Venezuela a key geopolitical risk due to US reliance on its heavy crude, says economist William Lee

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Venezuela has become a major geopolitical concern for the United States, largely because many US refineries rely on the heavy crude it produces, according to economist William Lee. Speaking on CNBC TV18, William Lee, chief economist at the Milken Institute, identified the situation in the South American nation as one of the most important questions currently facing risk managers.

William explained that the core of the issue lies in the composition of US oil infrastructure. Many American refineries are designed to process heavy, sour crude oil, a type that Venezuela produces in abundance. In contrast, the light, sweet crude extracted from the US's own shale fields is incompatible with these older facilities. "The United States is very much dependent upon the kind of oil that Venezuela produces," he stated, highlighting a critical vulnerability in the US energy supply chain.

The expert traced this dependency back to a lack of modernization in US refining capacity, which he attributed to environmental regulations preventing the construction of newer facilities capable of processing light crude. "The United States got itself into this pickle because of all of the regulatory nightmare that we've been living with the last several decades," he commented, noting that the country is now "stuck" with these older refineries.

This energy dependency, together with US efforts to shut off the flow of drugs from the region, is something that Lee believes could tip the balance toward more American action in Venezuela. "I think our interests in securing our supply of oil from Venezuela, as well as shutting off the flow of drugs is something that I think will tip the balance for more action in Venezuela rather than less action," William concluded. He also pointed out that the other major source of the heavy crude required by US refineries is Iran, further complicating the geopolitical landscape for the United States.