January 12, 2026
But I know you got your reasons
These things that are pleasin’ you
Can hurt you somehow
– The Eagles
After kidnapping Venezuelan President Nicolás Maduro, President Trump is now bent on outdoing himself by committing the US to “running Venezuela”; threatening Denmark, Cuba, Nicaragua, Mexico, Canada, Colombia, and Iran; increasing the Pentagon budget by 50%, to $1.5 trillion; and seizing Russian tankers.
Justifications for these actions are, in no particular order: narco-terrorism, illegal immigration, the malign presence of China/Russia/Iran, oil, rare earths, arctic security, the “Donroe Doctrine” and “Murca, f**k yeah!”
Pointing out the wobbly merits and confused means to achieve these ends is a fool’s errand. They are not meant to withstand close scrutiny. We will pull on a few loose threads for demonstration purposes but it is pointless to go through the entire litany as farces will be generated faster than they can be debunked.
The world can safely assume that President Trump is blundering and figure out why later. We are confident in this assessment as Trump’s only real motivation is the “Murca, f**k yeah!” musings of a dementia-addled narcissism. Talking heads with sudden expertise in arctic missile trajectories and oil and gas economics are trying to clothe a naked emperor. Nobody is playing 4-D chess. All of this will end in tears as it has in Vietnam, Somalia, Iraq, Libya, Afghanistan and the Red Sea.
In recent days, flying under the headlines, China announced an export restriction protocol on dual-use (commercial and military) products for Japan, including rare earths. This is surely in retaliation for Prime Minister Sanae Takaichi’s recent statement that a PLA move on Taiwan constitutes an existential threat and justifies a Japanese military response.
While verbally stating that only military uses will be affected, initial reports suggest that rare-earth exports to Japan have been broadly restricted. This is an old Sun Tzu play, “When you surround an army, leave an outlet free. Do not press a desperate foe too hard.” The lifting of export restrictions will involve Japanese concessions on its military posture towards Taiwan.
Somewhere in Trump’s brain is Venezuela’s “300 billion barrels” of oil reserves – the largest in the world. The word “reserves” is being used liberally. (Note to reader: Han Feizi is a former oil and gas analyst.)
Venezuela’s Orinoco oil belt was discovered in 1935. The country currently produces about 1% of the world’s oil (~900,000 barrels per day), a far cry from the US, Saudi Arabia, Russia and Canada, which account for 23%, 13%, 13% and 6% of the world’s output, respectively. At its peak in the 1960’s, Venezuela produced 3.5 million barrels per day – still a fraction of today’s mega producers.
While mismanagement and economic sanctions have surely hobbled production, the Orinoco Belt is also an extra heavy sour (high sulfur) deposit, difficult to extract and expensive to refine. It is basically a giant tar pit – the marginal deposits tapped after exhausting all other fields. There just is no incentive to ramp up heavy sour oil production in a low oil price environment.
Proved reserves, often called 1P, have an industry definition. This is oil in the ground with a 90% chance of being economically extractable. Reserves only become proved after significant investment has been made – drilling multiple exploration wells as well as development wells. In industry parlance, this is called “finding and development costs.” Under Serities Exchange Commission rules, US-listed oil and gas companies are only allowed to report proved reserves.
There are also 2P (proved + probable) reserves. Probable reserves have a 50% chance of being economically extractable. This is where things start to get loosey-goosey. Oil and gas companies often impute the existence of probable reserves with seismic studies (reflected soundwaves mapping underground formations) combined with a small number of exploration wells. Oil and gas companies need to spend significantly more to turn probable reserves into proved reserves.
And then there are 3P (proved + probable + possible) reserves. Possible reserves have a 10% chance of being economically extractable. These are “in our fevered imagination” reserves. Possible reserves depend as much on the persuasiveness of touts, the professional scruples (or lack thereof) of geologists and, in the case of Venezuela, the political imperatives of the Chavez/Maduro regime as they do on the actual existence of oil deposits. Venezuela’s 300 billion barrels is definitely of the 3P variety.
The R/P ratio – proved reserves over production – is a metric used in the oil and gas industry. This ratio is usually between 10 and 20. With 900,000 barrels per day of production, Venezuela would normally have an estimated 3.3 to 6.6 billion barrels of proved reserves (vs. Exxon’s 19.9 billion barrels).
Venezuela, however, is not normal because its oil fields have been mismanaged. With tens of billions of dollars in additional finding and development spending, we can put a multiple on the reserves estimated above. But no reasonable multiple will get anywhere close to the 300 billion barrels being bandied about and swirling in Donald Trump’s head. The upper limit is 30 billion barrels.
While robbing Venezuela of its oil is an economically wobbly premise, there is also a massive contradiction running through the “Trump Corollary” to the Monroe Doctrine (AKA the Donroe Doctrine) as laid out in the National Security Strategy (NSS). A central theme of the Donroe Doctrine is to stop economic migration from Latin America. Another is to eject China, Russia and Iran from the Western Hemisphere.
We will deny non-Hemispheric competitors the ability to position forces or other threatening capabilities, or to own or control strategically vital assets, in our Hemisphere.
American policy should focus on enlisting regional champions that can help create tolerable stability in the region, even beyond those partners’ borders. These nations would help us stop illegal and destabilizing migration, neutralize cartels, nearshore our manufacturing, and develop local private economies, among other things.
Latin American economies are not complementary to the US. What Latin America needs – capital and affordable capital goods – the US cannot provide. The US, by running massive trade deficits, is, in fact, fighting Latin America for China’s capital flows. What Latin America has – oil, minerals and agricultural products – the US doesn’t need thanks to plenty of its own output.
All Trump can hope to achieve is to coerce Latin American elites to align with the US while immiserating their country, sending waves of economic migrants north. Given China’s significant economic foothold in Latin America and the reluctance of President Trump to put boots on the ground, it is unclear how much he can actually coerce.
As we have pointed out, wonky analysis is pointless when it comes to President Trump. He thinks Venezuela has 300 billion barrels of reserves and there is no point arguing. He thinks Greenland is full of rare earth deposits and is vital to American security and that’s that. He thinks Latin America will be a valuable captive market for American industry and nothing will convince him otherwise.
When things inevitably do not work out as planned, Donald Trump will have moved on to a completely different circus. The circus we are currently watching is itself a distraction from having surrendered in the trade war with China and having abandoned Ukraine (not to mention a distraction from the Epstein scandal and abysmal poll numbers). Trump is just throwing things against the wall to see what sticks. And little will stick.
The kidnapping of Maduro demonstrated excellent intelligence and special operations capabilities but low resolve – there are no boots on the ground. This is not 4-D chess. Everyone from the still-intact Venezuelan regime to Denmark to China gets to respond. Threatening everyone at the same time while doing things on the cheap gets America only so far.
Quietly, in the background, China is breaking the US/Japan alliance. China has a decade-long window to play its rare-earths card before the West develops alternatives. Export restrictions on dual use products, including irreplaceable inputs like rare earths, are crippling to Japan’s economy. It should not come to that. China does not want to destroy Japan’s economy but, in the emerging spheres-of-influence world, Japan’s military must be either physically or politically hobbled.
Both China and the United States are playing the most ruthless kind of power politics. One is using power surgically, after rigorous analysis and sober consideration, while the other is throwing everything against the wall. Everyone should be cognizant which one is which before placing bets on outcomes.
No comments:
Post a Comment