On January 3, 2026, while launching military action against Venezuela, the United States also announced that it would maintain a comprehensive embargo on Venezuelan oil. Some analysts have speculated that this measure will have a particularly severe impact on China, which would lose an important source of oil available at favorable prices. By examining two long-term factors—the position of Venezuela in the international oil and gas market and the Investor–State Dispute Settlement (ISDS) mechanism—this article seeks to contribute to assessing future developments. 

I. An Objective Assessment of Venezuela’s Position in the International Oil and Gas Market 

Oil extraction has a history of more than two hundred years in Venezuela. Before Hugo Chávez became president in 1999, when political, military, and diplomatic relations between Venezuela and the United States deteriorated sharply, the two countries’ oil and gas markets developed in parallel and were highly integrated. It can be said that Venezuela functioned as an extension of the U.S. energy market, with the United States as the largest buyer of Venezuelan oil. In 2017, the Trump administration barred Venezuela’s largest state-owned enterprise—the state oil company PDVSA—from accessing the U.S. financial market, and in 2019 imposed further sanctions on it. Since then, Venezuela’s oil production and exports have both continued to decline. 

Over the past three decades, as Venezuela’s overall economic situation has worsened, PDVSA has faced severe funding shortages and has long been in substantial arrears on service payments, seriously affecting the cash flow of service providers. This has led to a significant contraction in Venezuela’s oil engineering and technical services market and a severe decline in daily crude oil output. By the end of 2025, statistics from various institutions all indicate that Venezuela accounts for only about 1 percent of global crude oil production. 

In addition to its very low share of global crude oil production, Venezuela’s oil reserves are also subject to doubt. In both global energy industry reports and mainstream international media, the standard narrative is that Venezuela possesses the world’s largest oil reserves, estimated at about 300 billion barrels, accounting for roughly 17 percent of proven global reserves. However, there are grounds for maintaining a necessary degree of caution regarding the narrative that Venezuela is the world’s largest holder of oil reserves. 

First, Venezuela’s oil reserves are viewed with skepticism within the industry. Whether for a specific block or an entire country, total energy resources consist of two components: discovered (proven) reserves and inferred resources. Recoverable resources yet to be developed are a constantly changing figure, as they depend on exploration investment, technological inputs, and the application of geological methods. The narrative that Venezuela’s oil reserves surged from about 100 billion barrels (primarily light crude) to 299.8 billion barrels (including extra-heavy crude) originated in 2011, when the government claimed that new discoveries had been made in the Orinoco River Basin as a result of adopting new measurement methods. However, energy industry literature at the time already noted that the new data on Venezuela’s oil reserves “lacked independent verification and therefore raised doubts among some analysts.”¹ As of January 7, 2026, English-language media continued to note that Venezuela’s oil reserves are a “self-reported” figure that “has never undergone multi-perspective and conclusive evaluation by independent experts.”²

Second, the Organization of the Petroleum Exporting Countries (OPEC) has merely reported the oil and gas data submitted by Venezuela and has not verified it. One of the functions of OPEC—and of the expanded “OPEC+” since 2016—is to review and coordinate production quotas among its member states. These quotas reflect factors such as global oil market conditions and shifts in supply and demand, and member states’ reserve data constitute an important basis for determining their production quotas. OPEC has only reported the reserve data submitted by Venezuela, but these data have never been verified by international industry institutions. 

Taken together, in terms of the attractiveness of Venezuela’s oil resources in the global oil market, even using a reserve estimate in the hundreds of billions of barrels, the volume is still considerable. However, the Orinoco Belt consists of extra-heavy, high-sulfur crude, the extraction of which is more technically complex than that of light crude and requires more expensive equipment. From the perspectives of production, reserves, and future extraction, Venezuela’s importance in the global oil supply structure has been overestimated. 

II. Challenges Faced by Foreign Investment in Venezuela 

Over the past 30 years, Venezuela has sought to engage in international cooperation in the oil and gas sector. Major foreign companies involved in oil and gas exploration and related services in Venezuela include BP, CNPC, and Sinopec (state-owned enterprises), as well as China Concord Resources Corp. (a private enterprise), Eni (Italy’s national oil company), Repsol (a Spanish integrated international oil, petrochemical, and natural gas company), Royal Dutch Shell, and Russia’s Rosneft, among others.³

The U.S. company Chevron has established joint venture and cooperative relationships with PDVSA, holding stakes ranging from 25 percent to 60 percent in five onshore and offshore projects in Venezuela. Some U.S. companies remain in disputes with Venezuela. ConocoPhillips is still seeking to recover $12 billion in assets that were expropriated during the Chávez era.⁴ ExxonMobil, after refusing to accept PDVSA’s joint venture terms, terminated its operations in Venezuela. Arbitration proceedings it initiated against Venezuela in 2007 remain unresolved. For U.S. oil companies other than Chevron, on the one hand, historical disputes arising from nationalization measures taken by successive Venezuelan governments remain unsettled. On the other hand, Venezuelan crude oil is more suitable for producing diesel than U.S. light crude. Refineries in the United States that process heavy crude are eager to obtain more Venezuelan oil, as they can process it efficiently and typically at lower cost.⁵

Venezuela has actively promoted economic cooperation with China, attracting Chinese-funded oil and gas enterprises to participate in the development of its market. As early as 1997, Chinese oil companies had obtained exploration and production contracts to enter Venezuela’s oil and gas sector. The basic models included joint ventures (with the Venezuelan state oil company holding 40%–70% equity in specific blocks), oilfield services, and engineering contracting. In 2007, Venezuela and China reached an “oil-for-loans” agreement with a total value of $50 billion. In 2017, Venezuela began to use the renminbi as one of the currencies for its oil export revenues. In theory, the establishment of a stable energy cooperation base in South America by Chinese-funded energy enterprises would help China diversify its sources of energy imports. Following the success of the U.S. shale oil revolution, U.S. dependence on imported crude oil declined, and competition on the global supply side of crude oil intensified. Against this backdrop, by strengthening energy cooperation with China, Venezuela can economically reduce its reliance on the U.S. oil market and promote the diversification of foreign investment and crude oil exports. This would help secure Venezuela’s future share in the Chinese market and enhance its bargaining power in regional and global energy trade. 

Following U.S. military action against Venezuela, foreign investment in the country faces new challenges. Foreign companies must obtain U.S. authorization before they can negotiate with Venezuelan authorities, plan projects, or carry out operations.⁶ The U.S. running of Venezuela has only just begun. For foreign investors, whether this marks the start of a new era of higher risk, higher costs, and greater uncertainty remains unclear, and international energy companies are largely in a wait-and-see mode. 

III. Mechanisms for the Resolution of International Investment Disputes 

In the process of attracting foreign investment, Venezuela has adopted a series of “resource nationalism” measures. For example, it has sought to strengthen control over oil and gas resources through regulatory means such as revising domestic legislation, introducing tax policies to impose high levies on a sudden basis, and mandating localization requirements. It has also arbitrarily initiated compliance and criminal investigations, seriously affecting the normal operation of foreign-funded projects and the investment interests of foreign investors. Overseas oil and gas projects are characterized by large investment scales, long project cycles, and assets that are not easily transferable, exposing enterprises to a “sunk cost trap.” Once there is a sudden change in host-country policy, enterprises find it difficult to withdraw quickly to limit losses and may even incur substantial losses as a result. 

One response adopted by foreign companies investing in Venezuela has been to initiate international arbitration. For example, in 2007, the Venezuelan government required the Dutch subsidiary of the U.S. company ConocoPhillips (which had invested in an Orinoco heavy oil project) to undergo restructuring, with an affiliate of the state oil company to hold a 60 percent stake. After ConocoPhillips refused, its related projects were nationalized. ConocoPhillips then, on the basis of the Netherlands–Venezuela Bilateral Investment Treaty (BIT) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, initiated international arbitration before the International Centre for Settlement of Investment Disputes (ICSID), a standing arbitration institution under the World Bank Group. The arbitral tribunal found that Venezuela had failed to conduct good-faith negotiations on compensation for the expropriation, constituting unlawful expropriation, and ruled in favor of ConocoPhillips. Venezuela raised a “contractual cap” defense, which was rejected by the tribunal. Venezuela’s appeal failed, and enforcement proceedings have continued, including the auction of Venezuelan state assets in the United States to satisfy the award.⁷ In 2008, Venezuela notified the Netherlands of its intention to terminate the Netherlands–Venezuela bilateral investment protection agreement, and in 2012 it withdrew from the Convention, beginning the process of abolishing bilateral investment treaties that included international investment arbitration procedures. However, under the Netherlands–Venezuela bilateral investment protection agreement, Venezuela’s notification merely triggered the “sunset period” clause (i.e., the period during which investment protection continues to remain in force after unilateral termination by one party). As of 2023, ICSID awards remain valid with respect to Venezuela as a state.⁸ In addition, oil companies such as ExxonMobil have also initiated international arbitration against Venezuela on the basis of the aforementioned Convention.⁹ 

Venezuela is not the only country that has taken a reserved stance toward the “investor–state dispute settlement” (ISDS) mechanism and adopted similar measures through domestic law (a total of 16 countries in Latin America have withdrawn from the mechanism). In some countries, ISDS has been criticized on the grounds that, in their view, arbitration procedures lack transparency; arbitrators lack impartiality and independence; compared with proceedings in domestic courts, international investment arbitration is more costly; the mechanism is one-sided, allowing only investors to initiate arbitration; and there is a lack of remedies for those harmed by the conduct of multinational corporations.¹⁰

China and Venezuela signed the Agreement on the Reciprocal Promotion and Protection of Investments (China–Venezuela BIT) in May 2024, which entered into force in January 2025. Article 12(2) of the agreement sets out the available arbitration options, stipulating that an investor may submit a dispute to “an ad hoc arbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL),” and that “if both parties to the dispute so agree in writing, the dispute may be submitted to other arbitral institutions or arbitration under other arbitration rules.”¹¹

For Chinese-funded enterprises (including non-state entities and small and medium-sized enterprises), regardless of changes in Venezuela’s governing authorities or whether future changes in its foreign investment policies are influenced by U.S. preferences, the country’s obligations in international economic relations cannot be altered. Chinese enterprises can actively make use of arbitration mechanisms, including those under UNCITRAL, which cover areas such as international commercial dispute resolution, e-commerce, insolvency, international payments, sales of goods, transport law, procurement, and infrastructure. 

This is not the first time the United States has adopted extraordinary measures toward Latin American countries, including Venezuela, nor will it be the last. For Chinese enterprises that have already invested in Venezuela, where negotiated settlement of disputes proves ineffective, resorting to international arbitration is an option conducive to building industry reputation. On the other hand, China’s energy interests in Venezuela and other Latin American countries extend far beyond the acquisition of oil and gas products from those regions. China is competitive in Latin America in fields such as electric vehicles, solar energy, energy storage, digitalization, telecommunications, financial technology, electrification, and artificial intelligence development and applications. From a broader perspective, cooperation between China and Venezuela is cooperation between sovereign states, protected by international law and the domestic laws of both countries. Regardless of how Venezuela’s political situation evolves, Chinese enterprises can rely on existing bilateral and multilateral dispute resolution mechanisms to lawfully safeguard China’s legitimate interests in Venezuela.