A War with No Clear End

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

 

When the joint air forces of Israel and the United States attacked Iran and, among other objectives, succeeded in eliminating a significant number of its leaders —including Supreme Leader Ali Khamenei— a rapid collapse of the regime was expected. After all, only weeks earlier, the Iranian population had taken to the streets demanding political change and had been violently repressed, suggesting deep dissatisfaction with the theocratic regime.

However, to the surprise of many, including the White House, what was expected to be a limited-duration military operation has turned into a war with no foreseeable end. Following its initial retreat, the Tehran regime adopted a strategy based on responding to Israeli-American attacks with missiles and drones aimed at damaging neighboring countries, particularly those hosting U.S. military bases. This strategy was soon complemented by its most important element: using hydrocarbon supply as a weapon of war, extending the conflict’s impact to the global economy.

As of today, the conflict in the Middle East is beginning to generate an unprecedented global energy and geopolitical crisis, in which the Strait of Hormuz has become, for the White House, a modern version of the Greek myth of Scylla and Charybdis. Faced with this turn of events, President Trump has opted for a combination of escalation threats and optimistic statements about the duration of the conflict, in an attempt to mitigate the impact on oil prices; a strategy that already appears to be losing effectiveness. The sustained increase in oil prices reflects a deeper crisis.

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Diplomatic Initiatives and Current Scenario

Attempts to find a diplomatic solution have so far been unsuccessful. Iran rejected U.S. demands with an equally extreme counterproposal, to which Washington responded with threats of a destructive campaign that would likely deepen the global economic crisis. Nevertheless, on March 31, Pakistan and China presented a joint five-point peace initiative —the first time a major power has formally proposed a path to end the conflict. Saudi Arabia and the United Arab Emirates are also engaged in unofficial talks.

Although navigability in the Strait of Hormuz has slightly improved —with 10 to 12 vessels transiting daily— the crude deficit remains high. Iraqi crude exports via Turkey, Saudi crude via the Yanbu terminal, and Emirati crude via the Fujairah terminal, combined with tankers that managed to bypass the strait, have reduced the deficit from 8 million barrels per day (MMbpd) to 6.5 MMbpd. Immediate physical availability of WTI has driven competition for those cargoes, reversing the traditional Brent differential —a phenomenon not seen since 2020.

No material increase has been observed among alternative producers, such as those in the United States. However, Baker Hughes reported a modest increase of 6 rigs operating in shale oil and natural gas basins. Monitoring this activity could become a short-term market indicator. Globally, a net reduction of 54 rigs was recorded, possibly in response to supply issues and the one-month lag in international data.

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Geopolitical Fundamentals

Parallel with the War in Ukraine

As the war against Iran —now just over a month old— progresses, notable similarities are emerging with the four-year war resulting from Russia’s invasion of Ukraine. In conventional terms, Ukraine could not contain Russian advances due to its limited size and equipment, prompting it to develop a decentralized, iterative, and low-cost combat model. The backbone of this model is the massive use of locally manufactured drones, produced in small, geographically dispersed workshops that are difficult to detect and costly to destroy. This strategy not only halted Russian advances but also enabled territorial recovery and materially impacted Russia’s oil infrastructure, critical to financing its war. These attacks forced Moscow to impose a temporary ban on fuel exports due to domestic shortages.

Iran’s Strategy: Decentralization and Asymmetric Warfare

A similar pattern is unfolding in the Middle East. Despite the dismantling of its central government and the disabling of its conventional air and naval systems, Iran has decentralized command within the Revolutionary Guard and, leveraging an impressive inventory of missiles and drones, shifted from defense to offense. It has inflicted damage on military installations and industrial infrastructure across the region, even making good on its threat to close the Strait of Hormuz. The closure of this vital artery has reshaped the global energy landscape and forced several countries to adopt drastic measures to address current and future shortages.

Europe’s Position and NATO

President Donald Trump called on European countries to participate in forcibly reopening the strait, a request that was rejected despite Europe —along with Asian powers— being among the most affected regions. Europe’s reaction surprised no one: there is little appetite to become involved in the conflict, and there appears to be an opportunity to settle scores with the White House without fully weighing its own energy costs. Trump has threatened to withdraw from NATO, which would represent another collateral benefit for Russia stemming from this conflict.

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Scenarios for the Strait of Hormuz

It is difficult to project what will happen in the coming weeks and months. Three possible scenarios are outlined:

• Short closure. Diplomatic or military progress leads to reopening the strait in May, aligning with U.S. estimates of the conflict’s end. Geopolitical risk would decrease, and prices would tend to normalize, though unlikely to return to pre-conflict levels.
• Gradual reopening. Non-belligerent but heavily affected countries—China, India, Japan, and Korea—pressure the parties, and traffic through the strait begins to normalize. Full navigation would resume by late June, but crude prices would remain above $80/BBL due to collateral damage and persistently high freight rates.
• Prolonged closure. Hostilities persist, and the U.S. decides to seize and control the strait militarily. Prices, due to reduced supply over nearly four months, would exceed $120/BBL and remain above $90/BBL even after reopening, given damage to Gulf production capacity and extreme regional instability. China, in particular, would not welcome U.S. control over its oil supply.

In any case, the only certainty is that this war could evolve into a permanent low-intensity conflict that destabilizes the energy market, making price levels difficult to determine and demand impacts hard to quantify. LNG supply, in particular, will be affected for a longer period due to damage to production infrastructure.

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Alternative Routes and Gulf Capacity

Persian Gulf countries are maximizing capacities to bypass the Strait of Hormuz. Saudi Arabia has loaded around 5 MMbpd at its Yanbu terminal in the Red Sea. The UAE has utilized its Fujairah terminal in the Gulf of Oman, which has a capacity of nearly 2 MMbpd. Iraq continues exports via Turkey and is preparing to reactivate an old pipeline through Syria to export an additional 50 Mbpd via the Mediterranean. Long-term, a multinational project is being evaluated to route significant volumes through pipelines terminating in Haifa.

According to Tanker Trackers, since March 1, only 108 tankers have transited the strait—an average of 3 vessels per day. Iran has declared Iraqi tankers exempt from navigation restrictions, highlighting its intent to use the strait as a political instrument.

So far, global inventory—including floating storage—has declined by 2.5%.

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Impact on the U.S. and Western Markets

Although the Western Hemisphere is well supplied with crude and natural gas—and is increasing exports to Asia and Europe—it is not immune to rising global prices, which affect domestic fuel prices —a highly sensitive political issue, particularly in the U.S.

Due to supply disparities, the historical Brent-WTI differential has inverted, with WTI now trading above Brent, driven by extreme demand for immediate U.S. crude. This “delivery capacity crisis” has created extreme backwardation, with buyers paying a premium for immediate delivery.

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Price Dynamics

Oil prices were highly volatile during the week, with Brent fluctuating between $98 and $119/BBL.

By week’s end, prices surged again due to tensions between U.S. and European authorities and uncertainty following President Trump’s latest televised address.

Brent and WTI closed on Friday, March 27, 2026, at $109.03/BBL and $111.54/BBL, respectively, with Brent trending higher, particularly in Western Hemisphere markets.

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U.S. Macroeconomic Outlook

A positive development was the creation of 178,000 jobs in March, with unemployment falling to 4.3%. Average hourly wages grew 3.5% year-on-year, while inflation was 2.4–2.7%, indicating real wage growth.

However, this positive outlook may soon reverse as the economic impact of the Iran conflict becomes evident in April and May data. Additionally, Federal Reserve policy could be affected: markets had anticipated rate cuts this summer, but current data cast doubt on that forecast.

In summary, higher inflation, recessionary pressures, increased energy investment, and realignment of defense spending are expected.

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Eastern Mediterranean Exploration and Gas Developments

Despite ongoing events, the energy industry continues operating. ExxonMobil recently declared the Glaucus and Pegasus gas discoveries south of Cyprus commercial, with 7 TCF of recoverable resources. Together with ENI’s discoveries near Egypt and Chevron’s operations in Israeli waters, a major gas province is emerging, contributing to European and regional energy security.

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Venezuela

Trump Rewards Delcy Rodríguez

During Holy Week in Venezuela, the Trump administration acted. On April 1, the U.S. Treasury removed Delcy Rodríguez from its sanctions list. This OFAC decision, along with the reopening of embassies and consulates, marks a significant shift in U.S. policy toward Venezuela.

It is unclear what the U.S. obtained in return: political prisoners remain jailed, and basic freedoms remain constrained. Adding to the ambiguity, Secretary of State Marco Rubio met with María Corina Machado in Washington, reaffirming her relevance.

Economy and Exchange Rate

Economic challenges persist: the official exchange rate exceeded Bs 470/$, with a 40% gap versus the parallel market, sustaining inflation above 600%.

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V. Oil Operations

Crude Production

Production stabilized at 884 Mbpd:

·       West: 242

·       East: 110

·       Orinoco Belt: 532

Joint Ventures (OFAC Licensed)

·       Chevron: 242

·       Repsol: 45

·       M&P: 27

·       Subtotal: 314 (35%)

Refining and Exports

·       Refining: 240 Mbpd

·       Gasoline: 75 Mbpd

·       Diesel: 76 Mbpd

Exports averaged 770 Mbpd.

Export Destinations

·       India: 340

·       U.S.: 313

·       Spain: 85

·       Italy: 32

Export Blends

·       Merey 16: 552

·       Boscan: 114

·       Hamaca: 68

·       DCO: 36

Revenues

The Venezuelan basket reached $87.4/BBL. Monthly revenues totaled $1.956 billion.

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

Is a War Without Losers Possible?

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

As the world watches with growing anxiety the devastating effects of the war in the Middle East, the main parties to the conflict are executing a communications strategy in which both sides dress up as strategic gains a situation that looks as deadlocked as traffic through the Strait of Hormuz. The energy market, which had initially absorbed the first days of the war with a degree of indifference, has now entered a phase of entrenched uncertainty about global supply, with no clear way out.

When the next generation of analysts studies the events unfolding today, they will not ask how the Strait of Hormuz came to be an Achilles’ heel of regional geopolitics and the global oil and gas market, but rather how that vulnerability appears to have been underestimated by American decision-makers, who so far seem disoriented and without clear ideas on how to find a way out of the crisis.

Now that the effectiveness of the intense violence of recent weeks is stalling, diplomacy is beginning to emerge as a possible tool to break the deadlock — albeit from positions that remain far apart. Although the prolonged closure of the strait — or of the straits — serves no one’s interests, which should push the parties toward each other, the cultural disposition of the population and the religious convictions of Iran’s theocratic regime suggest a higher threshold for tolerating adversity, which will make any negotiation considerably more difficult.

In any case, President Trump, in an initial shift of stance, is giving diplomacy mediated by Pakistan a chance while simultaneously preparing and mobilizing troops and military assets. The Pentagon appears to be evaluating various strategies to force the reopening of the Strait of Hormuz.

Ukraine’s drone strikes on Russia’s Baltic terminals at Primorsk and Ust-Luga — on either side of the Gulf of Finland — have reduced Russian export capacity by more than one million barrels per day (1.0 MMbpd), further aggravating the global supply shortage. In addition, an attack on a Turkish-flagged tanker carrying Russian crude near the Bosphorus has heightened the risks of transiting another critical oil transport route.

China, for its part, appears to continue building its strategic reserves despite elevated prices. Observers close to this process estimate that around 1.0 MMbpd of Chinese imports are being directed toward storage.

Meanwhile, OPEC+’s announcement of a modest production increase starting in April looks, for the time being, like a bid for relevance with no practical consequences.

Geopolitical Fundamentals

The Strait of Hormuz handles the vast majority of oil exports from Saudi Arabia, Iraq, Iran, Kuwait, Bahrain, Qatar, and the UAE, distributed approximately as follows:

 

Country/Region	Share of Total (%)
China	~38%
India	~8%
Japan	~8%
South Korea	~6%
Rest of Asia	~12%
Europe	~12%
U.S.	~3%
Rest of the world	~3%

 

Note: Values are approximate, estimated from vessel-tracking data charts compiled by Bloomberg.

 

The war has effectively closed the strait to shipping — with few exceptions — since March 9. Each passing day reduces global oil supply by approximately 8 million barrels per day (8 MMbpd) relative to pre-war levels.

Adding to this, Ukraine struck Russian Baltic terminals and storage facilities with drones this week, knocking the ports of Primorsk and Ust-Luga out of service — an additional supply reduction of 1.1 MMbpd. Cumulatively, markets have been deprived of some 236 million barrels of supply, partially offset by drawdowns from strategic reserves (39 MMbbl) and the commercial activation of Russian floating inventories (46 MMbbl) — a total that falls well short of compensating for what the war has taken off the market.

Houthi Insurgency and the Threat to the Strait of Bab el-Mandeb

In recent days, an additional factor has emerged that could place even greater pressure on oil supply: the not-unexpected insurgency of Yemen’s Houthis, who have announced their direct entry into the war alongside Iran by firing their first missile against Israeli territory since the conflict began. According to the Houthis, this constitutes an act of “support for Iran and the resistance fronts” across the region, in reference to allies such as Hezbollah and other groups in Lebanon, Iraq, and Palestine. Houthi rebel leader Abdul Malik al-Houthi and Iran’s military high command have just played their final piece on the geopolitical chessboard: the threat of a total blockade of the Strait of Bab el-Mandeb, the waterway connecting the West, Asia, and Africa, through which 10% of global maritime trade passes.

Damage to LNG Infrastructure

In this same vein, British oil major Shell has confirmed that its Pearl gas-to-liquids plant — with a capacity of 140 MBPD, located in Qatar and struck by Iranian drones on March 19 — sustained significant damage and will require approximately one year to be repaired.

The LNG supply outlook is even bleaker, as much of Qatar’s and Iran’s infrastructure has been damaged and will require an extended period of repairs to recover.

Qatar’s LNG (liquefied natural gas) exports in 2025 were distributed as follows. These exports are currently at a standstill:

 

Country/Region	Share of Total (%)
Others	34,9%
China	24,1%
India	14,5%
Taiwan	9,6%
Pakistan	8,4%
South Korea	8,4%

 

Note: Values are approximate, estimated from vessel-tracking data charts compiled by Bloomberg.

 

Additionally, a tropical cyclone has disrupted production at Australia’s two largest LNG plants, operated by Chevron and Woodside, further tightening supply at least in the near term. These plants account for approximately 6.5% of global LNG production.

OPEC+ and Production Capacity

Today, the announcement by OPEC+ to nominally increase member production in April is a mere formality, with no substance or capacity for compliance. Indeed, Kuwait, Iraq, and Saudi Arabia have their production capacity constrained by a lack of export routes to market. At the same time, Russian output continues to be affected by Ukraine’s strikes on its Baltic terminals and storage and pumping infrastructure.

Military and Diplomatic Options

With its conventional military capacity diminished, Iran has turned to asymmetric warfare strategies to damage the global economy and punish those Gulf states cooperating with the U.S. and Israel. This approach forces the U.S. and its allies to grapple with how to reopen the strait and keep it functional, while limiting the broader damage to the region and the global economy.

In this effort to resolve the conflict, diplomatic channels have been engaged. Trump sent Tehran a 15-point ceasefire proposal and announced a 10-day window for negotiations. Hours later, sources from the Iranian regime rejected the plan and presented a counterproposal based on recognition of its sovereignty over Hormuz and payment of war reparations.

Reportedly, key people have been mediating these contacts. Pakistan’s role in the negotiations only came to light a few days ago, following press reports. Officials in Islamabad subsequently acknowledged that Washington’s proposal had been transmitted to Tehran. There are a few concrete signs of progress toward a truce, as missiles continue to rain down on both Israel and Iran, a country that has demonstrated its capacity to sustain a prolonged conflict.

Military Options to Reopen the Strait

Alternative methods to force the reopening of the Strait of Hormuz are being evaluated. In particular, since transit through this waterway requires passing through waters under Iranian control — specifically near the Iranian islands of Larak and Qeshm— these islands are expected to play a crucial role in the strategic options currently under consideration.

In recent weeks, the possibility of a Marine landing on the oil island of Kharg was under consideration. However, the operation poses extreme logistical challenges: to reach it, military units would need to cross Hormuz and travel approximately 800 km north into the Arabian Sea. Other options are being considered, including seizing Larak Island, where Iran harbors the fast boats that harass vessels attempting to transit the strait.

The Pentagon is also weighing the seizure of the strategic island of Abu Musa and two nearby islands — Greater Tunb and Lesser Tunb — as an option to gain control of the Strait of Hormuz. Abu Musa and the Tunb islands lie approximately 70 km from the Iranian coast and just over 60 km from the western end of the strait. They are positions of significant strategic value for controlling the energy corridor; although under Iranian administration, which occupied them in 1971, their sovereignty has been disputed by the UAE for decades.

Of all the possible alternatives, this last option appears to be the most plausible. It could be executed with the assets already converging on the area, has the backing of Gulf allies — above all the Emirates — and, if successful, would represent the most significant achievement in terms of public opinion since the war began. The plan would involve deploying ground troops to help restore oil transit routes.

Whichever island is selected, the use of Marines or airborne forces following a sustained bombardment campaign is being considered. However, such an action would create additional domestic political difficulties for President Trump, who has pledged not to deploy American troops on Iranian soil.

Response of Major Producers

Outside the war zone, major oil producers are either unable or unwilling to take emergency measures to increase production. In the cases of Brazil and Guyana, given the nature of their ultra-deepwater field development, incremental project scheduling is governed by long-lead planning processes that cannot be accelerated quickly.

In the United States and Canada, despite having industries capable of responding quickly to rising prices and some optimism about market developments, they have not done so — most likely because they view the current situation as temporary rather than a permanent shift. Indeed, according to Baker Hughes, the active rig count is declining in both countries.

A noteworthy detail is that the Middle East is the only region where drilling activity is increasing, which, under the current circumstances, merely generates idle production capacity.

Affected Refining Facilities

Refining activity has also been severely affected by Iranian drone strikes. The facilities that have been partially or entirely taken offline include:

●      Qatar: LNG facilities at the Ras Laffan Industrial City

●      Saudi Arabia: Ras Tanura refinery

●      Kuwait: Mina Abdullah refinery

●      Bahréin: refinería de Al-Ma'ameer

●      Israel: Haifa refinery

 

Crude Oil Prices

The closure of the Strait of Hormuz remains the dominant driver of oil prices this week; the narrative Donald Trump is promoting to influence the market through announcements of constructive negotiations does not appear to be gaining traction. Somewhat inconsistently, prices dropped immediately in response to Trump's first five-day extension for reaching an agreement. However, the subsequent ten-day extension triggered a rally in Brent prices, further reinforced by Iran’s formal rejection of Trump’s 15-point peace plan and the presentation of its own list of demands. The near-term outlook for oil points to prices remaining elevated for longer.

As a result, benchmark Brent and WTI crudes, at the close of markets on Friday, March 27, 2026, were trading at $112.57/bbl and $99.64/bbl, respectively, reflecting a marginal increase from the previous week’s close.

 

Venezuela

Change at a Snail's Pace

Venezuela’s situation at the end of March 2026 is undergoing a process of change that has been presented as profound, but whose sluggishness renders it ineffective and superficial.

Local experts and journalists describe this moment as a “reconfiguration of power” in which the street sets the pace. Yet, there is still no clear consensus on whether a fully democratic transition will be achieved or whether this is simply a Lampedusian stabilization driven by deal-making.

Economic Stabilization

There is no question that the stabilization phase has received the attention of the Trump Administration and the interim government of Delcy Rodríguez. However, the lack of coordination among the increase in public spending, foreign exchange inflows from controlled accounts, and the currency auction process has failed to achieve its fundamental objective: controlling the foreign exchange market and, by extension, curbing inflation.

Foreign exchange revenues in March nearly doubled compared to February. Public spending has been increased to stimulate consumption, but the foreign exchange market has not been guided toward a consistent price discovery process; on the contrary, currency auctions have kept the gap between the official rate and the open market at around 40%, continuing to fuel inflation and eroding the purchasing power of the majority — those dependent on state salaries and bonuses — to access even the most basic goods.

Recovery of the Hydrocarbons Sector

Likewise, the recovery phase is underway. Licenses issued by OFAC allow Chevron to increase its activity to LG 41 levels and enable oil companies operating in the country to resume their role as private operators under the new Hydrocarbons Organic Law (LOH) — among them Repsol, Maurel & Prom, and ENI.

There has also been a resurgence of interest in participating in the recovery of Venezuela’s hydrocarbon sector. However, actual investments remain concentrated among the companies mentioned above. At the same time, the major capital required for a meaningful push considers the current conditions insufficient to justify the investment needed for a full recovery.

The BCV and Creative Accounting

The Central Bank of Venezuela (BCV) has indeed been compelled to publish data that had not been released in a very long time. This policy shift is the result of pressure from the north and the desire to engage in talks with the International Monetary Fund (IMF). Without updated data, there is no path to accessing the IMF.

The BCV is publishing inflation data and other macroeconomic indicators. This week, it released the 2025 Balance of Payments. Most economists have been occupied trying to make sense of what was published. The prevailing conclusion can be summarized as follows: the data is real, but processed through a mechanism of creative accounting that allows it to appear as a surplus in what is, at its core, a deficit balance.

It is no coincidence that both economic stabilization efforts and the recovery of the hydrocarbons industry appear to be falling short for essentially the same reason: the absence of a clear timetable and roadmap for a timely political transition. The gap between expectations and reality lies in the lack of institutional order, political skirmishing, and contextual realities that have not been adequately accounted for — such as territorial and security control, separation of powers, excessive discretion, opacity, and a lack of transparency, to name only the most obvious.

The “Dueling Banjos” and the Political Transition

This week also brought contrasting visions of Venezuela’s future in what might be called a “dueling banjos” between María Corina Machado and Delcy Rodríguez. The former presented her vision in person at the world’s largest energy event, CERAWeek, in Houston, where she outlined her proposal in 15 minutes and took part in a subsequent question-and-answer session.

MCM’s intervention appeared to align with the stance of most major oil companies: the tentative changes in Venezuela are welcome, but only a deeper political and institutional transformation would convince them to invest meaningfully. It is noteworthy that Energy Secretary Chris Wright — also present at CERA — now seems more aligned with that position than when he visited Venezuela.

Meanwhile, the interim president participated virtually in an international investment forum in Miami. Before a group of American, Saudi, and Latin American investors, Rodríguez emphasized the steps her government is taking to pass reforms that would strengthen “legal certainty for investment,” but made no mention of any transition to a democratically elected government, and chose not to take questions from the audience.

This apparent reluctance to address the issue of transition in a structured and time-bound manner is generating social anxiety — particularly among those who see no tangible improvement in what has been implemented since January 3. Mass mobilizations are resurgent and have not been suppressed to avoid confrontations with the Trump Administration.

 

Oil Operations

Power outages of up to 10 hours on multiple occasions have affected production in the western part of the country. Weekly production stood at 877 MBPD, distributed geographically as follows:

●      West: 237 MBPD  (Chevron: 99 MBPD)

●      East: 110 MBPD

●      Orinoco Belt: 530 MBPD  (Chevron: 142 MBPD)

Total: 877 MBPD  |  Chevron: 241 MBPD

National refineries processed 234 MBPD of crude and intermediate products, yielding 75 MBPD in gasoline and 71 MBPD in diesel.

Petrochemical production at the José complex operated at the level permitted by natural gas availability, at 78% of the required capacity. The ammonia/urea plant at Morón is in pre-startup.

Month-to-date exports appear to be tracking above plan; before accounting for volumes held in inventory, monthly exports stand at 760 MBPD, assuming volumes stored abroad were sold during the month.

The Venezuelan crude basket price reached $87/BBL, reaffirming the estimated crude oil revenue for March at approximately $2,000 million.

 

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

 

The War Extends to Natural Gas Production Assets

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

Unlike the 20th-century political crises in the Middle East, which were reflected in oil prices, the fundamental change in the global energy matrix has made natural gas and its Siamese twin, liquefied natural gas (LNG), key pieces on the region's energy political chessboard and in global geopolitics.

The situation in the Strait of Hormuz has gone from a rhetorical threat to a real operational crisis, resulting in a historic disruption to the global hydrocarbon market. American efforts to force Iran to allow free navigation in the strait degenerated into the destruction of oil and gas assets in Iran and other Persian Gulf countries.

Israeli bombings against Iran's gigantic South Pars gas field, as well as Iran's response by bombing the even more extensive North Dome field in Qatar, have caused damage to the global LNG supply infrastructure that will take years to repair. Damage to refineries in Saudi Arabia, Bahrain, and Israel is already unbalancing product supplies, particularly aviation fuel.

Oil markets continued their fifth consecutive week of gains, with Brent trading near $112 per barrel. The Trump administration has attempted to calm market concerns by all available means: exempting the administration from the Jones Act; further softening sanctions on Russia; lifting sanctions on Iranian oil transported by sea; and draining crude from strategic reserves. However, market perception focuses on the fact that the Strait of Hormuz is closed to most non-Iranian navigation and that natural gas liquefaction in Qatar and Iran is inactive. Since the war began, barely 100 tankers have successfully crossed the strait, when normally that would be the daily traffic volume.

Iran's Revolutionary Guard maintains physical control of Hormuz, allowing passage only to vessels from countries considered "non-enemies," such as China or Turkey, after specific diplomatic negotiations.

Geopolitical Fundamentals

Elimination of Iranian Commanders and Military Response

Israel continued its strategy to eliminate senior commanders of the Iranian regime. This time it was Ali Larijani, the security chief, whose death Iran confirmed last night. Larijani took the reins of Iran after the death of Supreme Leader Ali Khamenei, wielding more power than President Masoud Pezeshkian, who has a more diplomatic profile and even more influence than the recently appointed Supreme Leader, Mojtaba Khamenei.

Larijani was one of the architects of Iran's defense and retaliation strategy in the current war. However, it is believed that the military campaign could continue its course despite his absence, as the regime has prepared up to four levels of succession for each government and military command post, so that command and control structures can continue despite Israeli "targeted attacks."

The Iranian military declared over the weekend that it is ready to close the Strait of Hormuz indefinitely if U.S. President Donald Trump follows through on his threat to bomb its power plants. On the other hand, an Iranian source told CNN that Tehran is advancing in the monetization of its control over this vital waterway.

U.S. forces have repeatedly attacked Iranian ships tasked with placing mines in and near the strait. General Dan Caine, Chairman of the Joint Chiefs of Staff, reported that approximately 44 were destroyed as of March 18. He also reported that they have used low-flying aircraft, Apache helicopters, and precision air strikes—including bunker-buster bombs—against ships, coastal launch points, and infrastructure that could support anti-ship missile and drone attacks against vessels.

In parallel, the Pentagon has ordered the deployment of marines and amphibious warships, including the USS Tripoli with elements of the 31st Marine Expeditionary Unit (approximately 2,500 marines), to the Middle East to position off the coast as a rapid-crisis-response and maritime-security force. All these maneuvers seek to give commanders options for evacuation, boarding, and escort missions, as well as limited littoral operations, without committing large ground forces in Iran. However, they add to the conflict's escalation.

Impact on Maritime Transport and Production

Meanwhile, a large number of vessels have been immobilized or forced to divert due to threats and direct attacks against oil tankers. As expected, ship fuel prices have surged 87% since the start of hostilities, to levels not seen since the beginning of the Ukraine invasion in 2022.

Unable to export or store more crude, key producers such as Saudi Arabia, Iraq, and Kuwait have had to shut down production, reducing capacity by about 8.5 million barrels per day. Likewise, all LNG production in the region is out of service and will require major maintenance to return to operation. This has doubled, and even tripled, gas prices in Europe and Asia, threatening electricity generation and fertilizer production, with consequences throughout the global production chain.

Palliative Measures and Alternative Routes

Faced with this crisis, a set of palliative measures is being implemented. The International Energy Agency (IEA) has coordinated the largest crude reserve release in history: 400 million barrels (400 MMbbl), providing about 3.3 million barrels per day (3.3 MMbpd) to the system—a figure insufficient to cover the massive deficit and of little effect if the conflict drags on.

On the other hand, pipelines that bypass the Strait of Hormuz have a capacity of only 5 million barrels per day. However, their usefulness is being called into question by Iranian attacks on infrastructure, such as the port of Fujairah in the Gulf of Oman and the refinery on the outskirts of the Yanbu terminal on the Red Sea, which reduce their operability.

Additionally, an Iranian military source warned that new U.S. attacks or an invasion of Kharg Island—its largest loading and storage terminal—could prompt Tehran to intensify the situation, threatening nearby waterways, including the Red Sea and the Bab al-Mandab strait. It should be remembered that Yemen's Houthis reduced transit through Bab al-Mandab to a minimum in recent years. At the same time, Iran allows the passage of some vessels linked to China, India, and Pakistan through diplomatic negotiations, while maintaining the blockade for the rest of international traffic. Even the passage of a tanker bound for India, escorted by a vessel from that country's navy, was observed.

Global Economic Impact

The results of this crisis are difficult to estimate beyond the obvious havoc caused by increased energy costs and supply shortages. The World Trade Organization (WTO) and the International Monetary Fund (IMF) have warned that this conflict will hit global growth in 2026 and raise inflationary pressure. The impact is already visible in capital market indices: the S&P 500 and Dow Jones have lost nearly 6% of their value in the first three weeks of March. European Central Bank President Christine Lagarde highlighted that, in an adverse scenario, eurozone inflation could spike to 3.5%, well above the previously forecast 1.9%, and growth would be 0.6%.

Some analysts predict that the supply-demand balance will only be achieved through "demand destruction": prices rise so much that consumers are forced to reduce consumption due to unaffordability or economic viability.

Regional Exposure

Asia is the most vulnerable region, as it imports 80% of the oil that transits through the strait. Countries like Thailand, South Korea, and Japan face the risk of an immediate recession. China, for its part, is reducing petroleum product exports to strengthen internal energy security, although its strategic reserves allow it, for now, to weather the supply storm.

While Europe faces a critical shortage of distillates—diesel and jet fuel—and natural gas, it competes with Asia for Atlantic cargoes.

Exporting countries outside the Gulf—Russia, Venezuela, and the United States—have emerged as temporary beneficiaries, as demand is redirected toward their supplies and their product prices are lower.

Price Dynamics

The market, which had an unprecedented bearish speculative positioning before hostilities, now registers, with the war and the closure of Hormuz, intense covering of short positions. Likely, a substantial part of the rally toward $120/bbl was driven by margin calls and the forced liquidation of speculative short positions. In recent days, several reports have circulated describing how hedge funds have completely closed their energy trading desks. The increase in natural gas prices responds entirely to signals of a supply shortage.

During the week, crude and gas prices experienced high volatility and a strong upward trend, with Brent remaining above $100/bbl.

The immediate future, fraught with uncertainty, has propelled prices to current levels and could catapult them to $130-$200/bbl if the Hormuz closure is prolonged. None of the measures implemented or suggested to mitigate the situation has sufficient substance to generate confidence in future energy security.

At Friday's market close on March 20, 2026, the Brent and WTI benchmark crudes were trading at $112.19/bbl and $98.23/bbl, respectively, reflecting an increase of more than 8% for Brent compared to the previous week's close and a wider differential between the two.

Venezuela

The Illness Does Not Respond to Treatment

The so-called stabilization and recovery stages, nominally under American tutelage, have not reached expected levels, particularly from the perspective of the average citizen's daily life. International geopolitical dynamics have driven prices for the Venezuelan basket to levels not seen in some time; however, the current income flow scheme and fragmentation in the delivery of foreign currency through auctions scheduled by the BCV have not allowed effective control of the foreign exchange market.

On the other hand, during the purification process of oil block concession mechanisms, several blocks were assigned. Still, a lack of transparency and clarity in contract content persists, similar to what occurred during the Anti-Blockade Law era. This is no surprise; the Hydrocarbon Law reform has left too many loose ends in this regard.

Likewise, the interim president has continued to replace Maduro administration ministers with people close to her political circle, but whose records of action in the administration, repression, and human rights are similar to those of previous officials. That Washington appears to approve, through its silence, this decision of "continuity" could be justified by the need to ensure full compliance with tutelage plans and to prevent over-interference in appointments from being used by the Caracas regime as a possible excuse to fail to meet objectives.

One of these areas that has remained far from outlined objectives is the release of political prisoners, a process that has slowed down. The bet is that, with recent appointments, the government will demonstrate it can advance in matters like this.

Foreign Exchange Market

The foreign exchange market failed to reduce the gap between official and market rates. At the close of operations, the official rate stood at 457 Bs./$ and the gap was 43%. The government expects to receive additional funds in March, given that the $500 million had already been auctioned and sales revenues were estimated to be much higher than in previous months.

Under the new General License 52, a form of sanctions flexibility was announced, allowing only companies domiciled in the U.S. to sign contracts with PDVSA, subject to certain limitations on the flow of generated funds. Chevron and other companies would not use bank money desks to pay amounts corresponding to royalties and operational requirements. Under the new scheme, everything must go through accounts controlled by the U.S. Treasury.

Oil Operations

Weekly Production

Production remained stable during the past week. Weekly production was 883 Mbpd, geographically distributed as follows:

• West: 244 Mbpd (Chevron: 101 Mbpd)
• East: 111 Mbpd
• Orinoco Belt: 528 Mbpd (Chevron: 140 Mbpd)

TOTAL: 883 Mbpd | Chevron: 241 Mbpd

Refining and Exports

National refineries processed 230 Mbpd of crude and intermediate products, yielding 73 Mbpd of gasoline and 71 Mbpd of diesel.

Exports so far this month appear to be above planned levels; if the current dispatch rate is maintained, they could approach 800 Mbpd.

The Venezuelan basket price reached $86/bbl, the highest in recent years. With the planned export and current international market prices, oil revenues will tend to reach $2,000 million in March.

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