President Trump announced an oil agreement with Venezuela over the weekend and called it the largest oil deal in history. On the terms described, a new company would receive rights to 17 Venezuelan oil fields for at least 25 years, covering some 65 billion barrels. The United States would hold a 55 per cent stake in the venture, including the right to buy at cost.

No text of the agreement has been released.

Start with what a barrel in the ground is worth

Sixty-five billion barrels is a very large number, and it is the number doing most of the work in the announcement. It is also the least informative one.

Venezuela holds the world’s largest proved oil reserves on paper, but the great majority of that is extra-heavy crude from the Orinoco Belt. Extra-heavy crude has to be upgraded or blended with lighter oil before most refineries can process it, which requires diluent, upgrading facilities and functioning pipelines. Reserves figures describe geology. They do not describe what can be produced this decade, at what cost, or by whom.

Venezuelan production has fallen far from its historic peaks after years of underinvestment, sanctions and the departure of technical staff. Restoring output from those fields is a matter of drilling, power supply, upgraders and export terminals — a capital programme measured in tens of billions of dollars and in years, not a matter of signing.

The case being made for it

Republican supporters have framed the agreement in security terms as much as commercial ones. The argument, as made by Congressman Brian Mast and others, is that Venezuelan crude currently flowing to China and moving on Russian-linked shipping would instead flow to the United States — a gain in energy security and in Western Hemisphere position simultaneously.

There is a real strategic logic there, and it is sharper than usual given the year. With Hormuz constricted and the Strategic Petroleum Reserve at a 44-year low, a large non-Middle Eastern source of heavy crude — and Gulf Coast refineries are configured for heavy crude — addresses a genuine vulnerability. Refilling the reserve requires buying roughly 200 million barrels, and where those barrels come from is a live question.

The case against, and it is not only partisan

Democrats have contested the deal, and the objections divide into three that are worth separating.

The first is procedural. No text has been published. A 25-year arrangement over a foreign state’s principal natural resource, with a majority American stake, raises questions about what legal instrument it is — a commercial contract, an executive agreement, something requiring Senate consent — and none of those can be answered without the document.

The second concerns the counterparty. Any agreement of this kind implies dealing with the government in Caracas, and the recognition, sanctions and human-rights questions attached to that have not been resolved by the announcement. They have been set aside by it.

The third is about durability. Venezuela has nationalised foreign oil assets before, most consequentially in 2007, and the resulting arbitration ran for more than a decade. A 25-year term across three or more Venezuelan governments — and at least four American ones — is an assertion of intent, not a guarantee of performance. Sovereign resource agreements are among the least stable commercial instruments there are, precisely because the asset cannot be moved and the political value of reclaiming it grows over time.

What “at cost” would mean

The most consequential phrase in the announcement is the smallest: the right to buy at cost.

If read literally, that is not a trade relationship, it is a claim on production priced below the market. Everything then depends on the definition of cost — whether it includes capital recovery, financing, transport, royalties and taxes owed to Venezuela — and on who audits it. Those definitions are where value in resource contracts is actually created or destroyed, and they are the part that never appears in an announcement.

Until the text is published, the honest position is that the size of the fields is known, the intent is stated, and the terms that determine whether any of it is worth what is claimed are not public.

Related: America’s Emergency Oil Is at a 44-Year Low. Refilling It Is the Hard Part.

Sources

Terms as announced and congressional reaction reported by WORLD Radio; Strategic Petroleum Reserve figures from the US Energy Information Administration.