Is Vaca Muerta now a dead cow – and EU-Mercosur deal a cherubic baby?

When Britain resumed diplomatic relations with Argentina as from 1990, a diplomat at that time confided to this columnist that his instructions from the Foreign Office were topped by the golden rule of thumb: “Always remember that nothing in Argentina is ever as good or as bad as anybody will tell you that it is.”

This first month of 2026 now entering its second half has already seen two massive developments with local repercussions – Donald Trump’s hostile takeover of Venezuela via seizure of the dictatorial Nicolás Maduro and European Union approval of the free-trade agreement with Mercosur. The former event prompted a wave of gloom reflected in plunging shares for the energy sector on the assumption that Trump’s explicit aim of resuscitating the Venezuelan oil industry in order to drive down petrol prices and impress midterm voters would make Vaca Muerta shale far more of a dead cow than a cash cow by draining it of markets and capital – in contrast, the latter development so long-awaited triggered euphoric enthusiasm among the local business and farming communities at least. The aim of today’s column – in keeping with the Foreign Office truism – is to show that neither is Vaca Muerta oil dead in the water nor that it is at all easy to translate the seemingly impossible dream of the free-trade agreement into reality.

Underlying Trump’s audacious swoop on Venezuela is the idea that if he can drive petrol prices for the United States motorist down to a dollar a gallon via a Maracaibo glut, he can ward off the midterm defeat hitting every administration since 2002 (and hence impeachment). A real spanner in the works for a Vaca Muerta breaking record after record but needing a new pipeline to double production and reach the annual oil exports of US$20 billion by the end of the decade forecast by YPF CEO Horacio Marín. If any exports at all if The Donald has his way because a dollar a gallon would imply oil prices at or below US$50 a barrel – a challenge for any fracking and especially an Argentine industry still needing to streamline its costs. Reviving the Venezuelan oil industry (now producing less than a third of the 3.5 million barrels when Hugo Chávez took power at the end of last century) would also require major investments in infrastructure directly competing with Argentina on capital markets.

But quite apart from the fact that Trump’s Venezuelan romp is a flagrant contradiction of the MAGA isolationism which elected him, the orange man will have problems raising the “at least US$100 billion” (according to his calculation) needed for that infrastructure unless he proposes an even bigger fiscal deficit. The main US oil companies are already wary enough about Venezuela (Exxon Mobil twice bitten, thrice shy and ConocoPhillips still in litigation for US$12 billion with only Chevron at all involved) without being asked for a massive outlay on the Caribbean country’s behalf with any benefits way down the road in order to help Trump lower prices and potentially their own profits. Trump might well find himself needing an exit strategy for a country as chaotic as Iraq or Afghanistan light years away from offering those oil giants any ground rules.

Furthermore, White House strategy seems to have overestimated Venezuela’s global weight while underestimating the times involved. Immediate panic on stock markets but experts estimate that restoring oil output to the levels of the past century would take until 2040. Venezuela might have the world’s biggest reserves (over 300 billion barrels or around a sixth) but currently accounts for less than one percent of global crude oil output totalling around 109 million barrels daily while also a member of OPEC which has called the shots until now. Indeed the country does not even make the top 20 of world rankings where the United States itself is the runaway leader with well over 20 million barrels (and plenty of idle fracking capacity), followed by Saudi Arabia and Russia just into eight digits, Canada and China with over five million, another quartet (Iran, the Emirates, Iraq and Brazil) topping four million and Kuwait, Mexico and Norway with over two million – the above countries account for almost 80 percent of output. In this context doubling or even trebling Venezuelan production would hardly be a game-changer.

Turning to the EU-Mercosur trade deal, Trump also deserves his share of the credit for accelerating approval of this elusive agreement after sporadic negotiations all this century, thanks to his aggressively unilateral tariff antics last year mirrored by the opportunism of the Chinese export bulldozer. The agreement had always seemed impossible until it happened – how could the EU’s most protected sector open up to Mercosur’s most competitive on the agricultural front and how could the manufacturing lobbies of Sao Paulo and Greater Buenos Aires permit vastly superior European competition on the industrial front? Yet the impossibility is not only apparent but also real when entering into the details of an agreement littered with environmental provisos and safeguards against significant changes in trade balances and prices. Thus local ranchers are ecstatic over the Hilton Quota being doubled to a tariff-free 66,000 tons but the entire Mercosur quota represents less than one percent of annual EU beef consumption. Loads of hype but “nothing in Argentina is ever as good (or bad) …”

With this agreement Mercosur’s work is not over but rather the challenge of adjusting to 21st-century economic conditions is only just beginning, as the asymmetry between the two blocs shows – 450 million people with an economic output of almost US$15 trillion and an average per capita income of around US$35,000 accounting for 15 percent of world trade on the one side and 265 million people with an output of under US$2 trillion and a per capita of US$10,000 with merely 1.5 percent of global commerce (Mercosur’s international trade is less than 30 percent of the economy as against 86 percent for Europe). Always assuming that the agreement receives parliamentary ratification in the 31 countries involved in the course of this year – European Council approval on January 9 was not unanimous but the result of a 21-5 vote (France, Austria, Hungary, Poland and Ireland voting against while Belgium abstained), reaching the required threshold of two-thirds of the EU population.

But at least tariff elimination granted to 92 percent of Mercosur exports (in some cases over time) and 91 percent of its imports from the EU (mostly gradual to give South American industry time to modernise) is more symmetrical – also when compared to the trade agreement with the United States yet to materialise. And, come to think of it, the product mixes of the two blocs make them far more complementary than North and South America. Experts are optimistic of a 40-50 percent increase in Mercosur’s trade volume over the next decade or so while in theory the agreement spells the extinction of the noxious farm export duties.

Having said all this, today will go down as a historic day with the world’s biggest free-trade area numbering over 700 million consumers signed into being in the Paraguayan capital of Asunción. ​