Global Market Strategist
Portfolio Manager, Core Plus
Over the weekend (Jan. 3–4), U.S. Special Forces conducted strikes in Venezuela and detained President Nicolás Maduro and First Lady Cilia Flores, transferring them to New York to face U.S. drug-trafficking charges. President Donald Trump framed the move as a “narco-terrorism” crackdown and said the United States would temporarily “run” Venezuela while transition leadership is established. Vice President Delcy Rodriguez was sworn in as interim President shortly after the military action, denouncing the move by the U.S. It will take time for more clarity as this power shift unfolds; for investors, we address below how we view the current landscape, geopolitical risks associated and broader investment implications.
Why take this step now?
At the surface level, the administration’s stated rationale is straightforward: Maduro has long been accused by U.S. prosecutors of leading and/or enabling drug and gun trafficking networks with direct ties to the United States. That said, the President’s comments suggest an ulterior motive of resource calculus. Venezuela holds the world’s largest proven oil reserves, in addition to strategic minerals such as coltan and other critical inputs that intersect with U.S.–China technology competition.
Strategically, should the U.S. succeed in building out energy infrastructure to access Venezuela’s oil over the next 3-5 years, this would put the U.S. in a dominant position, creating further leverage against Russia and China, and ultimately requiring no reliance on oil from the Middle East. For reference, “Donroe Doctrine” countries (i.e., U.S., Canada and Latin America) would represent over 40% of global production, up from 23% at the time of the 1979 oil crisis.
What could the repercussions be?
The repercussions could extend well beyond Caracas. At the UN, legal experts and the Secretary-General warned the operation sets a “dangerous precedent” on sovereignty. China condemned the move, and the market may now heighten its focus on Taiwan, where U.S. hyperscalers are reliant on for advanced microchips. With “regime change” back in the headlines, Iran will also warrant a greater market focus considering its geopolitical importance and the fact it is also a large oil producer. Lastly, Trump’s renewed rhetoric about annexing Greenland has already drawn a direct warning from Denmark’s prime minister to “stop the threats,” underscoring how quickly this could strain alliance cohesion. At a minimum, the combined impact will create another layer of uncertainty for global growth and markets in the year ahead.
What are the investment implications?
Venezuela is known for its vast reserves, however much of the crude is heavy, costly to produce and requires diluent/upgrading and specialized refining. It is unclear whether U.S. companies will be willing to invest in Venezuela given 1) the political instability currently and, 2) they have more attractive investment opportunities elsewhere. For example, the economically viable breakeven rate for oil in the Permian Basin is in the low $40s and trending lower compared to the $50s in Venezuela, which does not even factor in the immense growth capex required to get production back to the levels we saw in the 2000s.
In short, “more reserves” does not equal quick, profitable barrels, especially if oil prices remain low. In the near term, because Venezuelan supply has been severely curtailed due to sanctions and logistics (it produces <1% of global supply, down from over 10% in the 1960’s), the impact from any blockaded barrels on global prices will be limited given the rest of OPEC can easily plug the gap. Altogether, we continue to expect a narrow range and limited upside for prices, barring further supply disruptions. Elsewhere, heightened global geopolitical risks support safe havens like gold, while industrial metals have jumped as investors price uncertainty into supply chains.
In summary, market corrections tied to geopolitical shocks tend to be sharp but short-lived unless they feed into a broader growth or supply shock. We are closely monitoring developments, but for now we view the risk of this spiraling into broad military and global upheaval as unlikely.