US oil deal promises a flood of investment in Venezuela. When will its people feel the benefits?

By Gonzalo Zegarra, CNN

(CNN) — The enormous investments that the US and Venezuela have promised from their new oil production deal have brought cautious optimism that Venezuelans face a new period of prosperity after more than a decade of economic and social turmoil.

As the country with the world’s largest proven reserves of crude oil, some analysts expect Venezuela to reap some benefits from foreign investment even before it begins to increase production.

But its biggest economic gains will take time to unfold, analysts warn, and it remains unclear exactly when the general population will feel the effects.

Some residents have expressed fears the US will extract the greatest profits and leave little left over for them.

Moreover, the Venezuelan opposition has questioned the current government’s ability to manage these new investments, citing a lack of transparency and civil liberties.

Still, experts believe there’s reason to be cautiously optimistic, saying the project should not be analyzed solely on oil revenue, but also on the boost it could give other sectors of Venezuela’s battered economy.

Doubts and challenges

The US government signed the deal with Venezuelan company North American Blue Energy Partners (NABEP) to develop 17 oil fields with an estimated potential of about 65 billion barrels of crude. US President Donald Trump called the agreement “historic,” saying it would allow the US to purchase 20% of the production at cost.

Separately, several international firms have signed additional agreements for new energy projects in the country.

Venezuelan opposition leader María Corina Machado on Thursday backed Washington’s role in developing the country’s oil reserves but said the US needed a more competent partner than the current Venezuelan government, which she called an “illegitimate regime.”

“All of this requires sustained work under the non-negotiable principles of absolute transparency, legality and efficiency. And this is only possible with the legitimacy and stability offered by a serious and democratic government,” she said.

Experts have also expressed doubts over the limited information the government has released, including some contradictions between Washington and Caracas regarding the duration of the concessions, as well as over officials’ optimism about achieving such investment figures.

One of the challenges posed by such an agreement is that the inflow of capital could distort Venezuela’s economy if not handled properly, according to economist Manuel Sutherland, director of the Center for Workers’ Research and Education.

He said Venezuela would need “new economic institutions and new rules that can change the nation’s monetary, political and exchange-rate structure” to avoid small devaluations and issuing unbacked money. “Otherwise, no matter how much money comes in, it will be diluted.”

Boosting the energy infrastructure

For the investments to materialize, Venezuela will also need to restore or build entirely new energy infrastructure, experts say. The deal involves oil fields that haven’t been developed.

“It requires electrical infrastructure that does not exist in the country today and needs resources, investment, technology and, especially, an entire support workforce in surrounding clusters, which undoubtedly has a huge multiplier effect on the economy,” said Venezuelan economist Luis Vicente León, president of the consulting firm Datanálisis.

He stressed that the new oil fields need five or 10 years to be developed.

The program will also require “a rescue of the electrical system” since there is currently a deficit that forces some regions to ration electricity, according to Sutherland. He estimated transforming the electrical system could take more than $15 billion.

Sutherland stressed that the investment amounts that officials have mentioned (up to $100 billion) would not arrive in the short term.

“They will be spread out. It’s not as though 10 companies are going to come in and put $100 billion into the country tomorrow; that doesn’t happen. The investments will be $10 million, $20 million, $100 million, and they will gradually increase,” he explained.

Still, he emphasized that even an annual investment of $5 billion would ease the country’s liquidity problem.

“In such a small economy, when you have a project of that magnitude ahead of you, its impact on the country is very large and very rapid, because it changes expectations and improves the investment climate,” León noted.

Residents await results

Venezuelan residents have responded to the deal with a mix of hope and concern.

“We have to be patient because the economy doesn’t pick up overnight,” said resident Erasmo Rojas.

“It takes time for the economy to pick up, and, well, we’re in a transitional phase that I think it’s positive for the country – that the country is moving toward a better future. We have to believe in the country.”

Some say the deal will amount to nothing if the money isn’t used to fix longstanding problems like unreliable public services.

“What I want is for us to improve, you know? It’s the people who suffer the most. With sanctions or without them, in the end, it’s the people who suffer,” merchant Gian Gómez told CNN.

In the past two years, Venezuela has recorded a slow but steady increase in oil production, which recently exceeded 1 million barrels of crude oil per day for the first time since early 2019.

León said the increase was already having an impact and would be even greater in the final quarter. However, he said this path is not necessarily sustainable without new investment.

Even if investments are confirmed, it’s unclear when the population would begin to feel that things are improving.

For León, “that is a more complex story,” since GDP growth does not necessarily translate into tangible benefits.

“Now there is much more money, but what happens? If you ask the Venezuelan population, they will still tell you that they do not feel it, and that creates an unmet expectation that is negative in terms of national perception,” he said.

Acting Venezuelan President Delcy Rodríguez said she aims to raise production to 1.5 million barrels per day, which León believes would improve some economic indicators, though he warned that if production stalls there, “social demands will remain.”

“Do you have more money? Yes. But the power goes out for five or six hours in Barquisimeto, San Cristóbal, Mérida or Maracaibo. In other words, the electricity or water infrastructure problem has not been resolved,” he said.

He estimated that it would take at least a year for the population to feel that services are being managed better.

“Whether (the agreement) is sufficient, whether it is fair, and how it compares with the rest of the world is another story,” he added. “But I have no doubt whatsoever that there will be growth.”

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CNN’s Michael Rios contributed to this report.