The U.S. and Iran Seek an Exit from a Weakening Conflict

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA 

The conflict in the Middle East began as an extension of the confrontation between Israel and Iran's allies, with the expectation that the combined military force of the U.S. and Israel would lead to the capitulation of Tehran's theocratic regime. Today, that capitulation appears out of reach despite the damage inflicted on the Persian nation — the energy market, which for years had watched the regional conflict with indifference, ultimately imposed an unexpected reality on all parties involved.

In recent days, oil prices — which have been riding an unpredictable roller coaster — experienced a sharp drop, driven by expectations that a U.S.–Iran ceasefire is increasingly likely: both sides are trying to avoid prolonging the economic and political deterioration in which they find themselves trapped, as much by design as by default. The potential agreement would include some meaningful gesture related to the handling of Iran's enriched uranium and the reopening of the Strait of Hormuz, generating at least a temporary easing of tensions. 60 days has been mentioned, which would significantly reduce the geopolitical risk premium that has been pressuring crude prices since February.

Amid high volatility, and despite some confrontations between the U.S. Navy and the Iranian Revolutionary Guard, as well as Israel's refusal to include its operations aimed at dismantling Hezbollah in southern Lebanon — where it apparently eliminated several leaders last week — prices fell by close to 10% compared to the previous week's close.

Meanwhile, in Europe, NATO–Russia tensions intensified following a Russian drone strike on a residential building in the city of Galați, Romania. This incident marks the first time such an attack has caused casualties and direct damage to civilian infrastructure in a NATO member state. Additionally, attacks and counterattacks between Russia and Ukraine continued at a high level; particularly noteworthy is Ukraine's sustained success in damaging Russian refining capacity, storage facilities, and loading terminals — 40% of Russian refineries have now been affected.

China, for its part, has positioned Beijing as the epicenter of global diplomacy while managing macroeconomic headwinds and tensions stemming from the Middle East conflict. The Asian giant has been implementing a strategy to reduce oil imports and draw down inventories, which has somewhat eased the supply-demand imbalance in recent weeks. This approach, however, is not sustainable over the medium term.

OPEC and the OPEC+ alliance had no choice but to focus on preparations for their next ministerial summit on June 7, 2026, amid intense geopolitical pressure and the structural fallout from the departure of one of their key members. Vienna is discussing a nominal production increase. Still, actual output and exports remain severely constrained by the conflict in the Middle East.

Geopolitical Foundations

The Iran–U.S. Conflict: Options and Limits

The U.S. and Israel, with the quiet backing of several Arab countries and despite falling short of their military objectives in the war against Iran, remain united around one central goal: preventing Iran from developing nuclear weapons.

The diplomatic options currently considered relevant and achievable are:

•       The supervised transfer of the enriched uranium currently in Iran's possession; or

•       It’s dilution to enrichment levels that eliminate the immediate risk of weaponization.

The main obstacle, however, remains the profound mutual distrust: the U.S. and Israel will not accept any agreement that cannot be verified directly and credibly. At the same time, Iran fears that such verification would expose it to even greater military vulnerability.

In any case, the Trump administration can hardly sustain an indefinite confrontation whose collateral victim is the deterioration of the global economy. Moreover, prolonging the conflict will likely carry a domestic political cost, particularly in the lead-up to the November midterm elections.

On the Iranian side, the Revolutionary Guard — apparently in control of the country following the elimination of Ayatollah Khamenei — has shown a willingness to continue sacrificing the economy and deepening the already precarious conditions of the population. Yet Tehran also has incentives to accept a cessation of hostilities that would allow it to resume oil production and sales, a cornerstone of its economy. It is therefore likely that both sides will move toward some form of agreement that allows them to de-escalate the conflict without paying an immediate political price.

While markets are pricing in an imminent deal, tensions on the ground have not abated. The Revolutionary Guard fired warning shots in the Strait and intercepted a U.S. drone near Bushehr — signals that underscore the fragility of any ceasefire. Compounding matters, a more durable normalization may also hinge on Israel agreeing to include a cessation of hostilities in Lebanon as part of any broader understanding.

Global Inventories and Price Outlook

Global commercial inventories have fallen to extreme levels, currently estimated at below 8,000 MMBBLS — a reduction of nearly 15% from pre-war levels. In terms of coverage, that equates to just 83 days of global demand.

A drawdown of this magnitude cannot be reversed quickly: its normalization will require a gradual process of one to two years. We therefore estimate that Brent will remain above $90/BBL for the remainder of 2026, barring brief, news-driven volatility spikes.

This estimate accounts for demand destruction from higher fuel costs worldwide, with estimates of 2.4 MMbpd and 1.17 MMbpd for 2026 by the IEA and OPEC, respectively. The sectors most affected are commercial aviation and the petrochemical industry.

The outlook for high energy prices and demand destruction is becoming a puzzle for central banks, which will cautiously attempt to manage inflation without triggering an even sharper slowdown in the global economy.

The Russia–Ukraine Conflict: A Spiral of Violence

The protracted military conflict between Russia and Ukraine, which the United Nations has described as an “out-of-control spiral of violence,” has not diminished in intensity. In recent weeks, the conflict has been marked by record Russian bombardments, Ukrainian strikes against Russian energy infrastructure, and an incident that violated NATO airspace.

Hundreds of Russian drones and missiles struck Ukrainian civilian infrastructure, including in Kyiv, in retaliation for Ukraine's heavy attack on an educational complex used as military accommodation in the occupied city of Starobilsk (Luhansk). Russia issued a formal evacuation warning to diplomats and foreign nationals in Kyiv and announced it would continue systematic strikes against command centers in the capital. The European Union and the embassies of allied countries rejected the coercion and reiterated that they would not leave the city.

Ukrainian forces launched a long-range counteroffensive using Storm Shadow missiles, destroying Russian Aerospace Force reconnaissance systems near Voronezh and Sevastopol, as well as severely damaging the Tuapse oil refinery, airfields in Taganrog, coastal petroleum facilities in the Sea of Azov and the Rostov region, and setting a tanker ablaze in the port of Taganrog.

A smaller but deeply significant incident — both militarily and diplomatically — was the Russian drone strike on Galați, Romania. It remains unclear whether this was the result of an unintentional deviation in the drone's flight path or a deliberate test of NATO's response. This response was, notably, quite muted.

U.S. Production and Drilling

The U.S. continues to produce approximately 13.7 MMbpd of crude oil at stable levels, though a modest uptick is expected in the second half of the year. This is suggested by an increase in rigs in the Permian Basin and 5 hydraulic fracturing crews, according to reports from Baker Hughes and Primary Vision, respectively. Commercial inventories of both crude and distillates continue to decline, according to EIA reports.

Price Dynamics

Crude oil prices were on track for their largest weekly loss in two months, declining nearly 10%, in reaction to reports of a possible 60-day ceasefire extension and a temporary navigation agreement for the Strait of Hormuz. Word has it that only Trump's approval is still needed.

At week's close, a decline of more than 10% from the prior week's close:

Crude	Price (USD/BBL)
Brent	$91,12
WTI	$87,36

 

Venezuela

Much Ado About Nothing

The Three-Stage Plan: Highlights and Shadows

Although the White House has praised progress in the stabilization and recovery stages of Marco Rubio's three-stage plan for Venezuela, the assessment is both flawed and shortsighted. Three times as much foreign currency is indeed flowing in as last year, due to sanctions relief and the Middle East conflict. However, this has not produced the desired effect: the economy has not been stabilized by dollars alone, because the flood of foreign currency has not been accompanied by coordinated policies to unify the exchange rate and control inflation. One need only observe the slide of the official exchange rate to 554 Bs./$ while failing to close the gap with the parallel market, which, as of Friday the 29th's close, remained above 34%. Stabilization remains elusive.

It is equally true that the law providing a legal framework for private oil investment has been amended, generating enormous interest in analyzing investment opportunities in Venezuela. Yet beyond the initiatives of operating companies already in the country — whose activities are largely driven by debt recovery — very little of that interest has translated into genuine investment commitments. This should surprise no one: the process managed by the interim government lacks transparency, is highly discretionary, and does not offer the guarantees that serious companies require to make sustainable commitments in the wake of a transitional period.

The transition itself — the third and much-heralded stage of the plan — remains a somewhat ethereal objective: a light at the end of the tunnel, with no clarity as to how or when it will be reached.

To make matters worse, the statements issued from Washington attempt to make people believe that, before their intervention, Venezuela's history prior to Chavismo never existed. This arrogance or ignorance perhaps limits their ability to analyze the current political, economic, and oil industry situation.

Public Disapproval and Dollarization

A survey conducted by Atlas Intel for Bloomberg News reveals growing public disapproval of interim President Delcy Rodríguez, driven by increasing citizen impatience with the country's bleak economic outlook after five months in office. Seventy-six percent of Venezuelans surveyed rate the employment situation as adverse; 77% consider the national economy to be in a “very bad” state. This is directly linked to persistently low wages, triple-digit inflation, and chronic failures in access to basic services, food, and medicine.

Findings from the same platform indicate that the majority of Venezuelans support formal dollarization of the economy as the primary alternative to halt devaluation and stabilize the cost of living. However, a significant portion of economists do not favor it. U.S. authorities, having determined that Venezuela lacks a functioning banking system, may conclude that dollarization is the answer to the exchange-rate and inflation problems.

Political Prisoners, Repression, and Amnesty

The handling of political prisoners, the dismantling of the repressive apparatus, and the reconciliation and/or amnesty process have also fallen short of expectations. However, it is worth noting that a number of those released from prison and returning exiles have re-entered the country without apparent difficulties.

The Foro Penal and parliamentary representatives confirmed the ongoing release of dozens of political and military prisoners, though in numbers far lower than those announced. These measures form part of the humanitarian judicial reviews announced by the National Assembly.

External Debt Restructuring

The external debt restructuring process is advancing cautiously, in line with the Sectoral Vice Presidency for Economic Affairs’ plan, which covers the public debt of the Republic and PDVSA. The interim government is seeking to reintegrate into the international financial system on the strength of its current OFAC licenses. According to those familiar with the matter, the current state of OFAC licenses is insufficient to initiate the process, largely due to the challenges we have described in recovering oil and gas production. French banker Matthieu Pigasse of Centerview will lead the restructuring process.

Banking Crisis and International Audit

The BDT platform (formerly Banco Bicentenario) experienced a technical outage lasting more than 90 hours, cutting off millions of public employees from digital banking services. As a contingency, physical branches enabled limited over-the-counter cash withdrawals (between 2,000 and 4,000 bolívares), triggering widespread protests and long lines. There are rumors of possible mismanagement that may warrant government intervention in the bank.

The Central Bank of Venezuela (BCV) confirmed that an international firm contracted by the U.S. will audit the use of Venezuelan funds and assets frozen abroad.

María Corina Machado and the Electoral Roadmap

Opposition leader María Corina Machado, after signing the “Panama Manifesto” with the PUD and other political forces, has expressed her willingness to begin formal negotiations with acting President Delcy Rodríguez. The opposition's central objective is to establish the conditions for a free, transparent, and sovereign presidential election.

Oil Operations

During the week, production activities were again hampered by the nationwide power instability. Potential production increases were limited by a lack of or instability in the electrical supply.

Weekly Production

This week's output stood at 912 MBpd:

Region	Output (MBpd)
West	249
East	110
Orinoco Belt	553
TOTAL	912

 

Companies under OFAC Licenses and New Contracts (LOH)

The joint ventures operating under OFAC licenses and the new contracts established under the LOH, under the arrangement whereby the minority private partner acts as “Operator,” are producing the following volumes:

Company	Producción (Mbpd)
Chevron	254
Repsol	50
M & P	29

 

Refineries and Petrochemicals

National refineries processed 256 MBpd of crude and intermediate products, yielding 78 MBpd of gasoline and 79 MBpd of diesel.

The Petrochemical Complex at José is operating normally, though with constraints on natural gas supply. Daily production stands at 6,000 metric tons (MT) of methanol, 2,500 MT of ammonia, and 3,300 MT of urea. The Morón and El Tablazo complexes remain idle.

Exports and Basket Price

Crude shipments in the first half of May are consistent with exports of 770 MBpd, of which approximately 400 MBpd were sent to the U.S. and more than 300 MBpd to India.

The Venezuelan crude basket averaged $86.5 per BBL.

 

[1]: International Analyst
[2]: Nonresident Fellow Baker Institute

 

The Curious Imperturbability of the Oil Market

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA 

 

In a week of mixed signals, the oil market remained volatile, though within a narrow range close to $105/BBL — relatively low given the supply crisis. Investors continue to weigh the inflationary impact of the conflict on demand, as well as the risk that tensions will persist and oil and natural gas shortages will worsen. A sharper-than-expected drawdown in U.S. inventories barely triggered a brief price rebound.

Among the factors at play during the week:

•       Reports of progress in negotiations with Iran, including announcements of talks with Oman to establish a “fair” toll system for transit through the Strait of Hormuz, were interpreted as a possible signal that the blockade might ease.

•       A deteriorating global macroeconomic environment, with Europe posting its worst figures since 2023, China cutting crude imports, and the International Energy Agency (IEA) warning that the market could enter a “red zone” between July and August.

•       Contingency measures adopted by several countries — including China, Japan, and the U.S. — through strategic reserves and fuel conservation programs have reduced demand by nearly 2 million barrels per day (2 MMbpd).

•       An increase in U.S. oil exports and early indications of efforts to ramp up domestic production.

Against this backdrop, OPEC has announced production increases that are more symbolic than effective and that, for now, do not substantially alter the market’s perception of scarcity and fragility.

On the geopolitical front, the Trump-Xi summit’s main takeaway was the possibility of an understanding to entrench a bipolar framework, with both powers consolidating their influence in their respective spheres and dissipating the clouds generated by the trade war. Where the Middle East falls in this arrangement remains to be seen. In this context, Trump’s statements on Taiwan point in that direction and could broaden the U.S.’s room for maneuver in scenarios such as those involving Venezuela and Cuba.

Geopolitical Fundamentals

The Iran–U.S. conflict, which was originally aimed at neutralizing Tehran’s threat to regional stability, has evolved into a stranglehold on oil and liquefied natural gas (LNG) supplies to the rest of the world. It is estimated that, to date, roughly 1 billion barrels of oil and approximately 800 trillion cubic feet of natural gas have been withdrawn from the global market.

In response to this supply deficit — and beyond alternative pipeline routes in the region — several countries have reinforced contingency measures:

•       Release of strategic reserves.

•       Increased exports, as in the case of the U.S.

•       Reducing dependence on Middle Eastern crude, as China and Japan are attempting to do.

•       Fuel conservation measures, primarily in Asia and Europe, have become a reality.

•       High energy prices have also reduced demand, despite its typical inelasticity.

•       U.S. operators appear to have decided to increase production and to pressure Venezuela to accelerate its sluggish opening to private capital.

All of these responses are warranted, as experience and even futures market behavior suggest that even a rapid resolution of the blockade would not fully unwind the consequences of the prolonged disruption until well into 2027.

Although President Trump suspended further strikes against Iran to create space for diplomacy, the absence of concrete agreements on Iranian uranium enrichment and the proposed Strait tolls continue to fuel caution and anxiety in global markets. Over the weekend, the U.S. president signaled that his negotiators should proceed carefully and not rush to a deal, dampening rumors that an agreement was imminent.  In any case, the oil market opened sharply lower on Monday, May 25.

The truth is that the original objective of the strikes on Iran — preventing Tehran’s regime from developing a nuclear weapon — has had an unintended consequence: Iran now understands that strategic control over the region’s energy supply may be an even more powerful weapon. This has reshuffled the balance of forces in unpredictable ways, upending the geopolitical chessboard.

Russia–Ukraine Conflict: Attacks on Energy Infrastructure

Global supply has also been affected by the ongoing Ukrainian drone strikes on Russian refineries, terminals, and storage facilities. The week witnessed one of the largest and most devastating long-range strike campaigns to date, bringing oil refining in central Russia to a near-complete halt and triggering severe fires at key export nodes. The affected facilities included:

•       Ryazan Refinery.

•       Kstovo Refinery (Lukoil).

•       Nizhegorodnefteorgsintez plant, in the Nizhny Novgorod region.

•       Syzran Refinery (Rosneft), in the Samara region.

•       Novorossiysk marine terminal.

On the final day of the week, Ukraine successfully struck the port of Novorossiysk and the Sheskharis terminal, Russia’s fifth-largest oil export hub. The success of these strikes is reshaping the relative assessment of the war.

For its part, on May 24, 2026, Russia launched a large-scale missile and drone attack on Kyiv, causing significant casualties and destruction. The assault is among the largest attacks on the city since the start of the full-scale war.

OPEC+: Symbolic Measures and Demand Destruction

As for OPEC+ actions, which have been relegated to the background for now, a group of seven of the alliance’s leading producer countries is expected to discuss a modest output increase in July to stabilize depleted inventories — a symbolic gesture with little real impact on supply balances.

More effective than the OPEC+ announcements has been demand destruction, concentrated in cuts to air transport — eliminating unprofitable routes and flight frequencies. High jet fuel prices have squeezed low-cost carriers. Prices have also spurred greater use of coal and, to a lesser extent, renewable energy, contributing to the temporary destruction of hydrocarbon demand.

U.S.: Production, Drilling, and Inventories

In the U.S., while crude production has remained relatively stable, early signs of a supply response are emerging in a high-price environment that could prove durable. Among these signals are growing interest in federal land lease offerings in shale oil basins and, in the near term, an uptick in drilling activity. According to Baker Hughes, 10 oil drilling rigs were activated in Texas basins during the past week, while 3 gas rigs were taken out of service, resulting in a net increase of 7 units. If this becomes a trend, it could translate into an increase of approximately 300 Mbpd by the end of 2026.

U.S. commercial crude inventories fell by nearly 8 MMBBLs; however, against a global drawdown of more than 70 MMBBLs, they have lost the significance they once held before the current crisis.

Cuba: An Emerging Geopolitical Factor

A geopolitical development that appears to foreshadow possible military or political action is the situation in Cuba, where the current conditions of economic quarantine and naval siege imposed by the U.S. have backed the island’s government into a corner. It should be noted, however, that Cuba’s political situation — after more than 60 years of dictatorship — differs markedly from Venezuela’s, which led to the arrest of Maduro and his wife.

Price Dynamics

Crude oil prices fell this week after Washington and Tehran signaled progress in their dialogue. Additionally, Iran’s overtures to Oman to implement a toll system in the Strait of Hormuz — which Iranian officials described as fair and justified by the guidance and protection services both countries provide — were interpreted as an olive branch and prevented prices from escalating in line with global inventory levels. Most maritime experts consider such an arrangement contrary to international law.

At the close of the week:

Crude	Price (USD/BBL)
Brent	$103,54
WTI	$96,60

A decline of more than 5% compared to the previous week’s close.

Venezuela

Plenty of Currency and Activity, but the Population Feels None of It

The Paradoxical Metamorphosis of the Regime

The metamorphosis of the Chavista regime from “revolutionary” government to an instrument of Washington’s decisions is a paradox that only the distance of history can explain. The current policy and economic framework of Venezuela’s interim government is marked by intensified U.S. guardianship and oversight.

Following the news is sufficient to find evidence of this 21st-century form of vassalage: the comments by Energy Secretary Chris Wright about the absence of a functioning banking system that must be resolved to achieve recovery; the direct involvement in managing the opening of the oil sector to private capital through the tool of licenses and pressure on potential investors; and the unusual military drill around the U.S. Embassy in Caracas, which included overflights by American military aircraft — all of which illustrate the erosion of the much-vaunted sovereignty of recent years.

This set of events generated a range of commentary, most notably the topic most discussed in financial circles: the possibility of dollarization as a solution to the “absence of a functional banking system.” There were also predictions that the U.S. military drill could foreshadow another extraction operation, similar to the one on January 3.

ExxonMobil, ConocoPhillips, and the Oil Sector Opening

The announcement that ExxonMobil is reportedly close to confirming its participation in at least six oil fields in Venezuela — four months after dismissing the country as an unattractive investment destination — tends to support the theory that the Trump administration is mounting pressure on the oil sector. Meanwhile, ConocoPhillips has stated that much still needs to change before Venezuela becomes an attractive place to invest.

Release of Political Prisoners

After Trump announced that all political prisoners would be released, Jorge Rodríguez communicated the release of 300 of them. Although only about forty of this large number have been independently verified, the step is significant: among those freed were metropolitan police officers, emblematic prisoners of the revolution, and part of the false Chavista narrative about responsibility for the violent events of the historic April 11, 2002 coup. These officers had been imprisoned for more than 20 years.

The Alex Saab Case

In a deeply Orwellian move, former minister Alex Saab was deported to the U.S. because he was a Colombian citizen with legal troubles. This claim contradicts the entire narrative of recent years, according to which Saab was not only Venezuelan but also a diplomatic representative of Nicolás Maduro. This is yet further evidence that Delcy Rodríguez’s political position now aligns with Washington’s wishes to the point of rewriting her own history.

Saab arrived in Miami under federal custody to face criminal charges, while the Venezuelan parliament simultaneously asserted that the businessman had maintained secret ties with U.S. intelligence agencies since 2019. It was also reported that the dismissed attorney general, Tarek William Saab, is being held at Fort Tiuna.

María Corina Machado and the Democratic Transition

Venezuelan opposition leader María Corina Machado (MCM) led a large-scale gathering with the Venezuelan diaspora in Panama City on Saturday, May 23, 2026. During the event, Machado reaffirmed her commitment to democratic restoration and officially announced her candidacy for president in the upcoming free elections outlined in the transition roadmap.

Perhaps the most significant aspect of her visit to Panama was the meeting with the Unitary Platform (PUD), represented in person by political leaders freed from persecution, such as Biagio Pilieri and Delsa Solórzano, and the participation via videoconference of President-elect Edmundo González Urrutia.

MCM and her new alliances will need to define how they respond to the redesign now underway in Venezuela’s economy and politics — a landscape that bears little resemblance to the situation in 2023–2024. Oil is perhaps the sector undergoing the most significant changes.

Meanwhile, in Caracas, various student groups, professional associations, and labor unions have called for protests demanding a clear presidential electoral timetable, changes to the economic conditions eroding the wages of public employees and workers in general, and improvements to public services.

Economic Situation

The economic situation continues to be marked by uncoordinated measures to manage the sharp growth in public spending, interventions in the foreign exchange market, liquidity restrictions, and the arbitrary setting of the official exchange rate, which is increasingly diverging from the intervention rate. The result has been a renewed widening of the gap between the official and parallel exchange rates, along with intensifying inflationary pressures.

Houston Forum and Oil Sector Opening

On the oil side, May’s foreign currency revenues are shaping up to be similar to April's. Meanwhile, promotional activities for the new oil sector opening are intensifying. Oil Minister Paula Henao and PDVSA Vice President Jovanny Martínez attended a technical event in Houston on investment opportunities in Venezuela — the first time in many years that “red” PDVSA personnel shared the same venue with “blue” PDVSA technicians without the former vetoing the latter.

In addition to a variety of technical presentations at this important forum, representatives of the interim government met with numerous groups interested in participating in the reactivation of Venezuela’s hydrocarbon sector. Investors were briefed on the procedures required to take part in the process. Representatives of the Department of Energy accompanied the proceedings.

Our analysis concludes that, to be effective, this process must fulfill several steps that are not yet fully defined. For example, the review and modification of the LOH Regulations, followed by complex negotiations over the model contracts currently circulating. Another element that has slowed the process is the lack of data — or the difficulty in locating it — which impedes the due diligence that every investor must conduct.

Based on these factors — not to mention the need to resolve the LOH challenge pending before the Supreme Court (TSJ) — we estimate that production growth over the coming years will be slower than projected by both the interim government and U.S. sources. Our updated forecast is shown in the attached charts, covering both total production and incremental activity.

Oil Operations

During the week, operations — including Chevron’s production in the Orinoco Oil Belt — were affected by recurring power outages and by an accident at the Lamargas plant in western Venezuela the previous Friday. It was also confirmed that China Concord Resources Corp., which had signed one of the first CPP agreements for that block, was not operating in the area, and that the Lago V block remained under PDVSA control.

Weekly Production

This week’s production stood at 906 Mbpd:

Region	Production (Mbpd)
West	249
East	110
Orinoco Belt	547
TOTAL	906

 

Companies under OFAC Licenses and New Contracts (LOH)

Company	Production (Mbpd)
Chevron	249
Repsol	50
M & P	32

 

Refineries and Petrochemicals

National refineries processed 248 Mbpd of crude and intermediate products, yielding 75 Mbpd of gasoline and 77 Mbpd of diesel.

The Petrochemical Complex at José is operating normally, though with limited natural gas availability. Daily production stands at 5,900 metric tons (mt) of methanol, 2,600 mt of ammonia, and 3,500 mt of urea. The Morón Complex remains shut down, awaiting gas. The El Tablazo Complex is completely idle, as the only plant operating — the Chloro-Soda facility — is currently undergoing maintenance.

Exports and Basket Price

Crude oil dispatches in the first half of May are consistent with exports of 750 Mbpd.

The Venezuelan crude basket averaged $87.2 per BBL.

 

[1]: International Analyst
[2]: Nonresident Fellow, Baker Institute

 

Trump and Xi: A High-Profile Summit With Meager Results

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA 

The long-awaited summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing — the first since the American returned to office — concluded without offering tangible solutions or bridging the gap on the issues dividing the two superpowers. The permanent reopening of Middle Eastern sea lanes, tariffs, rare earths, and above all, the future of Taiwan yielded no significant announcements following the meeting.

China, predictably, reiterated its support for the full reopening of the Strait of Hormuz and for freedom of navigation through that strategic corridor. Beijing also categorically rejected the militarization of the passage and any attempt to impose tolls. That stance, however, does not appear to have been sufficient to alter Iran’s decision to keep the strait restricted.

Exceptions to the blockade have so far been limited, focused primarily on the export of Iranian and Iraqi crude to Asian markets and a handful of liquefied natural gas (LNG) cargoes from Qatar sailing in “dark mode” (transponders off) to avoid seizure or attack. Reports suggest that the stalled diplomatic process is pushing Trump to decide over the weekend on a military action against Iran.

Global petroleum product supply is further strained by persistent Ukrainian drone strikes against Russian refining centers, which are affecting processing capacity and inventories. Additionally, the U.S. Treasury General License for Russian oil cargoes expires on May 16, threatening to displace significant volumes of supply from the Asian market. This was almost certainly one of the topics addressed at the Trump–Xi summit.

In an unusual convergence, both the International Energy Agency (IEA) and OPEC are forecasting a serious supply deficit despite demand reductions for the remainder of the year, resulting in an inventory drawdown of nearly 10%, to 97 days of supply.

Geopolitical Fundamentals

Enormous expectations surrounded the summit between the two superpowers. Donald Trump’s visit to Beijing to meet with Xi Jinping ended on a positive personal and diplomatic note, but without major tangible economic agreements or critical geopolitical breakthroughs. Although both leaders staged a display of harmony in the gardens of Zhongnanhai, financial markets reacted negatively to the absence of concrete resolutions. On Friday the 15th, the Dow Jones index fell more than 500 points.

Efforts centered on finding a political formula that would allow for stability and prevent open conflict. Xi Jinping summed up China’s position with the phrase: “We should be partners, not rivals.” Analysts took note of Xi’s expression of hope that both nations could avoid falling into the “Thucydides Trap.” It is not the first time the Chinese leader has invoked the tensions that led to war between Sparta and Athens in ancient Greece.

Trump, for his part, appeared less combative than usual, and his subsequent statements raised some alarm in Taipei regarding the firmness of America’s commitment to Taiwan’s independence. Trump also announced that China pledged to purchase 200 Boeing aircraft, renew import licenses for U.S. beef, and increase agricultural purchases. Xi Jinping accepted Trump’s invitation to visit the White House on September 24.

No progress was made on the sale of artificial-intelligence chips or on agreements on key rare-earth supply chains. We therefore conclude that the meeting served to ease bilateral tensions in the short term while leaving the underlying issues of the trade and geopolitical war largely intact.

The Strait of Hormuz

Although maritime shipping analysis firms reported a slight uptick in Hormuz transits — to approximately 10 vessels per day — the strait remains technically closed to the bulk of commercial traffic.

During the final days of the week, however, several large tankers successfully navigated the Strait of Hormuz using designated routes, aided by a temporarily brokered ceasefire. Among the most significant vessels were:

•       The Yuan Hua Hu, a Chinese VLCC (very large crude carrier) operated by COSCO Shipping, is carrying 2 MMBBLs of Iraqi crude bound for Asia.

•       The Eneos Endeavor is a Japanese supertanker that transports crude oil from various Gulf countries to Japanese refineries.

•       The Agios Fanourios, a Malta-flagged tanker, successfully delivered its cargo to Vietnam.

High-level peace negotiations between the U.S. and Iran, held in Pakistan, stalled once again. The U.S. extended its ultimatum threatening Iran’s core infrastructure, while Tehran hardened its stance through a maritime “blockade diplomacy” strategy. Trump’s declaration that “his patience is running out” and Iran’s response — that it was prepared to resume combat — closed the week at maximum friction.

Global Oil Market: IEA Analysis

A detailed analysis based on the latest IEA Oil Market Report, published on May 13, reveals the severity of the current supply crisis. According to the IEA, the global market will experience a severe supply shortfall lasting at least until October 2026. The report also notes that the reduction in crude supply drove a global inventory drawdown of 6 million barrels per day (6 MMbpd) in April.

In the United States, commercial crude inventories recorded a weekly decline of 4.3 million barrels, twice the market’s expectation. As a consequence of crude and product shortages in some regions and elevated prices, the IEA projects that global oil demand will contract in 2026 to 104 MMbpd, 1.3 MMbpd below the pre-war forecast. The steepest decline is observed in the second quarter of 2026, with a drop of 2.45 MMbpd, of which OECD countries account for 930 Mbpd and non-OECD countries for 1.5 MMbpd. The petrochemical and aviation sectors are currently the most affected, but higher prices, a weaker economic environment, and demand-saving measures will have an increasingly significant impact on fuel consumption.

OPEC Production and the Middle East

OPEC crude oil production has plummeted by more than 30%, equivalent to a massive decline of 9.7 million barrels per day (bpd). This historic collapse is a direct consequence of the effective closure of the Strait of Hormuz and the UAE’s withdrawal from the cartel, effective May 1. Saudi Arabia officially reported to the organization that its pumping levels have fallen to lows not seen since 1990.

The maritime blockade has forced the region’s major producers to implement large-scale shutdowns due to a lack of storage capacity and blocked transit routes. Production data highlights severe losses:

•       Kuwait: fell from 2.58 MMbpd in February to just 600 Mbpd in early May.

•       Iraq: production dropped from 4.18 MMbpd to 1.38 MMbpd.

•       Saudi Arabia: reduced by 3.3 MMbpd.

•       Iran: also affected by the U.S. blockade in the Gulf of Oman, with a reduction of approximately 15% in its production.

The UAE announced that it has accelerated construction of the “West–East” pipeline project to connect its crude oil fields to the port of Fujairah on the Gulf of Oman, in line with its recent withdrawal from OPEC. The pipeline, expected to begin operating in 2027, will allow the country to double its export capacity and bypass the Strait of Hormuz.

Russia–Ukraine Conflict

Following the expiration of the three-day truce in the Russia–Ukraine conflict, Russia resumed attacks on civilian infrastructure in Kyiv. However, Putin formally stated that the war in Ukraine “is approaching its end.” His remarks came on Saturday, May 9, 2026, at a press conference following the traditional Victory Day parade in Moscow. International analysts and intelligence reports suggest that Putin’s words reflect military and economic exhaustion, domestic popular discontent, and international pressure, including economic sanctions.

Meanwhile, the Ukrainian military continues its strategy of targeting Russian energy infrastructure. This week confirmed a massive drone attack on the Ryazan oil refinery, one of the largest crude processing facilities in the Russian Federation. The refinery suffered secondary explosions and a major fire. With a capacity of 360 Mbpd and located near Moscow, its damage means that approximately 17% of Russia’s refining capacity is now affected by the strikes.

United States: Production and Exports

The United States posted a slight increase in production, according to EIA statistics, while active rigs rose by 3 units. The increase in shale oil basins was 5 units, partly offset by a reduction in activity in natural gas basins. Crude exports also rose, exceeding 6.4 million barrels per day in May, perhaps the beginning of an effort to capitalize on the high-price environment.

Oil Prices

Global energy prices came under significant upward pressure, with oil posting a substantial rally of 8%-10%, while natural gas advanced at a moderate but steady pace, flirting with $3 per MMBtu in the U.S. market and reaching five-week highs in Europe.

Reduced LNG volumes on the market, rising oil and gas prices, weather forecasts predicting rising temperatures, and the substitution of oil with gas in some regions have driven the rise in natural gas prices.

At market close on Friday, May 15, 2026:

Crude	Price (USD/BBL)
Brent	$109.26
WTI	$105.42

 

Venezuela

Much Announcement, Little Confidence

External Debt Restructuring

Perhaps the most notable economic and political development of the past week is the announcement of the external debt restructuring process. Under the framework of General License 58, Venezuela’s interim government officially designated U.S. firm Centerview Partners as its financial advisor. In the normal course of events for a country, this measure would mark the beginning of a formal, comprehensive, and unified process to address total financial liabilities estimated at between $160 and $200 billion.

According to the authorities, the plan jointly encompasses the Republic’s financial obligations, PDVSA's bonds, and arbitration awards. The interim government indicated that it will present the international financial community with a macroeconomic framework and a debt sustainability analysis in June 2026. However, economists with expertise in the area believe the announcement is premature and lacks credibility, and fear it could lead to a process as complex as Greece’s, which began in 2010 and only concluded in 2018 after several confrontations with the financial community.

Oil Opening and the Hydrocarbons Law

Related to the oil opening intended to underpin the second phase of the Trump–Rubio plan, “the recovery,” a draft regulation began circulating on social media — one that might be expected to complement and clarify interpretive ambiguities arising from the recently approved Hydrocarbons Law (LOH). At first glance, the regulation, far from achieving that goal, raises additional questions and further expands the discretionary authority already identified in the LOH. The text will require thorough revision to achieve the objective of attracting investors beyond the fragile initial rush.

A draft contract for those interested in investing in Venezuela’s oil industry also began to circulate. We have not yet had access to this document, but representatives of oil companies indicated that, based on the original text, negotiations could prove more complex than previously projected.

If any proof were needed that the LOH was approved without adequate debate and the necessary political consensus, a group of citizens representing the hard-line wing of the PSUV and its associates filed a petition before the TSJ (Supreme Court) seeking the annulment of the LOH on grounds of unconstitutionality. The ink on Extraordinary Official Gazette No. 6,978 had barely dried when the atavistic statist myths resurfaced: a renewed source of concern for potential participants in this opening, and further evidence that without elections conferring a mandate, any reform will remain vulnerable.

Political Transition: Diverging Visions

As the country attempts to complement or correct the mechanisms intended to attract foreign and domestic private investment to increase oil and gas production — as part of the U.S. recovery strategy — the desired political transition (the third stage of the Rubio plan) divides the visions of the Trump administration and the Venezuelan opposition.

Chris Wright, Secretary of Energy and de facto bearer of the official U.S. position, indicated that it is important to have the economy recover before holding general elections, in order to avoid the early wear on a newly and democratically elected government. In contrast, opposition representatives led by María Corina Machado and other leaders argue that economic recovery can only be achieved after the political transition, since the large investments required will only arrive in a stable Venezuela with institutions, separation of powers, and guarantees of respect for laws, contracts, and agreements.

Internal Tensions

Serious divisions among factions are evident within both the interim government and the ruling party. On one front, internal accusations of treason against Maduro and his wife are being debated; the recent extradition to the United States of Colombian-Venezuelan Alex Saab adds fuel to those rumors. On another, what is perceived as an effort to eliminate retroactivity and other provisions of the Labor Law has met with strong opposition from those who view it as Chávez’s final legacy and insist it must not be changed.

Adding to this internal discontent are rising street temperatures, a population increasingly affected by inflation and inadequate income adjustments, the continued failure to release political prisoners, mounting evidence of human rights violations against prisoners and the disappeared, and the ongoing use of repression to control protests.

Economic Situation

On the economic front, May differs little from April: high public spending to generate liquidity in the foreign exchange market, offset by the sustained imposition of high bank reserve requirements. The slide of the official exchange rate has slowed, and as a result the exchange rate gap has returned above 30%. At the close of the week, the official rate stood at Bs. 515/$.

Oil Operations

Accident at the Lamargas Plant (Lama)

On Friday, May 15, 2026, a powerful explosion followed by a fire occurred at the Lamargas (Lama) gas plant, a facility located in Lake Maracaibo in Zulia state. The plant, situated in Block 5, is operated by China Concord Resources Corp. under a CPP signed within the framework of the Anti-Blockade Law. At least six workers were reported injured with burns of varying severity. The block was producing only 8,000 barrels per day; the impact on production could be material, as the plant supplied the gas lift gas for the area. The affected volume will be known next week.

This operator had previously experienced another accident when the jacking base of the self-elevating drilling rig they brought into the country caused the rupture of a sub-lake flowline, resulting in a spill and the shutdown of production.

Weekly Production

Electrical problems have continued to affect oil operations, offsetting gains achieved through drilling efforts and the reduction of deferred production. This week’s output stood at 912 Mbpd:

Region	Production (Mbpd)
Western Venezuela	253
Eastern Venezuela	108
Orinoco Oil Belt	551
TOTAL	912

 

Companies under OFAC licenses and new contracts (LOH)

Company	Production (Mbpd)
Chevron	252
Repsol	50
M & P	33

 

Mixed companies with Chinese, Russian, and independent partners (Orinoco Belt)

Company	Production (Mbpd)
PetroSinovensa	90
PetroMonagas	90
PetroCedeño	66
PetroRoraima	35

 

Refineries and Petrochemicals

National refineries processed 252 Mbpd of crude oil and intermediate products, yielding 76 Mbpd of gasoline and 77 Mbpd of diesel.

The Petrochemical Complex at José is operating normally, albeit with limitations in natural gas availability. Daily output stands at 5,900 metric tons of methanol, 2,600 metric tons of ammonia, and 3,500 metric tons of urea. The Morón Complex remains shut down, awaiting gas supply.

Exports and Basket Price

Crude shipments during the first half of May are consistent with export levels of 750 Mbpd.

The Venezuelan crude basket averaged $85.9/BBL.

 

¹ International Analyst

² Nonresident Fellow, Baker Institute