Andean Group - June 2026

Venezuela has officially embarked on one of the most complex sovereign debt restructurings in history. On 13 May the administration of President Delcy Rodríguez announced the beginning of a comprehensive process to overhaul the country’s external public debt obligations, including bonds issued by the government and by state oil company Pdvsa. Whether Venezuela can successfully negotiate with creditors and regain access to international capital markets will help shape the recovery of a country that possesses the world’s largest oil reserves but has suffered one of the most severe economic collapses in modern history.

The announcement came amid a dramatic about-turn in the country’s fortunes following the US capture of former president Nicolás Maduro (2013-2026) in January and the subsequent normalisation of relations between Caracas and Washington. That brought with it the gradual opening of the Venezuelan economy – albeit on terms largely imposed by the US – after years of isolation on the global stage. The US has been progressively easing its sanctions on Venezuela since Maduro’s capture, while Caracas resumed dealings with the International Monetary Fund (IMF) and the World Bank in April following a seven-year pause.

Restructuring debt that was first defaulted on in 2017 gives Venezuela a “historic opportunity to significantly expand its economic potential,” the economy ministry said in a statement on 13 May. It blamed the country’s dire record on sanctions, which it said had deprived it of “normal access to finance” and the “ability to invest in healthcare, electricity, water, education, infrastructure, the recovery of production, and the population’s wellbeing”. Indeed, Venezuela has essentially been cut off from the international financial system, unable to tap markets or carry out other day-to-day transactions necessary for an economy’s normal functioning.

The country’s external liabilities have ballooned far beyond the original face value of its defaulted bonds. The value of defaulted bonds stands at approximately US$60bn, with total external obligations including Pdvsa liabilities, bilateral loans, and arbitration awards potentially reaching as much as US$160bn, depending on how accrued interest and court judgments are counted. Assuming a gross domestic product of US$111.3bn as estimated by the IMF, that would entail a debt-to-GDP ratio of over 143%.

The sanctions imposed since 2017 also created a legal and financial limbo in which major creditors found themselves unable to collect on their claims, while billions of dollars in distressed debt were traded among specialised investors and speculators. The result is a tangled web of overlapping claims by multiple creditors in various jurisdictions that needs to be sorted. Venezuela has committed to completing its restructuring “as expeditiously as possible” and pledged open, continuous engagement with all creditor groups. But the reality is that the process will be complicated and drawn out.

Adding to the layers of complexity are numerous lawsuits by creditors seeking to recover Venezuelan assets, as well as a creditor base that is exceptionally diverse. It encompasses international bondholders, including specialised distressed-debt funds; companies awarded compensation through international arbitration after Venezuela expropriated their assets; bilateral lenders including China and Russia; and various entities with claims on Pdvsa. For example, one Pdvsa bond originally maturing in 2020 was secured by a majority stake in US-based refining subsidiary Citgo, which itself is now at the centre of legal efforts by creditors to recover value.

In addition to the enormous size of the debt stock and the heterogeneity of private creditors and debt instruments, there is also the risk of outright asset seizures by the US, in the case of Citgo, and uncertainty over Venezuela’s capacity to pay in the future. Venezuela’s oil sector, the backbone of the economy, has suffered years of mismanagement and underinvestment. While output has recovered somewhat in recent years, it will take years more for significant increases, provided large investments are made in the near future.

Catch-22

Venezuela is in a Catch-22, in which it needs to ask for a significant discount on money it owes because its economy is in a shambles, but at the same time is seeking fresh investments to help rebuild that very same, distressed economy. A ‘light’ restructuring with extended maturities and small face-value discounts are likely to be insufficient to generate enough breathing room to achieve debt sustainability. More likely the government will push for ‘aggressive’ restructuring, involving drastic haircuts and significant interest-rate reductions.

The question is what Venezuela can offer to get creditors to even consider writing off part of the debt. One option would be to use ‘oil warrants’, a type of conditional bonus attached to restructured bonds that grant creditors additional payouts if the country’s oil revenues or production exceed certain thresholds. That could help bridge the gap between Venezuela’s huge potential and its current ability to pay.

Still, it will be quite some time before Venezuela is in any position to propose a credible restructuring plan, not least because there is no reliable data on the economy or government expenditures. The IMF will likely take months to piece together an X-ray on the state of affairs.

The debt restructuring announcement “came as a considerable surprise, as the country currently lacks a viable economic program to address one of the most significant economic reconstruction challenges of our time,” Alejandro Werner, nonresident senior fellow at the Peterson Institute for International Economics, a US think tank, wrote on 8 June. “This raises concerns that Venezuelan authorities may be prioritizing market investors over the welfare of their citizens or be succumbing to pressures from bondholders who seek to appropriate a piece of the resources from the country’s renewed oil production,” he added.

The stakes could hardly be higher. Success would mark the beginning of Venezuela’s reintegration into the global financial system and potentially unlock much-needed investment to help rebuild the country and kickstart its economy. Failure could condemn the country to years of continued isolation, poverty, and economic stagnation.

Accommodating Washington

Evidence of just how far the Venezuelan administration is willing to go to accommodate Washington’s interests came with the 16 May extradition of Alex Saab, the Colombian businessman who was reputed to be the chief strategist behind Venezuelan sanctions evasion under Maduro. He will face money-laundering charges in Florida. Saab’s extradition will have set off alarm bells among other former Maduro operatives, who have been purged since Rodríguez took over in January. She swiftly fired Saab from his role as industry and production minister (2024-2026) and he was reportedly arrested in February.

The Rodríguez administration has also bent over backwards to accommodate US interests in tapping Venezuela’s bountiful raw materials. After approving landmark legislation that opened the oil and mining sectors to private enterprise, the government heard more complaints from US oil executives regarding the country’s investment conditions.

The most outspoken of them was Ryan Lance, CEO of ConocoPhillips. He told Bloomberg on 21 May that Venezuela’s initial steps to attract foreign oil companies were “falling well short” of what would be needed to drive real investment. He said that the hydrocarbons reform passed in January still gives the Venezuelan government wide latitude to charge royalties of up to 30%, with taxes and other levies potentially pushing the state’s total take to 95%. “The current hydrocarbon law is not sufficient to attract a whole lot of investment. They have a lot more work to do on their side of the equation,” Lance said. ConocoPhillips, which has been conducting on-the-ground evaluations, said that any investment decision will depend on economic and policy stability, safety, rule of law, and market competitiveness.

One major US oil company that is not only recovering activity but is ploughing ahead with expansion plans is Chevron. One of the reasons is that its uninterrupted presence in Venezuela through the Maduro years has left it in an operationally superior position to its rivals. In April Chevron signed an asset swap agreement with Pdvsa to expand its heavy oil interest in the Petroindependencia joint venture, bringing its total stake to 49%, and won the rights to develop the adjacent Ayacucho 8 area at the Petropiar joint venture in the Orinoco Belt. In return, Chevron handed over to Pdvsa some of its stake in offshore natural gas projects. This arrangement, it said, “will consolidate all parties’ focus on strategic assets”. Chevron’s joint ventures with Pdvsa account for roughly a quarter of Venezuela’s national output, producing around 250,000 barrels per day, with scope to increase further using existing infrastructure.

Chevron CEO Mike Wirth framed the company’s commitment in historical terms. “We have been a part of Venezuela’s past for more than a century. We remain committed to its present. And we stand ready to help it build a better future while strengthening US energy and regional security,” Wirth said.

ExxonMobil is also actively looking for ways to return to Venezuela. Earlier in May, CEO Darren Woods said ExxonMobil is studying how to apply its expertise in Canadian heavy oil to Venezuela, whose Orinoco Belt has similar viscosity levels.

But returning oil output to 1990s levels requires much more investment than anybody has committed. The industry has been devastated by decades of mismanagement and sanctions. Crude output fell from 3.5m barrels per day (bpd) in the late 1990s to less than 600,000 bpd in 2020. As of May 2026 production had bounced back to over 1m bpd, according to Opec figures.

Political uncertainty

In addition to the contractual terms, oil companies are also gauging the country’s complex economic and political situation. The overriding question is how long the current administration will remain in power and how ‘resilient’ current laws and contracts are in case there are fresh elections and a new government takes power with a real popular mandate. “The absence of a roadmap for democratic transition heightens uncertainty and undermines the prospects for a robust recovery,” according to the Peterson Institute’s Werner, who was formerly director of the IMF’s Western Hemisphere Department from 2013-2021.

More broadly, Venezuela has become somewhat of a socio-economic powder keg after years of poverty, lawlessness, and deteriorating infrastructure. Millions have left the country and those that remain are often struggling to get by. Indeed, the government is facing not only tough demands from investors but also from needy citizens clamoring for jobs, decent pay and a host of public services, as was evident in protests staged by labour unions in April. For average citizens, not much has changed since the US seized Maduro in January.