U.S. intervention in Venezuela removed a major destabilizing force in South America’s Northern Andes region, the authoritarian regime of illegitimate president Nicolas Maduro. While this will revitalize Venezuela’s economic backbone, the country’s oil industry, it will impact nearby countries, notably those producing heavy crude. Among the most exposed to the risks posed by Venezuela’s resurgent oil patch is Ecuador.

For over a decade, Ecuador’s government in the capital Quito has been battling to resurrect the economically crucial hydrocarbon sector. Despite those efforts’ investment, particularly from abroad, has dried up, and production is in freefall. Central bank data shows that on February 26, 2026, Ecuador lifted 452,817 barrels of crude oil. The most recent monthly production data shows the Andean country pumped an average of 466,398 barrels per day during January 2026.

While this was slightly higher than the latest February 2026 data, it is marginally lower than December 2025 and nearly 1% less than the same period a year prior. The latest production number is well below the 534,216 barrels per day produced for the same period a decade earlier. The key driver of this decline is aging corroded infrastructure, notably oil pipelines, which are responsible for frequent leaks and spills that force operations to be shuttered.

During July 2025, Ecuador’s main pipelines, the 450,000-barrel-per-day Oleoducto de Crudos Pesados (OCP) and Sistema de Oleoducto Transecuatoriano (SOTE) pipelines, were shuttered. This brought production to a standstill and occurred because of the risk of rupturing due to heavy erosion along their route. As a result, July 2025 petroleum output plummeted to an average of 147,534 barrels per day. This, aside from being 68% less than a month earlier, was the lowest monthly production recorded in decades.

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Earlier efforts to reform Ecuador’s oil industry to attract greater investment and boost production failed. Decades of endemic corruption and a lack of investment in critical infrastructure, notably pipelines is impacting upstream operations, thereby preventing higher production. Business-friendly President Daniel Noboa, in an aggressive effort to rejuvenate the economically crucial hydrocarbon sector, is targeting $42 billion of investment in Ecuador’s oil patch by 2029.

A key headwind buffeting an already fiscally challenged Quito is that Ecuador’s production volumes are well below what is needed to balance the budget. Estimates vary, but Quito requires production of at least 550,000 barrels per day, or around 100,000 barrels per day more than is currently being lifted, to generate sufficient fiscal income to meet basic spending requirements.

Weighing on the fiscal income generated by petroleum production is the amount of crude oil that must be diverted to meet oil-backed loans owed to Beijing, which were taken out by previous governments. Quito still owes an estimated $3 billion to Beijing in oil-backed loans, which are to be paid by 2027. Those loans forced Ecuador to divert significant volumes of the petroleum produced to repayments.

As a result, national oil company Petroecuador received substantially less for the oil produced than the market price. A 2022 audit revealed that up to 87% of all oil bound for export was tied to loan repayments, which saw it sold for less than the spot price. This was sharply impacting Quito’s finances, although a 2022 debt restructuring, where loan maturities were extended and repayment schedules varied, went a long way to alleviating that problem.

Indeed, those negotiations freed up a significant amount of oil cargoes that could be sold at higher market prices. Those oil-backed loans with Beijing, which emerged during 2008 as a major financial backer of Ecuador’s near-bankrupt government, prevented Quito from effectively calibrating production in response to financial needs and movements in spot prices. While the impact has diminished, it is another factor weighing on Ecuador’s ability to boost investment and oil production.

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The hydrocarbon sector’s poor environmental record, coupled with Quito's failure to invest oil rents in developing the remote regions, many of which are in the Amazon, where petroleum is produced, is sharply impacting the industry’s social license. This results in regular protests and the vandalism of facilities, which force drillers to shutter production, further impacting output and ultimately Quito’s fiscal income.

A looming headwind for Ecuador’s economically vital oil patch is rising Venezuelan production. After Venezuela’s oil production plummeted because of stricter U.S. sanctions along with heavily corroded and dilapidated infrastructure, the popularity of Ecuador’s heavy oil exports grew. The country’s main export grade crude Napo is a heavy, particularly sour petroleum with an API gravity of 17 degrees and 2.3% sulfur content. Those characteristics are like Venezuela’s primary export grade Merey, which has an API gravity of 16 degrees and 2.2% sulfur.

As Venezuela’s heavy oil output plunged, demand for Napo grew significantly.

You see, heavy oil is a crucial feedstock for many U.S. Gulf Coast refineries, which during the 1970s and 1980s were configured with the additional technology and equipment required to process Venezuela heavy sour crude oil. As U.S. sanctions against Caracas tightened and Venezuela’s oil production spiraled lower, many of those facilities were forced to find alternate sources of heavy crude.

This saw demand for Ecuador’s Napo crude oil surge, leading to narrower prices to the international Brent benchmark and ultimately higher prices. With it estimated that Venezuela’s oil production, which is primarily comprised of heavy oil, is expected to soar to 1.5 million barrels per day, and demand for Ecuador’s Napo will fall. Growing oil production in Venezuela will also boost global supply, further weighing on prices.

A major buyer of Ecuador’s heavy crude is Marathon Petroleum Corporation, the largest U.S. refiner. The company, which owns the largest Gulf Coast refinery, the 631,000 barrel per day Galveston Bay facility, in early February 2026 started buying Venezuelan heavy oil cargoes as feedstock. Marathon CEO was quoted in a February 2026 Reuters article as saying, “We view the access to more Venezuelan crude as positive for U.S. energy and even specifically for Marathon as well."

This points to lower demand for Ecuador’s heavy crude as Venezuelan heavy oil cargoes become increasingly available. That will impact Quito’s finances at a crucial time, particularly with a national security crisis linked to soaring cocaine trafficking and gang activity, forcing the government to significantly bolster spending on law enforcement. During 2025, Ecuador’s deficit jumped by a whopping 71% to $5.3 billion as spending soared by 11% and oil revenue plunged 15%. The combination of lower petroleum production and weaker prices will further weigh on an already fiscally challenged Ecuador

By Matthew Smith for Oilprice.com

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