BETWEEN NEGOTIATION AND WAR

 

General Conflict Overview

The third quarter of 2026 remains just as full of uncertainty and complexity as the start of the year. This has kept the oil market on a “roller coaster,” reacting to geopolitical decisions that are unpredictable both in their purpose and their effects. Throughout the week, oil prices swung widely between $82/bbl and $92/bbl in Brent terms, responding to daily jolts from diplomatic announcements and acts of war between the U.S. and Iran.

On the Russia-Ukraine front, Russia has intensified its attacks on Ukrainian civilian infrastructure, and Ukraine continues to inflict damage on Russia’s energy and financial systems. As if that weren’t enough, a new development emerged that could prove significant: Ukraine carried out a surprise long-range drone strike on an Iranian vessel in the Caspian Sea allegedly carrying weapons and missiles to Russian territory. This attack expands the geographic boundaries of the war, linking two regional conflicts that had until now been separate.

The Islamist movement Hamas has announced its acceptance of a disarmament agreement in the Gaza Strip, mediated by the Board of Peace promoted by the United States; Israel has not responded. Meanwhile, on the northern front, Israel’s military continues operations to destroy key Hezbollah infrastructure in southern Lebanon, despite ongoing diplomatic efforts.

In an exercise of optimistic extrapolation, one could foresee that both the Gaza and Lebanon conflicts are beginning to wind down, given the impossibility of sustaining stalemated wars that generate unrest and waste resources for all countries involved.

The dissenting note has come from Yemen, where the Houthis have attacked Saudi tankers to prevent them from leaving the Red Sea, and have also struck critical infrastructure such as the Yanbu terminal, prompting heavy bombardment of Houthi targets by Saudi Arabia and the United States.

President Trump, meanwhile, is taking advantage of the increasingly distant relationship between Iran and the Arab countries of the Persian Gulf to pressure them into establishing relations with Israel through the Abraham Accords.

Geopolitical Fundamentals

The weekly cycle of volatility, marked by apparent pauses for negotiation followed by escalations of war, has set the tone for the discordant relations between the warring sides. Iran has taken care to draw in both its proxies and neighboring countries, striking them on the pretext that they host U.S. military bases, to pressure Trump through his regional allies. For his part, Trump’s maximalist rhetoric also provokes militaristic responses from Iran, which is unwilling to show weakness amid the interrupted negotiations.

The behavior of oil prices showed that the market tended to react to optimistic future expectations rather than physical supply realities. Consider the most notable turning points:

●      On Monday, July 27, a diplomatic truce appeared to take shape, and prices plunged more than 5% after the announcement of a pause in the bombing campaign. The perception that diplomacy was gaining ground eased the risk premium.

●      In less than 48 hours, on Wednesday the 29th, the calm was shattered; an Iranian missile attack on a U.S. base in Jordan and the resulting American and Iraqi reprisals broke off the negotiations. As expected, prices spiked more than 7% in a single day.

●      Once again, on Friday the 31st, deep skepticism resurfaced, and crude prices climbed, albeit moderately, simply because Trump declared he was “losing faith” in the Iranian negotiators and accused them of lying.

Maritime chokepoints proved to be a formidable instrument of pressure. The war of perceptions used the two crucial transit zones, the Strait of Hormuz and the Bab el-Mandeb, to apply pressure in the negotiations. Although reports indicate that both routes are nearly closed, some sources report that around thirteen million barrels per day (13 MMbpd) of crude passed through the Strait of Hormuz, and more than four million barrels per day (4 MMbpd) exited through the Red Sea.

On the Red Sea front, the situation grew more complicated after Yemen’s Houthi rebels attacked key terminals in Jizanand Yanbu (the terminal of Saudi Arabia’s East-West pipeline), aiming to neutralize some of the alternative routes used to bypass the Strait of Hormuz. China negotiated directly with the Houthi rebels to allow its tankers to cross the Red Sea without reprisals, fragmenting the impact of the logistical blockade.

The hidden strategy of “war and negotiation” reflects the fact that neither side is seeking an all-out war, but rather looking to improve its negotiating position. Iran, in particular, is trying to use its remaining military capacity to strangle global shipping traffic and force the lifting of the U.S. naval blockade during the periods of “truce.”

The supply crisis has pushed refining margins to record highs. U.S. refineries are operating at the limit of their capacity to offset the damage suffered by Russian and Middle Eastern refiners and to capitalize on the products supply crunch. AAA, which tracks U.S. fuel prices, shows average prices above $4 per gallon for gasoline and $5 per gallon for diesel.

Gaza and Lebanon, the Other Conflict

Meanwhile, Hamas has formally confirmed its acceptance of a roadmap presented by President Trump and his Board of Peace. The plan calls for an end to hostilities, the handover of Hamas’s heavy weaponry, and the transfer of civilian authority to an independent, technocratic Palestinian administration. In return, Hamas is demanding the complete, gradual withdrawal of the Israel Defense Forces (IDF) from the Gaza Strip. It has also made later phases of the disarmament conditional on the eventual creation of a Palestinian state.

Netanyahu’s government has not issued an official confirmation that it accepts the roadmap. Leaders from the far-right wing of his coalition have voiced outright rejection of the deal, arguing that it halts the military offensive without guaranteeing the territory's complete demilitarization. Intermittent airstrikes on Gaza continue as verification mechanisms are discussed.

Not far from Gaza, in southern Lebanon, Israel continues carrying out ground operations. Israeli troops killed multiple Hezbollah operatives in the hills of Ali al-Taher (Nabatieh). They set off massive explosions to demolish an extensive network of underground tunnels beneath the historic Beaufort Castle.

Opposition to the Framework Agreement

Although Lebanon’s civilian government under Joseph Aoun previously signed a U.S.-backed framework agreement to deploy the official army in the south and restore territorial sovereignty, Hezbollah has flatly rejected the pact. Its leader, Naim Qassem, called the deal a “humiliating capitulation” and vowed the group would not lay down its arms. Technical delegations from Israel and Lebanon are scheduled to meet on August 4 in Italy to advance the withdrawal and border-stabilization phases.

Price Dynamics

Oil and natural gas prices trended lower, with a slight recovery by the close, driven mainly by the temporary easing of geopolitical tensions in the Middle East and a reduced risk premium following the apparent reopening of key shipping routes, such as the Strait of Hormuz.

The crude market closed out July with a rebound in the final sessions, despite touching two-week lows at midweek. Brent crude closed on Friday, July 31 at $87.93/bbl, posting a final intraday gain of 1.21%. WTI crude ended the week trading at $84.67/bbl, up 1.29% on Friday.

The market found a floor after a 4% decline on July 28. It was supported by J.P. Morgan projections estimating an average of $86/bbl for Brent this third quarter, though this is tempered by weaker global commercial demand.

Natural gas moved unevenly by region, with a sharp cumulative pullback in the U.S. market contrasting with volatility in the European market. Henry Hub natural gas closed the week at $2.75/MMBtu, a decline of nearly 14.6% over the past month, due to increased U.S. dry gas production, estimated by the Energy Information Administration (EIA) at 111.2 billion cubic feet per day (bcfd), which limited inflationary pressures in North America. Even so, intense heat waves boosted demand for air-conditioning electricity, preventing a larger drop in prices.

In Europe, Dutch TTF natural gas closed between €59.07/MWh and €59.44/MWh on July 31. At the start of the week (July 27), the price fell sharply by 7.3%, settling around €58/MWh amid the “diplomatic thaw.” However, Goldman Sachs analysts warned that low European inventories (at 55% of capacity) will keep risks skewed to the upside.

In the United States, the Federal Reserve voted on Wednesday to hold its key interest rate steady, though not without overcoming opposition from three committee members who voiced concern about inflation and wanted to raise rates. Curiously, the Trump administration appears to be giving the new Fed Chair, Kevin Warsh, the benefit of the doubt and has not commented on the decision.

VENEZUELA

THE U.S. EXPERIMENT STILL ISN’T DELIVERING SUSTAINABLE RESULTS

American magazine TIME devoted its weekly cover to promoting an interview with Delcy Rodríguez (“How Delcy Rodríguez Went From Maduro Loyalist to Trump Proxy”). The interview has drawn widespread criticism, with many calling it commissioned journalism. In any case, beyond the views Rodríguez expressed in the interview, the reality on the ground tells a very different story from the one Washington and Caracas want to narrate.

Venezuela’s persistent lack of transparency, evident in a series of opaque agreements over oil sales and the allocation of production blocks, is hampering execution of the energy-sector reconstruction plan, estimated at $100 billion, which sits at the heart of Washington’s long-term strategy. Opacity in the sector is not confined to Venezuela’s domestic sphere, which has long been well known; there are also signs that certain non-transparent practices have allies among brokers in Washington and Houston.

After Nicolás Maduro’s ouster and the installation of an interim government led by his vice president, Delcy Rodríguez, Washington and Caracas sought to attract large-scale foreign direct investment to revive Venezuela’s oil industry. However, international oil companies have encountered processes, laws, regulations, high levels of discretion, and timelines that, far from facilitating private investment, have instead obstructed it.

These companies recognize the opportunities in the hemisphere’s largest hydrocarbons basin, but warn that institutional opacity, structural deterioration, and doubts over the sustainability of investments under the current regime make it difficult for them to participate. As a result, a view is taking hold that the hydrocarbons sector’s recovery phase requires urgent adjustments and greater institutional certainty.

The Three Phases

This process, summarized in the three phases of the Rubio Plan — stabilization, recovery, and transition — has failed to move forward on schedule, due in part to a lack of coherence in the interim government’s policies. On the economic front, despite handling a volume of foreign currency nearly four times that received from sales to China before January 3, the official exchange market continues to track the alternative rate. Although the gap with the official rate has narrowed, current measures do not appear sufficient to close it. Controlling liquidity and inflation remains, for now, a pipe dream.

The third phase, the transition — the one most eagerly awaited by the public — has remained essentially frozen. This may reflect the thesis attributed to the Trump administration, according to which the economy and public services needed to be restored before fully tackling the reconstruction of the democratic process, derailed nearly three decades ago. It could also be, as some argue, that the current arrangement favors a predominantly commercial relationship that, in any case, shows little progress.

Seven months into the Three-Phase Plan, participants sense that much of the difficulty stems from the interim government’s inherently temporary nature. Politicians, investors, and citizens alike understand that moving toward a stable, democratically elected government operating under full freedoms would be the key factor in the hydrocarbons sector’s recovery, economic growth's return, and the humanitarian crisis's easing. This goal is all the more urgent in a country that has endured more than two decades of deep institutional decay and that, on top of that, has been dealt a harsh blow by nature in the form of two earthquakes that exposed the interim government’s improvisation and lack of preparedness.

Against this backdrop, and under U.S. tutelage, an institutional process is beginning, led by Dinorah Figuera, president of the 2015 National Assembly, and Jorge Rodríguez, president of the sitting 2025 National Assembly. Representatives of both assemblies would meet jointly to reach agreements on the National Electoral Council (CNE), the Supreme Tribunal of Justice (TSJ), the release of political prisoners, freedom of the press and of expression, and the restoration of conditions for political coexistence that would allow parties to compete on equal footing in the country’s political processes.

The first meeting, scheduled for August 1, was limited to a phone call and two statements. This, together with the published agenda, has caused disappointment and no shortage of criticism; American backing — that is, pressure from Washington — continues to fuel hopes that results will finally materialize this time.

Oil Operations

The final days of July brought electricity-supply problems. Power outages across the country have disrupted daily life for Venezuelans and affected the hydrocarbons industry, making it imperative to find timely, practical solutions — whether through improvements to hydroelectric and thermoelectric generation and transmission, or by encouraging self-generation, especially within the hydrocarbons industry, through appropriate mechanisms.

Production totaled 953,000 barrels per day (Mbpd), distributed geographically as follows:

West: 270

East: 110

Orinoco Belt: 573

TOTAL: 953

In the petrochemical sector, both the storm mentioned last week and this week’s power outages reduced average output at the José petrochemical plants.

Refining rates fell due to the El Palito refinery going offline, with a corresponding drop in gasoline and diesel output to 77 and 75 Mbpd, respectively.

Final export figures for the month have not yet been tallied or analyzed. Exports were lower than the previous month, though crude exports to the U.S. were very similar to June’s level at 621 Mbpd; exports to India and Europe absorbed the reduction. Without the official close-out figures in hand, we estimate average exports at 970 Mbpd.

The price of the Venezuelan export basket rose, reflecting international price trends and a greater share of exports going to the U.S., reaching an average of $73.6/bbl.

[1] International Analyst

[2] Nonresident Fellow, Baker Institute

IRAN AND ITS ALLIES STEP UP PRESSURE

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

The fragile ceasefire in the Middle East finally collapsed, sending Brent crude above $100/bbl during the week. Renewed U.S. escalation in response to Iranian attacks on shipping led to 14 consecutive days of strikes against military installations, missile and drone depots, and the civilian infrastructure that underpins Iran’s military network. At the same time, Houthi rebels revealed their intent to disrupt shipping in the Red Sea. As a result, the difficulty of navigating the region’s two strategic straits, Hormuz and Bab el-Mandeb, is heightening the risk of a supply chokepoint from the region.

Adding to this scenario was the reimposition of the U.S. blockade in the Gulf of Oman against vessels linked to Iranian ports, deepening uncertainty in a market that remains highly vulnerable. The United States expects that the sustained dismantling of Iran’s and its allied groups’ military capabilities will reduce, or even eliminate, Iran’s ability to control these shipping lanes. So far, however, there is no evidence of concrete progress toward that goal. Trump also threatened “major military punishment” against Iran and the Houthis in the event of further attacks on shipping, threats that so far have proven largely ineffective.

The energy market was also affected by disruptions at Russian refineries stemming from Ukrainian attacks. These long-range drone strikes have weakened the internal fuel-supply system for Russian troops, reduced the country’s capacity to export petroleum products, and further eroded Russia’s political and financial standing in the war.

Once again, President Trump is trying to act as conductor on the geopolitical stage, but neither is the score clear, nor are all the musicians following his baton.

Geopolitical Fundamentals

The threat of a prolonged disruption to oil and LNG supply could have a significant impact on the oil market and, even more so, on the global economy. World Bank Chief Economist Indermit Gill told Reuters he now expects the global economy to grow just 1.3% this year, down from 2.9% last year. This effect works through several key channels:

●      Simultaneous blockage of critical routes: the combined disruption of the Bab el-Mandeb Strait in the Red Sea, from Houthi attacks, and the Strait of Hormuz in the Persian Gulf, due to the conflict with Iran, would compromise two of the main arteries of global crude trade. Together, these two passages carry a substantial share (23 million barrels per day) of the oil shipped from the Persian Gulf to Europe, North America, and Asia, as well as 20% of global LNG volumes.

●      Reduced ability to reroute: if the Bab el-Mandeb Strait were rendered unusable, Saudi Arabia would lose the alternative route it currently relies on as its main export outlet amid the Iranian blockade of the Strait of Hormuz, forcing vessels to sail around the Cape of Good Hope.

●      Rising logistics and insurance costs: reinstating blockades on Iran-linked vessels and the continuation of attacks would sharply raise war-risk premiums for tankers. On top of that, longer voyage times from seeking safer routes would drive an immediate increase in the final price per barrel due to higher transport costs, even without an equivalent drop in physical crude output.

●      Psychological effect and greater market volatility: oil markets react with particular sensitivity to scenarios of geopolitical uncertainty. A direct conflict combining large-scale attacks with physical disruptions to maritime transit could trigger a supply shock, both real and speculative, along with a drawdown in global inventories, pushing oil prices to exceptionally high levels and adding to inflationary pressure on the global economy.

Even so, neither strait is fully blocked today. Some tankers have managed to navigate them by switching off their transponders to reduce detectability. By contrast, the blockade imposed by the United States in the Gulf of Oman has been stricter. Under that policy, U.S. authorities detained the merchant vessel M/T Lavine after it attempted to evade the blockade on at least four occasions, U.S. Central Command spokesman Captain Tim Hawkins told the Associated Press. This is the second merchant vessel detained since the U.S. military reinstated the measure, while other tankers reportedly abandoned attempts to make the crossing.

Adjustments in the Crude Market and Nuclear Deal With Saudi Arabia

Against this backdrop of uncertainty and geopolitical risk, U.S. crude has seen significant demand since fighting began in late February, partly due to its location outside the conflict zone. That said, overseas shipments had eased somewhat after the brief reopening of the Strait of Hormuz allowed some tankers held in the Persian Gulf to resume course toward Europe and Asia.

Along the same lines, during the visit of Saudi Crown Prince Mohammed bin Salman to the White House, it was announced that Washington would approve a nuclear deal with the kingdom that could allow it to enrich its own fuel for civilian reactors. Any agreement granting Saudi Arabia access to nuclear technology could prove controversial, both domestically and across the wider Middle East, since the ability to enrich nuclear fuel could, in theory, eventually lead to the development of nuclear weapons. Shortly after the announcement, however, President Trump wrote on social media that the deal would be conditioned on the Saudis signing the Abraham Accords — something Riyadh has never been willing to do unless Israel recognizes a Palestinian state.

At the same time, production constraints in Kazakhstan, a traditional supplier to Mediterranean and northwest European refineries, together with reduced Russian exports, have led many refiners to increase their purchases of crude from the Americas. Despite this, U.S. production has held relatively steady, while the rebound in drilling-rig and fracking-crew activity seen over the past two months has lost momentum.

Diplomacy: Rubio’s Meetings With China and Russia

During the week, U.S. Secretary of State Marco Rubio held key bilateral meetings with both Chinese Foreign Minister Wang Yi and Russian Foreign Minister Sergei Lavrov, on the sidelines of the ASEAN foreign ministers’ meeting in Manila. The bilateral meeting with Wang Yi focused on managing the deep tensions between Washington and Beijing ahead of President Xi Jinping’s visit to the United States. Rubio acknowledged “major differences” on trade and geopolitical issues that will persist, but both diplomats described the conversation as constructive and pragmatic in seeking to avoid misunderstandings.

The meeting took place against the backdrop of a recent, tense maritime clash between Chinese coast guard vessels and Philippine forces. Rubio firmly reaffirmed U.S. support for Manila and noted that the United States will rigorously honor its obligations under the mutual defense treaty.

Separately, the meeting with Sergei Lavrov lasted just over half an hour and focused mainly on reopening diplomatic channels to resolve the conflict in Eastern Europe. Rubio went into the meeting intending to explore avenues for dialogue and revive the idea of Washington acting as mediator to end the war — a campaign promise made by President Trump.

In the meeting, Lavrov repeated arguments Rubio had already heard on numerous occasions, both regarding the reasons for the current situation and the unacceptability of continued U.S. arms supplies to Kyiv. Rubio stressed that both powers hold the world’s largest nuclear arsenals and that breaking off dialogue would be irresponsible and reckless.

Price Dynamics

Global oil prices swung notably but maintained an upward trend. Brent crude broke through the psychological $100/bbl barrier midweek following a Houthi attack on Saudi tankers in the Red Sea.

Although prices eased slightly toward the end of the week, closing on Friday, July 24 at $96.78/bbl, for a weekly gain of nearly 9%. WTI, meanwhile, climbed above $92, closing Friday’s session at $89.31/bbl, a weekly gain of around 8%.

The new week opened with prices lower (Brent: $90.91/bbl) following news that fighting in the Persian Gulf had paused and that new diplomatic contacts were under way — this despite the Houthis launching attacks against Saudi Arabia.

VENEZUELA

A Never-Ending Story

One might have expected that, nearly seven months after Nicolás Maduro’s surprise departure and the start of what has been called Washington’s stewardship, there would be significant progress to report beyond the initial signals given. The reality is that reconstruction, the economy, and politics are stumbling along, straying from the original path of the three-phase plan — stabilization, recovery, and transition — which has not achieved the expected results.

Ineffective handling of the humanitarian crisis, disarray in exchange-rate policy that continues to feed stubborn inflation, new amendments to laws and regulations supposedly aimed at encouraging private investment but with doubts about their real scope and results, and the twists and turns of the transition to a stable, democratic government are turning into a story that goes in circles without moving forward.

The interim government appears to be trying to implement the changes overseen or imposed by the White House. Still, whether from haste, incompetence, or sheer local cunning, the end product falls short of its goals, even when presented in grandiose, propagandistic fashion.

Similarly, the Trump administration makes announcements that are clearly aimed at domestic political goals but do not faithfully reflect the country’s complex situation, hindering an accurate diagnosis and better decision-making.

Economic Situation

After the interim government was installed and changes to oil, mining, and electricity policy were rapidly implemented, annual growth of up to 10% was projected for 2026. But delays, discretionary decision-making enshrined in law, and the lack of institutional strength have steadily pushed that expectation further away. Now, given the severity of the earthquake damage, the expected growth appears to have evaporated entirely. It is telling that, despite the social needs of the country’s most populous areas, public spending has actually been cut — a complete contradiction.

Much has been said about the material damage caused by the double earthquake and about reconstruction over time. But not enough weight has been given to the humanitarian crisis stemming from the loss of family members and the abrupt change in the social fabric: little by little, thousands of people are coming to realize that everything has changed for them forever — conditions that do not show up in official statistics.

The combination of an unavoidable natural disaster and the government’s lack of preparedness to respond appropriately, compounded by a lack of empathy from a government focused on covering up its own shortcomings and projecting an image of diligence it does not have through political propaganda — going so far as to create bureaucratic obstacles that delay timely responses and international aid — is beginning to carry a high political cost.

At the same time, revelations that many of the homes that collapsed were government-built housing projects — awarded, on top of grotesque cost overruns, to inexperienced companies hand-picked without competition, which never accounted for soil conditions or mandatory compliance standards — have sparked enormous public anger, a sense of helplessness, and psychological harm among the thousands of victims that will take a long time to come to terms with.

Institutional Crisis Management

The political landscape remains heavily focused on responding to the infrastructure and housing emergency following the earthquakes. The need for funding has forced the interim government to work closely with multilateral organizations and private banks.

U.S. Secretary of State Marco Rubio said Washington is working to facilitate Venezuela’s access to international financing and credit for reconstruction. At the same time, the International Monetary Fund (IMF) announced the release of $346 million in Special Drawing Rights (SDRs) to the country’s reserves to address immediate priorities. The political opposition has voiced concern over the lack of transparency in how an untrustworthy public administration might manage those funds.

Also, starting in August, meetings will begin between representatives of the 2015 National Assembly, chaired by Dinorah Figuera, and the current one, chaired by Jorge Rodríguez. The initiative was initially seen as far-fetched, but in the face of opposition objections, Marco Rubio now acknowledges that other political parties, especially María Corina Machado’s, will need to be part of the process. Preliminary contacts are taking place in Spain, and according to Marco Rubio and Dinorah Figuera, the initial goal is to achieve an impartial National Electoral Council whose decisions cannot be undermined by a biased judiciary, with new magistrates to be appointed as part of the process to form a balanced Supreme Tribunal of Justice. Seeing will be believing.

On July 26, María Corina Machado and Edmundo González stated these negotiations:

“We will not stand in the way of any initiative that produces real progress. We will judge it based on concrete, verifiable achievements: the restoration of democratic institutions, the release of all political prisoners, real guarantees for all actors without exclusions, a timely presidential electoral calendar, and full respect for popular sovereignty.”

Private Investment, Accelerating Deals

President — now without the “acting” qualifier — Delcy Rodríguez announced that the executive branch is formally negotiating around 30 specific investment agreements with the international private sector, building on the guidelines and memoranda signed earlier this year with major corporations such as Chevron, Repsol, ENI, Shell, Maurel & Prom, IMSA, and General Electric. Meanwhile, nearly 20 Production Participation Contracts (CPPs) are being suspended, at least temporarily, for failing to meet the new legal requirements, according to unofficial sources.

According to the government and media reports, following the recent enactment of the regulations to the Organic Hydrocarbons Law — which reduces the royalty and Integral Tax burden on operators to a range of 20% to 35% and introduces certain income-tax-related provisions — private companies are showing increasing interest.

Amid this supposed energy opening, companies such as Lionheart Capital, Hunt Oil, Nabep, Pacific Coast Energy, Brazil’s Batista brothers, and others are negotiating frantically to meet the July 28 deadline.

The case of Pacific Coast Energy stands out. It could affect participants’ perception of legal security in the opening, since the associated asset, the joint venture PetroDelta, was awarded after the revocation of the stake previously held by partner “B,” DP Delta Finance BV. That company, or its predecessor entities, has operated under various contractual arrangements over these assets since 1992 and considers itself to have been expropriated without real cause. Something similar is occurring at the PetroCabimas joint venture, though the details are not yet public.

In any case, the articles appearing in the press and media forecast outsized production growth, in line with the announcements PDVSA has been making for years that have never materialized. As such, despite all the announcements, we are maintaining our national production forecasts of 1.06 MMbpd by year-end 2026 and 1.46 MMbpd by year-end 2028.

Additionally, global refiners are resuming direct crude purchases to bypass intermediaries.

Operations Oil

As July 2026 draws to a close, oil production held relatively steady, despite increased activity aimed at reducing deferred production. Output totaled 962 Mbpd, distributed geographically as follows:

West: 276

East: 110

Orinoco Belt: 576

TOTAL: 962

Two workover rigs were activated at PetroZamora, and another continued recovering wells in Urdaneta Oeste. In the Orinoco Belt, two additional workover units are also operating. The PetroPiar upgrader in José appears to have shut down due to a power outage that may have affected the blending plants, though this could not be independently verified.

Domestic refineries processed 282 Mbpd of crude and intermediate products, yielding 90 Mbpd of gasoline and 84 Mbpd of diesel. The volume increase reflects the El Palito refinery.

In the petrochemical sector, a storm caused a power outage that knocked out the methanol and fertilizer plants. No changes were reported at the El Tablazo and Morón complexes.

Preliminary export data for July 2026 point to 950 Mbpd.

The rise in international prices, driven by the resumption of the war in the Strait of Hormuz and Bab el-Mandeb, was reflected in the Venezuelan basket, which averaged $70.9/bbl.

[1] International Analyst

[2] Nonresident Fellow, Baker Institute

TWO WARS, ONE ENERGY CRISIS

 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 is beginning to evolve into a tit-for-tat struggle, in which the initial goal of the strikes on Iran — neutralizing the threats posed by the theocratic regime to the region — has been replaced by the task of addressing the conflict’s most significant unintended consequence: the threat to the stability of the global energy system. The Trump administration, responding to Iranian attacks on vessels transiting the Strait of Hormuz in Omani waters, ended the truce signed in June. Since then, it has carried out strikes against military targets and strategic infrastructure. Tehran has responded in a limited fashion, though it has fired missiles at strategic targets in Bahrain, Qatar, Kuwait, Jordan, and even Syria, heightening fears of a larger, longer conflict.

The oil market’s reaction to the resumption of hostilities was immediate, with prices climbing as traders weighed the risks to supply. Although the strait is not fully closed, traffic through it has fallen sharply. Iran has also threatened to extend the maritime war to the Bab el-Mandeb Strait, a key route for shipping between the Red Sea and the Suez Canal.

To offset the constraints created by the situation in the Strait of Hormuz, countries with alternative routes have begun maximizing the use of their pipelines. In particular, the United Arab Emirates is ramping up production and exports through the port of Fujairah on the Gulf of Oman. Also notable has been the relatively low level of China’s oil imports, which barely topped 7 million barrels per day in June and early July.

At the same time, Ukraine’s steady harassment of refining facilities, terminals, storage yards and, more recently, tankers carrying Russian crude and products has reshaped the fuels market. Refining margins are hitting record highs, pushing up prices for gasoline, diesel, and jet fuel as Russia is squeezed out of the international market. Compounding this is the grave situation on the Crimean peninsula, where the Ukrainian siege has weakened Russian control.

Geopolitical Fundamentals

Middle East

Shifts in Iranian rhetoric, together with recent military threats and provocations, finally exhausted the Trump administration’s patience. In response, Washington decided to take a more direct role at the heart of the dispute: the Strait of Hormuz, an objective it had failed to control during the first phase of the war. Recall that the war’s original aim was to neutralize Iran’s nuclear program, and that control of the Strait of Hormuz emerged as a powerful economic-warfare tool that now dominates the conflict.

Over the past week, the U.S. stepped up strikes against military targets tied to Iran’s ability to threaten shipping and control maritime transit through the Strait of Hormuz. On Friday, U.S. operations also targeted critical infrastructure — including bridges, rail lines, and communications systems — aimed at disrupting supply routes to the facilities responsible for controlling the strait, located in the country’s southeast and on islands within the waterway itself.

Iran responded with missile strikes against U.S. allies in the Middle East, including Qatar, a key mediator in the conflict. It also damaged a power plant and a desalination facility in Kuwait, installations essential to the energy and water security of that small desert nation. Both Iran and the United States have accused each other of striking critical civilian infrastructure, which is generally considered a war crime under international law unless a military objective justifies attacking such infrastructure.

The resumption of strikes drove a roughly 10% jump in crude prices, threatening to reignite global inflation risks. This has led money markets to adjust their expectations regarding a possible interest-rate hike by the U.S. Federal Reserve and has tempered investor optimism in equity markets, forcing central banks to reconsider their strategies.

The attacks and ship seizures reflect a serious military escalation along Middle Eastern shipping lanes, compounded by a resurgence of piracy and maritime terrorism near Yemen. More than 1,000 merchant vessels and thousands of sailors remain stranded in the waters of the Persian Gulf, unable to leave the region safely. Faced with this paralysis, some shipping companies have opted to force transit using the maneuver known as “going dark” — switching off their location transponders to cross the strait near the Omani coast and reduce the risk of detection.

Separately, the chemical tanker Asana, flying the flag of Tanzania, was seized. The vessel was illegally boarded by armed men while sailing through the Gulf of Aden, about 65 nautical miles south of the Yemeni port of Al Mukalla. Preliminary intelligence suggests the possible involvement of a Somali pirate group, which reportedly redirected the vessel toward the Somali coast. Alongside this resurgence of piracy, Yemen’s Houthi movement continues to enforce a strict blockade of the Red Sea and the Bab el-Mandeb Strait. Using armed speedboats, suicide drones, and missiles, it continues to attack international shipping in retaliation for Western and Israeli operations. It has even threatened to shut down the Red Sea oil route entirely if the offensive against its Iranian allies continues.

Russia-Ukraine

The war between Russia and Ukraine is shifting away from a focus solely on trench warfare and drone strikes aimed at seizing territory in eastern Ukraine. Increasingly, the conflict is moving into Russian territory and Moscow-controlled regions, where Ukraine is seeking to weaken — or even dismantle — the economic machinery funding Russia’s war effort. More than 20% of Russia’s refining capacity has been affected, while inventories and terminals have lost part of their operating capacity. As a result, Russia has been forced to import fuel from India. Lower revenue, higher costs.

These attacks are also affecting the roads, railways, and river routes linking Crimea to Russia. Fully isolating the peninsula would give Ukraine a stronger position in any future negotiation. Since its 2014 annexation, the peninsula has served as a strategic beachhead for Russia. Today, however, it looks more vulnerable: Ukraine has stepped up its drone campaign against critical infrastructure, including electrical substations, bridges, fuel depots, and airfields.

Russia’s Black Sea Fleet, normally based in Sevastopol, has been forced to relocate to more distant ports. On July 13, Russia suspended maritime transit in the Sea of Azov, a strategic route that carries nearly a quarter of its grain exports.

In sum, both the Middle East and the Ukraine-Russia conflict now involve multiple actors, lack clear objectives beyond the short term, and offer no obvious tools to mitigate the severe consequences their continuation could have for the global energy system, given that global hydrocarbon inventories remain at low levels.

Price Dynamics

Developments in the Middle East point to oil prices continuing their upward trend in the coming days. With transit through the Strait of Hormuz reduced, it might even seem surprising that ICE Brent is trading at only around $86/bbl, especially given that both Washington and Tehran appear to have abandoned diplomacy. Prices are being capped by higher-than-expected outflows from the Persian Gulf in the event of a total shutdown of maritime traffic, by the maximized use of alternative export routes, and by reduced Chinese consumption.

Prices posted substantial weekly gains of more than 10%. At the close of the week, benchmark Brent and WTI crudes were trading at $88.10/bbl and $82.44/bbl, respectively. As this report went to press, Brent had topped $90/bbl, with no apparent ceiling in sight.

VENEZUELA

Washington Begins to Change Course

Venezuela’s reality remains deeply marked by persistent economic instability, the regime’s political illegitimacy, and the predictable lack of results from the U.S. oversight-and-support scheme, which is attempting to redefine itself amid growing public discontent, underscored by the severe aftermath of the double earthquake of June 24.

Marco Rubio appears to play a central role in steering this process; not for nothing has the New York Times described him as the “viceroy of Venezuela.” Yet six months of efforts to stabilize the economy and revive the oil industry have shown that plans and good intentions are not enough when institutions are weak or poorly designed.

Uncertainty, a lack of transparency, and doubts about the suitability of the regime’s processes and actors continue to fail to convince either the private capital needed to help rebuild the hydrocarbons industry or the creditors involved in restructuring the country’s heavy sovereign debt. Even on economic stabilization — which seemed like an easier task after foreign-currency inflows tripled since January — the midyear scorecard shows the regime failed this test, mainly due to a lack of coherence in its monetary policy.

Judging by comments from Marco Rubio and Michael Kozak, the view within the State Department now appears to be that only a stable government with credible institutions can attract the investment needed to raise hydrocarbon production substantially — its main strategic goal. That increase, in turn, is seen as the essential foundation for launching a debt restructuring acceptable to creditors and for allowing the country to return to a path of sustainable growth. This marks a significant shift from the policy pursued until now.

It is against this backdrop that the renewed push for talks between what remains of the 2015-2020 National Assembly and the widely questioned National Assembly currently occupying the Federal Legislative Palace should be understood. On July 14, the launch of joint working groups and a peaceful electoral transition was announced. However, the process, promoted by Washington, has caused friction within the opposition. Parties from the Plataforma Unitaria coalition and from María Corina Machado’s camp have criticized the lack of consultation and representation in decisions made under White House guidance. Dinorah Figuera, who serves as president of the 2015 National Assembly, stressed that this is a strictly institutional, non-partisan process; even so, those named so far come from Primero Justicia, Figuera’s own party, and from Voluntad Popular.

Humanitarian Aftershocks

Amid the current situation, the country’s structural humanitarian crisis has worsened significantly following the June 24 earthquakes. With the phase of rescuing survivors from collapsed structures now over, official reports put the death toll at more than 5,000, with nearly 17,000 injured. Independent platforms such as Venezuela Reporta estimate that 41,298 people remain missing, while civilian search lists continue to be refined at shelters and hospitals.

Tens of thousands of families have been left homeless, and more than 21,000 people remain housed in the 107 temporary camps set up so far. The caretaker government announced the start of studies for the reconstruction of some 25,000 homes. On July 15, the European Union announced a contribution of 20 million euros for vital humanitarian assistance, adding to the logistical deployment already under way by the U.S. State Department, the Red Cross, and United Nations agencies.

At the same time, human-rights organizations and the UN have called on the Caracas government to remove bureaucratic obstacles and refrain from repressive action against civilian aid-collection centers. The U.S. support effort also includes deploying thousands of American personnel and allocating roughly $3 billion for the reconstruction of national infrastructure.

Economic Fragility

The macroeconomic outlook, which initially pointed to moderate growth in 2026, has given way to an imminent risk of stagflation. The bolívar has depreciated sharply so far this month. Venezuela’s Central Bank (BCV) set the official exchange rate at week’s close at 732.47 bolívars per dollar, implying a depreciation of more than 15.6% in just two weeks, compared with 633.36 bolívars per dollar on July 1. This dynamic is further eroding the purchasing power of local wages, at a time when year-on-year inflation closed June at 544.13%.

As the crude oil inventories built up at the end of last year are drawn down, exports will tend to fall relative to the levels seen in May and June. As a result, revenue from crude sales could also decline, although this would be partly offset by the price rally linked to the war in the Middle East. This scenario could deepen currency imbalances and add further pressure on liquidity.

Oil Operations

Oil production held relatively steady compared with the previous week, at 950,000 barrels per day (950 Mbpd), distributed geographically as follows:

West: 270

East: 110

Orinoco Belt: 570

TOTAL: 950

The modest increase is due to gains in several smaller CPP contracts. Joint ventures operating under OFAC licenses and the new contracts established under the recently amended Organic Hydrocarbons Law — under which the private minority partner is now contracted as “Operator” — recorded no increase in production.

Domestic refineries processed 276 Mbpd of crude and intermediate products, yielding 87 Mbpd of gasoline and 83 Mbpd of diesel. The increase reflects the El Palito refinery and the startup of its fluid catalytic cracking (FCC) unit.

In the petrochemical sector, no changes were reported at the El Tablazo and Morón complexes. Meanwhile, the José Complex continues operating the same plants, though at a reduced level of around 85%, due to a lack of natural gas.

Hydrocarbon exports are expected to be lower than in June, at around 900 Mbpd, due to the drawdown of inventories accumulated in January.

The rise in international prices was reflected in the Venezuelan basket, which averaged $67.8/bbl.

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[1] International Analyst

[2] Nonresident Fellow, Baker Institute