Venezuela Investors Are Facing A Legal Minefield as US Recalibrates Stance
Takeaways by Bloomberg AI
- Investors in Venezuela's oil-based economy face a political and legal minefield due to the US not officially recognizing Acting President Delcy Rodríguez as the country's rightful authority.
- Companies that sign contracts with Venezuelan state-owned entities risk having them torn up by a future government, and may face legal disputes in US court against lawyers working for opposition politicians.
- The lack of clarity about formal recognition is a major risk that will likely keep many oil companies away from Venezuela, making it difficult for the country to attract long-term investment and for creditors to restructure unpaid debts.
Investors who want to take part in the White House’s plans to revitalize Venezuela’s oil-based economy are at risk of stepping into a political and legal minefield over diplomatic recognition.
Acting President Delcy Rodríguez is not officially recognized by the US and other countries as Venezuela’s rightful authority. Instead, that distinction still belongs — at least on paper — to members of the opposition-led legislature who were elected more than a decade ago.
This recognition status, seemingly at odds with President Donald Trump’s full-throated endorsement of Rodríguez, means that companies would face off in US court against lawyers working for opposition politicians largely living in exile, in the event of any legal disputes over their investments. And any contracts signed with Venezuelan state-owned entities — including the national oil company — could get torn up by a future government intent on challenging Rodríguez’s constitutional standing and legitimacy.
What’s more, US courts hearing cases involving billions of dollars in disputed Venezuelan assets follow the American government’s official diplomatic stance, so the opposition still represents the country in ongoing legal battles against scores of jilted creditors, arbitration claimants and other plaintiffs, as it has for years.
“The concern here is if in 10 days, Delcy Rodríguez is no longer acting president, we have someone like González come in and González says, ‘Hey, we’re not going to honor any of those contracts that you just signed because they weren’t signed by a legitimate representative of the Venezuelan government,’” said Ingrid Brunk, chair of international law at Vanderbilt Law School, referring to Edmundo González, the exiled retired diplomat who is widely considered the rightful winner of Venezuela’s contested 2024 presidential election, based on an independent vote tally.
Until the US addresses this recognition issue, Venezuela is unlikely to attract desperately needed long-term investment, as companies shy away from agreements that would be difficult to enforce in the US, one of many risks they are weighing in a country once known as a stable, prosperous democracy, legal experts say. Creditors won’t be able to restructure unpaid debts. And for the Rodríguez administration, access to billions of dollars in Venezuelan assets abroad, including frozen bank accounts, gold reserves in the Bank of England and Special Drawing Rights at the International Monetary Fund, will remain elusive.
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The recognition lag is growing more conspicuous as Venezuela’s new leadership moves swiftly to roll back decades of state-led legislation to draw back investors. Among the proposed reforms is a provision to allow for international arbitration of contract disputes, a measure that would help to restore investor confidence by avoiding Venezuela’s politicized court system. But in the US, the measure could not be implemented until the US recognizes the Rodríguez government.
Read more: Venezuela’s Leader Rolls Out Red Carpet for Oil Investors
Even in recent days, US recognition “has been explicit and repeatedly reaffirmed” in “statements of interest filed by the US government in US courts,” said Dinorah Figuera, president of the opposition-led parallel assembly who is now based in Spain.
In response to a request for comment on the recognition issue, a State Department spokesperson said the Trump administration “continues to work with the interim authorities to stabilize Venezuela” in a three-part plan outlined by Secretary of State Marco Rubio.
Ad-hoc Boards
The roots of the conundrum date back to 2019, when the first Trump administration imposed oil sanctions on Venezuela and withdrew recognition of strongman Nicolás Maduro in favor of then-National Assembly head Juan Guaidó, who declared himself the country’s legitimate president based on a constitutional provision. The US shut its embassy in Caracas and Venezuelan diplomats withdrew from Washington.
Scores of other countries followed suit on the US stance. Although Guaidó was in Caracas at the time, most of his parallel administration was living abroad or eventually fled, often rubbing shoulders in Congress and influential think tanks in the US capital. As government harassment grew, Guaidó would later leave too.
In that period, the emboldened parallel administration set up ad-hoc boards of exiles to oversee international assets owned by Venezuela’s state-run Petróleos de Venezuela SA and the central bank. These boards remain active in US courts. Critically, the first Trump administration granted the parallel administration access to more than $300 million in frozen Venezuelan Central Bank funds in the US banking system.
The most visible of these parallel entities is PDVSA’s ad-hoc board, which represents the company in a years-long court battle over the shares in Houston-based refiner Citgo Petroleum Corp., Venezuela’s most valuable overseas holding. A court-ordered auction of the shares is close to reaching a final outcome.
Neither PDVSA ad-hoc board chair Horacio Medina nor the board’s press contact could be reached for comment.
The lack of clarity about formal recognition is part of a wider constellation of risks that will probably keep most oil companies away from Venezuela for now, said Luis Pacheco, who served as the first chair of PDVSA’s ad-hoc board from April 2019 to December 2020
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