Impacts Of Recent Developments On Venezuela's Investment, Economic And Legal Landscape

The recent arrest and arraignment of Venezuelan President Nicolás Maduro has profound legal and economic implications, particularly within the oil and gas sector. The Venezuelan oil sector is now in a state of disrepair due to years of mismanagement, corruption, and declining production levels. Current estimates suggest that Venezuela's oil production has plummeted to around 700,000 barrels per day, a stark contrast from its peak of approximately three million barrels per day in the late 1990s. Experts estimate that to return to even half of its past production levels, Venezuela would need an infusion of around $15 billion to $20 billion in investment to rebuild aging infrastructure, upgrade technology, and enhance operational efficiencies. As the situation evolves, companies considering re-engaging with Venezuela must stay informed about the shifting legal landscape and potential opportunities that may arise.

The Current Sanctions and Trade Compliance Landscape

The U.S. has imposed a series of sanctions on Venezuela through Executive Orders ("EOs") issued starting in 2015 and related regulations administered by the U.S. Treasury's Office of Foreign Assets Control (OFAC). Of particular note are EOs creating restrictions on most dealings with the Venezuelan government and its state-owned entities like PDVSA ("Petroleos de Venezuela, S.A."). Recent political developments, including Maduro's arrest and President Trump's expressed goal of having U.S. companies rebuild Venezuela's oil infrastructure, may bring about a reconsideration of these sanctions. Enabling U.S. companies to resume business in Venezuela would require at least a partial lifting of the sanctions, most likely through OFAC's issuance of licenses, but possibly through revocation of the most restrictive EOs. To date, OFAC has from time to time issued both general licenses (applicable to all persons) and specific licenses (applicable to particular persons) to allow certain otherwise prohibited transactions to occur. Given the recent developments, there is potential for a broader lifting of sanctions. Historical precedents, such as those surrounding Libya post-Gaddafi and Syria post-Assad, demonstrate that sanctions can be lifted when political regimes change. Companies interested in re-engaging with Venezuela must monitor these developments closely and may wish to advocate for a relaxation of sanctions by demonstrating to the Administration how their proposed activities in Venezuela would help advance U.S. policy goals.

Investment Disputes and Arbitration Dynamics

Venezuela has faced numerous arbitration claims submitted by foreign investors alleging expropriation, discriminatory treatment, or denial of the minimum standard of treatment required by the bilateral investment treaties to which Venezuela is party. The recent upheaval may lead to increased claims as investors anticipate a greater likelihood of successfully enforcing arbitral awards in their favor. Additionally, investors with claims against Venezuela may come forward in anticipation of a bespoke claims settlement process being established as part of a broader endeavor to foster an environment that is more hospitable to foreign investment. Such a multilateral mechanism was established in 1991 to manage claims that arose in the wake of Iraq's invasion of Kuwait. Alternatively, would-be claimants may anticipate the U.S. Foreign Claims Settlement Commission (an entity within the Department of Justice) playing an eventual role in processing claims against Venezuela as the Commission has done in other contexts, such as Cuba and Libya. In light of the evolving situation, investors exploring new or additional investments in Venezuela should carefully consider how to structure their investments to maximize protection against potential future actions that could diminish the value of those investments.

Sovereign and PDVSA Debt: Restructuring Implications

The latest developments also affect the trajectory for Venezuelan sovereign and PDVSA debt resolution, particularly recognition questions arising if there is uncertainty over the identity of the recognized government. Debt holders should anticipate continued case activity around judgments, attachments, and priority contests, especially where assets intersect with the energy value chain, including receivables and export proceeds. On the restructuring side, any credible process will require a sanctions‑compliant framework, clarity on governing law and waivers, and negotiations between all classes of creditors.

Baker Botts and Venezuela

Besides having deep and broad global experience in each of the foregoing practice areas, we bring decades of hands-on experience with Venezuelan matters, grounded not only in recent developments but in sustained work across major oil and gas transactions, sanctions and trade compliance, capital markets and Venezuela specific debt restructuring and complex disputes. Our lawyers have served as outside counsel to oil companies, financial institutions, and investors on Venezuelan matters, advised through multiple market cycles, and draw on meaningful U.S. executive branch experience (including at the Department of the Treasury and the Department of the Energy) as well as firsthand on the ground experience (having lived and worked in Venezuela). Our law firm is uniquely positioned to assist clients navigating the complexities of sanctions, international trade, arbitration, and sovereign debt matters with respect to the Venezuelan situation, especially in the energy sector. Our team regularly represents companies in obtaining federal funding for infrastructure projects through the Department of Energy, Department of War, and other agencies, as well as representing the Department of Energy in providing loans and loan guarantees for such projects. We also have extensive experience working with companies on labor and employment issues that arise when placing personnel and maintaining a workplace presence in a high volatility operating environment.

As developments continue to unfold, the uncertainty surrounding Venezuela's political and economic landscape remains significant. We encourage you to reach out for guidance on the potential opportunities and risks within the Venezuelan investment, economic, and legal landscape. In addition, we continue to monitor any direct impacts the situation in Venezuela might have on neighboring countries, such as Colombia, and we encourage you to reach out for guidance on any such issues as they develop.

Baker Botts Venezuela Task Force is monitoring updates on a real-time basis. Sign up here for future updates.

Core members of our Venezuela Task Force include:

1. Danny David
2. Jason Bennett
3. Samantha Crispin
4. Alejandro Escobar
5. George Fibbe
6. Evan Koster
7. Russell Lewis
8. Paul Lugard
9. Jennifer Haworth McCandless
10. Bridget Moore
11. Gerry Morton
12. Scott Nelson
13. Jeff Oliver
14. Ted Posner
15. Kevin Sadler
16. Michael Yuffee

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.