THE MARKETS DEFY REALITY

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

The global geopolitical situation continues to be defined by instability in the Middle East, a stalled yet active conflict in Ukraine, and a realignment of relations among the major powers — largely driven by the Trump administration — giving rise to a fragmented international order.

 

Energy markets remain disoriented in a landscape that offers few alternatives. The problem can be summarized as a persistent supply shortfall of 8 million barrels per day (8 MMbpd) of oil and 30 billion cubic feet per day (30,000 MMcfd) of natural gas, which — given robust demand — is draining global inventories to critical levels in some regions.

 

To many analysts' surprise, oil and natural gas prices, though volatile, do not appear to reflect the severity of the situation. A possible explanation emerges when considering the following factors:

 

•       Peace Negotiations. Despite fruitless back-and-forth between Iran and the United States, there is optimism that the deadlock in the Middle East will soon be broken. This diplomatic path is being pursued by President Trump, who seeks to defuse the conflict; however, fresh attacks against Kuwait and Oman are creating a roller-coaster of expectations.

 

•       China. Given OPEC+'s current impotence, the Asian giant has decided to act as a market stabilizer by cutting its imports by nearly 5 million barrels per day and meeting part of its domestic demand from its strategic reserves, which it had built up ahead of the Persian Gulf conflict by purchasing Russian and Iranian crude at discounted prices. Private refineries, commonly known as “teapots,” are also operating at reduced levels while the crisis persists.

 

•       Hormuz. Transit through the Strait of Hormuz and the U.S. blockade downstream have become somewhat more permeable; approximately 3 MMbpd have been exiting the Persian Gulf, even though it is technically considered blocked.

 

•       Finally — though of lesser weight — crude inventoried in Venezuela in December 2025 and January 2026 has been entering the market at a rate of 300 thousand barrels per day (300 Mbpd), boosting the country’s ordinary exports, as evidenced primarily by a surge in supply to India. Nevertheless, this represents a volume of roughly 30 MMBBL, with its market placement nearly spent.

 

Supply balances reveal the effectiveness of the U.S. blockade in the Gulf of Oman. Iran’s oil exports collapsed to six-year lows in May, averaging just 250 Mbpd, wiping out the advantage Iran had gained following the closure of the Strait of Hormuz.

 

The supply decline from the other major producer, Russia, has exacerbated the crisis: falling exports and limited refining capacity, both reportedly due to Ukrainian drone strikes on Russian oil infrastructure. Russian Deputy Prime Minister Alexander Novak acknowledged that the intensification of Ukrainian attacks is affecting Russia’s ability to sell and process crude — an unusually public admission.

 

In any case, as long as the crisis persists, China’s tactical management of its inventories will largely offset the entire supply shortfall. Once that balance is achieved, global inventories will remain relatively stable at 8,000 MMBBL, thereby stabilizing oil prices.

 

In summary, the energy crisis is acting as a supply shock, driving up inflation and dampening economic growth. However, the expected global impact will be lasting but moderate compared with past crises, thanks to the system's resilience and diversification. That said, a prolongation of the conflict will erode the positive price effect currently provided by inventory management.

 

Geopolitical Fundamentals

The Middle East and the Strait of Hormuz

The military stalemate in the U.S.-Iran conflict, combined with the chokehold on hydrocarbon supplies, has led both parties to explore diplomatic off-ramps. According to U.S. government sources, progress was being made toward a possible temporary peace agreement, though Iranian spokespeople have denied it. However, this week’s attacks against Kuwait and the Friday morning bombing in Oman dampened expectations of a U.S.-Iran de-escalation, following the already fragile ceasefire between Israel and Lebanon.

 

Although Oman’s main port has reportedly resumed operations, the combination of negotiations and military incidents — possibly contradictory due to the absence of a clear central command in Iran — has left the market in a state of paralysis that will only lift when tangible results emerge.

 

Complicating matters further, Iran launched a missile attack against Israel last Sunday, which Israel then countered with strikes on Iran. Israel accepted the United States’ request to halt its attacks on Iran, but will continue operations against southern Lebanon, according to sources. Iran has suspended its operations against Israel but has warned that it will resume them if attacks on southern Lebanon continue. The Houthis, an Iran-backed militant group that controls much of Yemen, declared a ban on Israeli ships in the Red Sea, threatening a critical shipping route toward the Strait of Hormuz.

 

China’s Strategy and Inventory Flows

To shield itself from the elevated prices prevailing in today’s market, China is drawing on its strategic crude oil inventory and curtailing runs at private refineries to limit the losses these generate. Together, these measures account for a 19% decline in crude imports in May.

 

According to data intelligence firm Kpler, China’s seaborne crude imports in May could fall to their lowest level in a decade, reaching 6.5 million barrels per day, down from 8.1 million in April and 9.3 million barrels per day before the conflict.

 

Iran, meanwhile, has also fallen victim to its own blockade strategy; its exports in May and June represent only 10% of pre-closure volumes. In general, transit through the strait has become less restricted, currently running at between 15% and 17% of normal traffic.

 

Global Inventories and Incremental Production

Global inventories are the primary gauge of the global oil balance. Unfortunately, their determination relies on estimates and numerical approximations by analysts and researchers, based on published production and demand figures. At the onset of the supply shock, inventories began to fall sharply: in the first two months, they declined by 750 million barrels, an 8% reduction.

 

As the world adapted to the new reality, however, the pace of inventory decline slowed, thanks to a combination of strategic reserve drawdowns, demand reduction, improved crude evacuation from the Persian Gulf, and incremental production from other regions. The estimated inventory draw in the first days of June is just 2.5 million barrels per day.

 

OPEC+ has had little relevance throughout; its proposals for symbolic quota increases have had no market impact, as demonstrated by the communiqué from its latest meeting, held this past Sunday.

 

U.S. operators, though showing signs of increased activity in recent weeks — both in active drilling rigs and hydraulic fracturing crews — have not shown a production uptick, according to the EIA. As a result, the only countries that have contributed incremental production are Brazil and Canada. The Trans Mountain Pipeline is operating at full capacity, allowing incremental cargoes to be shipped to the Far East.

 

Price Dynamics

Short Term: Summer 2026

Taking into account the events and developments described above, our short-term oil outlook covers a period during which elevated prices prevail, ranging from $95/bbl to $100/bbl, depending on the duration of the supply disruption. Meanwhile, the depletion of regional inventories will generate logistical and economic problems in Asia and Europe. This forecast is premised on a gradual reopening of the strait beginning in early July.

 

Medium Term: 18 Months

For the medium term, we anticipate a relatively swift recovery in production from Persian Gulf countries, accompanied by incremental output from Brazil, Guyana, Canada, and the United States. However, supply will only rebalance with demand toward the end of 2027, with global inventories recovering only modestly. Consequently, prices will decline only to $80–$90/bbl in 2027.

 

Oil Price Dynamics

During the week, Brent crude prices fluctuated between $92 and $99/bbl, reacting to developments related to the Strait of Hormuz and the effects of Ukrainian drones, which struck Russian refineries and terminals. At the close of the week — Friday, June 5, 2026 — the benchmark Brent and WTI crudes were trading at $93.09/bbl and $90.54/bbl, respectively, a moderate increase of just over 2% compared to the prior week’s close.

 

VENEZUELA

 

Political and Economic Context

The first week of June continued in a whirlwind: it was marked by announcements, visits from potential investors, plans, promotional activity, and new legislation — yet, curiously, by widespread dissatisfaction among the many actors involved. Delcy Rodríguez’s first international trip and key legal reforms aimed at opening the economy to international private capital also made headlines.

 

On the political front, there was movement, though little progress. The regime appears to be acting to comply with specific directives from Washington, but most of the time the results amount to little more than symbolic gestures. For example, on the five-month anniversary of Nicolás Maduro’s absence from power, a mass prisoner release was announced at El Helicoide — a dark detention and torture center where political prisoners were being held. However, according to the NGO Foro Penal, the prisoners were instead transferred en masse to other detention facilities around the country, creating additional hardship for families and legal advocates. An unplanned consequence of this debacle was the embarrassment of Secretary of State Marco Rubio, who had told Congress that the closure had already taken place.

 

Legal Framework and Reforms

As problems arise — and possibly at the behest of the U.S. government — the National Assembly (NA) is approving organic laws with little debate, as occurred with the Hydrocarbons Law and the Mining Law. This time, the electricity sector was addressed, given that its constraints represent the Achilles’ heel of any attempt at economic recovery, particularly in the oil sector.

 

As in previous cases, following more than 15 years of state monopoly, the NA unanimously approved the reform of the Organic Law on the Electrical System and Service on first reading. The bill provides for concessions of up to 25 years, allowing both domestic and international private-sector players to invest in the generation, distribution, and commercialization of energy. The new reform appears to follow the same formula as the earlier laws: the mandate is nominally fulfilled, but the underlying subject has failed. All of these laws, while representing a step in the right direction, lack the elements necessary to attract investors and, in some respects, reaffirm the regime's statist bent: discretionary decisions and a lack of transparency are the most glaring shortcomings. Even Chevron — typically the backbone of Venezuelan production growth and a supporter of the Chavista regime — announced through its CEO that no additional investments will be made unless conditions change.

 

Secretary of State Marco Rubio maintained before Congress that things were evolving favorably and that only five months had passed, calling for patience. Nevertheless, despite the undeniable fact that oil revenues received by the Venezuelan Central Bank (BCV) had more than tripled, economic stabilization has not been achieved, due to the disjointed management of the foreign exchange market, which continues to maintain a wide gap between the official rate, the intervention rate, and the parallel market, fueling inflation and prices beyond the reach of ordinary citizens. Indeed, the official exchange rate closed at 567 Bs./$ and the spread hovered around 30%.

 

Another example of this disconnect between what is required and what is being implemented is the draft regulations for the Organic Hydrocarbons Law, which are circulating and clearly require a thorough overhaul. Similarly, a draft model oil contract circulating on social media is being reviewed by the interim government and PDVSA to make the terms more attractive to private companies, following investor complaints about excessive state control and incompatibility with OFAC licenses. Specifically, the clause granting the executive the legal authority to unilaterally cancel contracts with oil companies on grounds of “harm to the public interest” has already been modified — a provision that enabled expropriations over the past 20 years and is remembered with deep unease by investors.

 

Transparency and Financing

It is important to note the conspicuous lack of transparency in the management of oil revenues in both Washington and Caracas. Except for a few details shared with Congress and in Executive Order 14373, the Trump administration has provided almost no information about the system it has established to sell Venezuelan oil, collect revenues, and allocate the funds. The administration has also not published the written agreements it has entered into with the Venezuelan government, traders, buyers, banks, and other entities involved in the process.

 

The regime formally launched the process of presenting its new macroeconomic framework and external sovereign debt restructuring plan to the international financial community, with Centerview advising on financial matters and Hogan Lovells on legal matters. The IMF appointed Álvaro Piris as head of the mission for Venezuela. Despite all these steps, no credible recovery plan for the oil industry and the broader economy has emerged that would inspire confidence in the IMF, the World Bank, or the IDB. The absence of an economic model capable of generating future funds to service the debt suggests the process is premature. Moreover, the prospect of carrying out a restructuring without IMF participation seems somewhat far-fetched and even irresponsible.

 

Politics and Transition

In general, these inconsistencies between the call to invest in the country and the conditions being offered — along with the slow pace of releasing political prisoners, appointing an independent National Electoral Council (CNE), and restructuring the judiciary — are fueling the perception among a large segment of the population that compliance with the conditions of U.S. support is leading to a consolidation of the interim authorities, rather than to an early political transition based on elections. This climate of uncertainty may explain the somewhat surprising visit by General Dan Cain, Chairman of the U.S. Joint Chiefs of Staff.

 

The opposition, backed by statements from exile figures such as Edmundo González Urrutia, continues to insist on the need for transparent presidential elections, while María Corina Machado keeps pressing for a definitive political solution and her own return to Venezuela.

 

Separately, it was announced that a major hydrocarbons sector event, “Venezuela Energy Week,” is being organized to showcase the country’s investment conditions and the requirements for reactivating its industry. One hopes the event takes place with a clearer sense of when the political changes necessary to give any of these announcements real meaning will actually begin.

 

Oil Operations

During the week, power outages and the lingering effects of the accident that occurred a few weeks ago at the Planta Lama facility on Lake Maracaibo curtailed potential production growth.

 

This week’s production stood at 915 Mbpd, distributed geographically as follows:

 

West:                                      249 Mbpd

East:                                       110 Mbpd

Orinoco Belt:                          556 Mbpd

TOTAL:                                  915 Mbpd

 

Mixed enterprises operating under OFAC licenses and the new contracts established under the recently reformed Hydrocarbons Law (LOH) are producing the following volumes:

 

Chevron:                              256 Mbpd

Repsol:                                  50 Mbpd

M & P:                                    29 Mbpd

 

Other mixed enterprises in the Orinoco Belt closed the month of May with the following average production figures:

 

Sinovensa:                          102 Mbpd

PetroRoraima:                      32 Mbpd

PetroMonagas:                     92 Mbpd

PetroCedeño:                       90 Mbpd

 

National refineries processed 260 Mbpd of crude oil and intermediate products, yielding 77 Mbpd of gasoline and 79 Mbpd of diesel.

 

The José Petrochemical Complex is operating normally, though with limited natural gas availability. Daily production stands at 6,100 metric tons of methanol, 2,400 metric tons of ammonia, and 3,100 metric tons of urea. At the El Tablazo complex, the Chlor-Alkali plant was brought back online following a major maintenance overhaul. The Morón complex remains inactive due to a lack of natural gas.

 

May Exports

The official closing figures for May exports are as follows: 770 Mbpd were exported from current production, with a drawdown of in-country inventories. An additional 270 Mbpd were exported from offshore and floating inventories, for a total of 1,040 Mbpd exported; 50 Mbpd were shipped from Puerto Miranda to the island of Saint Lucia for inventory purposes.

 

Of the total exported, 760 Mbpd corresponds to Merey 16 crude, 138 Mbpd to Boscan crude, and 113 Mbpd to Hamaca crude. The crude oil loaded at Puerto Miranda corresponds to Blends 14 and 17, sourced from PetroZamora.

 

520 Mbpd were exported to the United States, 410 Mbpd to India, and 110 Mbpd to Europe (Spain, Italy, and the Netherlands).

 

The Venezuelan basket price averaged $87.3/bbl.

 

[1]: International Analyst

[2]: Nonresident Fellow, Baker Institute

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

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

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

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

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

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

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

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

Geopolitical Foundations

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

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

The diplomatic options currently considered relevant and achievable are:

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

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

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

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

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

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

Global Inventories and Price Outlook

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

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

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

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

The Russia–Ukraine Conflict: A Spiral of Violence

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

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

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

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

U.S. Production and Drilling

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

Price Dynamics

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

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

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

 

Venezuela

Much Ado About Nothing

The Three-Stage Plan: Highlights and Shadows

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

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

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

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

Public Disapproval and Dollarization

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

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

Political Prisoners, Repression, and Amnesty

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

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

External Debt Restructuring

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

Banking Crisis and International Audit

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

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

María Corina Machado and the Electoral Roadmap

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

Oil Operations

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

Weekly Production

This week's output stood at 912 MBpd:

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

 

Companies under OFAC Licenses and New Contracts (LOH)

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

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

 

Refineries and Petrochemicals

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

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

Exports and Basket Price

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

The Venezuelan crude basket averaged $86.5 per BBL.

 

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

 

The Curious Imperturbability of the Oil Market

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

 

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

Among the factors at play during the week:

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

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

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

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

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

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

Geopolitical Fundamentals

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

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

•       Release of strategic reserves.

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

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

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

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

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

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

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

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

Russia–Ukraine Conflict: Attacks on Energy Infrastructure

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

•       Ryazan Refinery.

•       Kstovo Refinery (Lukoil).

•       Nizhegorodnefteorgsintez plant, in the Nizhny Novgorod region.

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

•       Novorossiysk marine terminal.

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

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

OPEC+: Symbolic Measures and Demand Destruction

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

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

U.S.: Production, Drilling, and Inventories

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

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

Cuba: An Emerging Geopolitical Factor

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

Price Dynamics

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

At the close of the week:

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

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

Venezuela

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

The Paradoxical Metamorphosis of the Regime

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

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

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

ExxonMobil, ConocoPhillips, and the Oil Sector Opening

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

Release of Political Prisoners

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

The Alex Saab Case

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

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

María Corina Machado and the Democratic Transition

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

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

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

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

Economic Situation

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

Houston Forum and Oil Sector Opening

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

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

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

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

Oil Operations

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

Weekly Production

This week’s production stood at 906 Mbpd:

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

 

Companies under OFAC Licenses and New Contracts (LOH)

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

 

Refineries and Petrochemicals

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

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

Exports and Basket Price

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

The Venezuelan crude basket averaged $87.2 per BBL.

 

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