Estimates suggest Venezuela has anywhere between $150 to $170 billion in debt. So, what is the nation doing to tackle such vast arrears – and can it ever recover from them?
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According to estimates, Venezuela’s debts stand at roughly $150-$170 billion. This figure includes obligations to the state oil company, PDVSA, bilateral loans and arbitration awards, among other debts.
On top of its debts, Venezuela suffers from a shrinking economy. Since 2013 – when oil production dropped sharply, inflation spiralled and poverty surged – it has struggled to restore revenue gains, as it remains plagued by lower global oil prices and sanctioned oil tankers. As such, paying off these debts remains a difficult reality to achieve.
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But why exactly does the nation have such mounting debts? And is it possible for Venezuela to pay it all off?
A helping hand from China
One of the major lenders supporting Venezuela’s finances is China. Chinese financial institutions – in particular the China Development Bank – loaned Venezuela around $60billion USD through 17 different loan contracts, about half the Chinese loans committed to Latin America as of 2023. Repayment of these loans was supposed to occur in the form of oil shipments to China.
Issues with repaying Chinese loans began back in 2016, and since then, Venezuela and China have been in negotiations on redefining the terms of payment of the debt. Such a scenario is complicated by US sanctions of the country, which makes it more difficult – if not impossible – to send oil across to China.
While most of Venezuela’s oil exports have China as their final destination, just a fraction of those oil exports cover Venezuela’s debt.
The recent US intervention in Venezuela may also complicate China receiving a supply of Venezuelan oil, particularly to China’s small independent refineries known as ‘teapots’. These refiners, which operate on thin margins, are regular purchasers of sanctioned crudes because of the steep discounts they offer.
Short-term disruptions may be possible to deal with as large volumes of Venezuelan oil are stored in tankers off the coasts of China and Malaysia. However, anything longer would force the ‘teapots’ to choose between paying higher prices for alternative supplies or making do with less.
Who else does Venezuela owe?
According to The Economist, the Venezuelan government owes at least $95billion – or 115 per cent of its GDP – to three groups of creditors, including China. The biggest group of creditors is private bondholders, to which the government owes at least $60 billion. Many are firms, such as Elliott Management, that buy assets. Beyond this, it is difficult to know who else forms part of this first group of private bondholders since many purchases were conducted quietly to avoid attention.
The second group of creditors is oil companies. Back in the 2000s, former Venezuelan president Hugo Chávez nationalised much of the country’s oil industry, resulting in foreign firms having their oil fields and other assets stripped. Subsequently, these companies turned to Western courts seeking damages.
In 2019, one such court ordered Maduro to pay $9billion to ConocoPhillips, an American firm. Maduro refused, and since then the figure has risen to $12billion, including interest payments. In total, Venezuela now owes $22billion to various oil companies.
Oil as the answer?
It’s not a far-fetched assumption that Venezuela could pay off its debts with money earned from oil production. After all, the nation holds the world’s largest oil reserves at 303 billion barrels. Yet, it accounts for barely one per cent of global crude production.
The next logical step would be to increase production, and in turn increase cash flow from oil. But experts warn that returning to modest levels of production would require upgrading Venezuela’s ageing infrastructure, a process that would require massive investment and political stability – neither of which is currently available to the nation.
Even if Venezuela were to increase the quantity of oil it produces per day, there may still be difficulties in translating the money earned from such production into funds that could be directly used to pay off debt.
For example, if Venezuela hit 2.5 million barrels a day in ten years’ time – with an average price of $60 per barrel, the same as 2026 figures – the annual revenue Venezuela would get from exporting its oil would rocket from the current $10 billion to roughly $23billion. This figure accounts for Venezuelans consuming some of the crude oil themselves and for the country’s heavy oil typically fetching a lower price than other grades.
But in reality, relatively little of that $23billion would be available for international debt obligations. That’s because historically, as Venezuela’s export revenues rose, import expenditures did too. One reason is that Venezuelan crude is notoriously difficult to extract and requires the use of foreign diluents, which cost money.
Another factor is that as the economy grows, currency strengthens, and officials and consumers alike tend to spend more, which also raises imports. By 2035, analysts predict such a scenario would leave the nation’s trade roughly in balance.
After factoring in imports and other inflows such as remittances, estimates suggest that just $ 6.5billion of foreign currency would be available to service external debt each year.
