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
