The 100-year history behind Trump’s push for Venezuela’s oil wealth

U.S. diplomat Willis C. Cook reported from Caracas in December 1922 on an oil find that would change the trajectory of the Americas.

One week after drillers struck a gusher 1,500 feet below ground in the northwest part of the country, he said the flow of crude through the well remained so prolific that “it has not yet been brought under control." A follow-up message from the consul included photos of oil spurting into the sky.

The blowout marked Venezuela’s unofficial entrance as a big player in the global energy market, its vast reserves a major prize for governments and companies hungry for oil. By virtue of proximity, capital and more, Americans eventually overtook competitors from the U.K. and elsewhere for influence in the region.

Oil has since been central to the countries’ topsy-turvy relationship leading up to Trump’s surprise incursion that unseated President Nicolás Maduro. The White House initially sold its pressure campaign on Caracas as a bid to slow narcotrafficking. Now, it appears to be all about oil. Officials have promised to revitalize the country’s once-vaunted industry through U.S. know-how, sell Venezuelan crude “indefinitely" and share some of the spoils with domestic companies.

The long path here has veered between periods of openness, which helped U.S. companies profit and the Venezuelan economy grow, to those of resource nationalism and international disinvestment. Veterans from both countries’ industries believe that checkered history speaks to some of the challenges ahead for Trump’s plan.

“The oil companies are used to danger," said Luis Pacheco, a nonresident fellow at Rice University’s Baker Institute Center for Energy Studies. “But they’re not fools, because of what they have learned in Venezuela" and elsewhere.

Similar to today, a rush to secure more oil by Washington helped spark an early wave of U.S. investment in the country. Breakneck growth in the 1920s yielded huge sums for the Venezuelan authoritarian regime, then led by General Juan Vicente Gómez, and American oil men like William F. Buckley Sr., father of the famed conservative thinker.

A push by the country’s political left to reap more benefits from the industry around World War II led to a legal framework in which oil companies and the government would effectively split profits down the middle.

“It was a landmark event in the history of the oil industry," energy historian Daniel Yergin wrote in his book “The Prize."

The change lent momentum to a burgeoning global movement for oil-rich countries to control their mineral wealth—and pressured a U.S. government that increasingly saw energy as a strategic asset following two globe-spanning conflicts.

As part of another wave of nationalism in the 1960s, Venezuela became a founding member of the Organization of the Petroleum Exporting Countries alongside Saudi Arabia and others in bid to control oil concessions and prices. Caracas’s 1976 nationalization of its oil industry, affecting Exxon, Gulf Oil and other U.S. and European companies, effectively ended a half-century of foreign supremacy of the sector.

Those and similar moves in the Middle East and elsewhere rocked global markets, shocking an American economy that was increasingly short on energy.

Even so, “the nationalization of Venezuelan oil went smoother than the nationalizations of the other companies in part because the talent in Venezuela was so good," said Philip Verleger, an energy economist who served in the Carter administration. Petróleos de Venezuela, known as PdVSA, “was clearly the best state-oil company of all the state oil companies."

The company gradually tightened its trading relationship with the U.S. in part by investing in refining assets stateside, including the purchase of Citgo. Verleger, who consulted for Citgo in the 1980s, said PdVSA pushed to build out coking capacity and new types of contracts that helped turn Venezuela’s cheap, heavy crude into profitable products such as gasoline and diesel.

If companies don’t bolster similar tools today, Verleger added, “we’re going to go back to a situation we saw in the early 80s where [Venezuelan] heavy crude sells at a huge discount to other crudes."

A period of liberalization in the 1990s opened the door for American companies to expand their Venezuela operations. Exports to the U.S. peaked at 1.6 million barrels a day in 1997, according to federal figures.

“That brotherly love relationship did not reflect itself on the political side," said Rice University’s Pacheco. “The politicians—particularly on the left of the country—regarded that [1976] nationalization as an incomplete nationalization."

After a 17-year career at PdVSA that spanned various senior roles, Pacheco was dismissed as part of mass firings by the strongman President Hugo Chavez in the early 2000s. He said he ultimately learned of his departure in a newspaper article.

Although booming oil prices temporarily masked the impact of a weakened PdVSA, Caracas demanded more from foreign companies, pushing them to join joint ventures in which the state had 60% stakes.

Bill Brownfield arrived as U.S. ambassador in 2004, just before the ramp-up in pressure pushed Exxon Mobil and ConocoPhillips to abandon assets they say were worth tens of billions of dollars in total. Of major American producers, Chevron alone stayed.

“By my second year, the U.S. government had reached the conclusion that having a workable relationship with Mr. Chavez was not worth the effort," he said.

Caracas increasingly looked toward China and Russia for support. Growing U.S. output, coupled with a surge in imports from Canada and elsewhere, eventually dimmed Venezuela’s role as a supplier to refiners speckling the Gulf Coast.

As for the prospects of enticing producers to ramp up output to where it was a quarter-century ago, Brownfield said, “I just don’t see it, unless the U.S. basically bankrolls them."

Venezuelan infrastructure and technical expertise have also withered since the mid-2000s. “I took the opportunity to retire," said Rafael Sandrea, who for decades had run a Caracas-based firm that helped producers analyze reams of data from the oil patch. PdVSA eventually bought the company.

Trump further pressured the Venezuelan economy through strict oil sanctions and, more recently, a blockade of many exports. OPEC figures suggest the country has recently been pumping just over 900,000 barrels a day.

Although Trump is now promising huge injections of capital to revitalize the industry after Maduro’s ouster, Sandrea and others warn the bigger hurdle may be a Venezuelan political establishment that has discouraged outside involvement for a generation.

“If you’re an investor, [giving] 60% to the guy who doesn’t do anything isn’t a very exciting thing," said Sandrea, who now runs a U.S. consulting firm that analyzes seismic data with AI. “That type of investment is not investment."

Write to David Uberti at david.uberti@wsj.com