these risks must be eval­u­at­ed. They are deal break­ers. 

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness.