Venezuela’s Oil Sector Reopens Under Continuing Sanctions Constraints

Venezuela has moved to expand participation in its hydrocarbons sector through amendments to its Organic Law on Hydrocarbons (the “LOH”).¹ At the same time, OFAC has issued targeted general licenses authorizing specified categories of energy-sector activity, while leaving the broader Venezuela sanctions framework in place.

Together, these developments create defined but tightly controlled pathways for foreign engagement. For Canadian operators, oilfield service providers, traders and lenders, opportunities may be emerging, but execution remains shaped by license scope, payment routing, and compliance and banking risk.

Hydrocarbons Reform: Expanded Participation Within Continued State Control

The amended LOH introduces structural changes intended to attract foreign capital while preserving significant state oversight.

Public reporting indicates that the amended law contemplates multiple participation structures for upstream activities, including continued state-controlled arrangements and contractual models. Among the most commercially significant developments is the introduction of Productive Participation Contracts (“CPPs”), under which Venezuelan-domiciled private companies may conduct exploration, extraction, transportation and storage activities without forming traditional mixed companies with PDVSA.²

Minority participants in existing mixed companies may reportedly gain expanded rights, including the ability to market production shares directly, manage operational activities, and maintain foreign-currency accounts outside Venezuela. These measures are intended to improve cash-flow control and project bankability.

The reform also permits international arbitration and other alternative dispute resolution mechanisms, replacing the prior requirement that disputes be resolved exclusively in Venezuelan courts. Reported fiscal adjustments include: ³

• A royalty cap of 30%, subject to ministerial reduction;
• An Integrated Hydrocarbons Tax of up to 15% on gross revenue; and
• Exemptions from certain taxes, including large-wealth and selected municipal levies.

The law provides a 180-day transition period during which existing mixed companies and contractual arrangements may be reviewed and aligned with the new framework. Certain fiscal provisions take effect on a delayed basis. The reform signals liberalization within a continuing state-control model rather than wholesale privatization.

Sanctions Framework: Defined Authorizations Within Continuing Restrictions

OFAC has issued six general licenses in a phased sequence, authorizing defined categories of energy-sector activity. The underlying Venezuela sanctions program remains in force. The licenses identify the circumstances in which otherwise prohibited transactions may proceed, and the conditions under which they must be conducted.

The principal authorizations permit

• Lifting, exporting, marketing and transporting Venezuelan-origin oil, including certain transactions involving the Government of Venezuela and PDVSA;⁴
• Export of U.S.-origin diluents required for heavy-crude upgrading;⁵
• Provision of U.S. goods, technology and services for oil and gas exploration and production activities;⁶
• Negotiation and entry into new oil and gas investment agreements, provided that performance remains prohibited unless separately authorized;⁷ and
• Port and airport operations necessary to facilitate permitted energy activity.⁸

These authorizations are not sector-wide. Certain licenses apply only to “established U.S. entities” or specifically named companies. Material exclusions and reporting obligations remain in place. Activities outside license scope continue to require specific OFAC authorization, and the licenses are expressly revocable. The framework therefore distinguishes between what may be structured and what may be executed.

Contract Formation and Performance in a Conditional Environment

Even where a transaction falls within a general license, commercial performance remains shaped by payment controls, financial institution risk tolerance and compliance obligations.

Several licenses permit contract formation while restricting performance absent further authorization. An agreement may be validly entered into, yet lifting crude, providing services or making payments may remain contingent on license scope and continued validity. In particular, contingent contracts for new investment negotiated under the investment-contracting license cannot be performed without a subsequent specific OFAC license.⁹

Payment routing presents an additional constraint. In certain circumstances, amounts payable to the Government of Venezuela or PDVSA must be routed through designated United States accounts rather than paid directly, affecting cash flow assumptions and financing structures.

Financial institutions retain independent compliance obligations and may decline to process payments notwithstanding technical license coverage. Operational feasibility therefore depends not only on formal authorization, but also on the participation of financial intermediaries.

Practical Implications for Canadian Market Participants

Canadian companies are not directly subject to U.S. sanctions absent a U.S. nexus. In practice, however, many Canadian energy participants transact in U.S. dollars, operate through U.S. subsidiaries, rely on U.S.-origin goods or technology, or access U.S. financing and financial institutions. These connections may bring contemplated transactions within OFAC jurisdiction.

In evaluating potential participation, market participants may wish to consider:

• The extent of any United States nexus, including ownership structure, payment flows, supply chains, and personnel involvement;
• Whether contractual documentation clearly distinguishes between formation and performance, and incorporates appropriate authorization conditions;
• The possibility of license modification or revocation;
• Payment routing structures and allocation of bank refusal risk;
• The interaction between license conditions and governing law or dispute resolution provisions; and
• Ongoing diligence and reporting obligations associated with reliance on general licenses.

These considerations are directed to sanctions structure and transaction execution. They do not address the interpretation or application of Venezuelan law, on which qualified local counsel should be consulted.

Conclusion

Venezuela’s hydrocarbons sector is reopening within clearly defined regulatory boundaries. Amendments to the LOH expand participation and adjust fiscal terms, and OFAC’s general licenses create specific pathways for sanctioned activity, while the broader sanctions framework remains in place.

For Canadian energy participants, the central question is not simply whether opportunities exist, but whether they can be executed within the limits of license scope, payment controls, and compliance obligations. Careful structuring, early assessment of sanctions exposure, and attention to financial intermediary participation will be critical to translating contractual arrangements into operational performance.

Footnotes

1 Ley Orgánica de Hidrocarburos, Gaceta Oficial de la República Bolivariana de Venezuela, No 38,493, 4 August 2006 (as amended).

2 Ley de Reforma de la Ley Orgánica de Hidrocarburos (reforma parcial), Gaceta Oficial Extraordinaria de la República Bolivariana de Venezuela, No 6.978, 29 January 2026, arts 40–44.

3 Ley de Reforma de la Ley Orgánica de Hidrocarburos (reforma parcial), Gaceta Oficial Extraordinaria de la República Bolivariana de Venezuela, No 6.978, 29 January 2026, arts 51, 55–59. Most operational and structural changes took effect immediately upon publication. The fiscal provisions in arts 51, 55–59 will come into force 60 continuous days after publication (3 April 2026). The Ministry of Hydrocarbons has 180 days from publication (until July 2026) to complete its review of existing joint ventures and contracts under the new framework.

4 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 46A, “Authorizing Certain Activities Involving Venezuelan-Origin Oil” (US), issued 10 February 2026.

5 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 47, “Authorizing the Sale of U.S.-Origin Diluents to Venezuela” (US), issued 3 February 2026.

6 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 48, “Authorizing the Supply of Certain Items and Services to Venezuela” (US), issued 10 February 2026.

7 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 49, “Authorizing Negotiations of and Entry into Contingent Contracts for Certain Investment in Venezuela” (US), issued 13 February 2026.

8 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 30B, “Authorizing Certain Transactions Necessary to Port and Airport Operations” (US), issued 10 February 2026.

9 Venezuela Sanctions Regulations, 31 CFR Part 591, General License No 49, “Authorizing Negotiations of and Entry into Contingent Contracts for Certain Investment in Venezuela” (US), issued 13 February 2026.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.