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the initial goal of the strikes on Iran — neutralizing the threats posed by the theocratic regime to the region — has been replaced by the task of addressing the conflict’s most significant unintended consequence: the threat to the stability of the global energy system.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

FAR FROM CALM WATERS

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

July so far has seen a string of high-impact political and economic events. On Monday the 6th, the Dow Jones Industrial index topped 53,000 points; on Friday the 10th, SK Hynix, the world's largest maker of memory chips for AI, debuted on the Nasdaq in the largest foreign IPO in U.S. history, raising $26.5 billion.

On Wednesday the 8th, the ceasefire in the Middle East collapsed, and from Ankara, President Trump declared it “over” and ordered strikes on 90 targets in Iran. Iran retaliated against U.S. installations in Kuwait and Bahrain, and on Thursday, the 9th, Brent crude prices rose 5.4%. Afterward, according to Trump, Iran’s regime called to negotiate a deal; oil prices retreated, and financial markets recovered lost ground.

The temporary breakdown of the U.S.-Iran ceasefire and the resumption of diplomatic contacts—though without a formal commitment to end hostilities—revived uncertainty in the oil and natural gas markets. After several weeks of price declines that had brought crude back to pre-conflict levels, geopolitical tension once again added a risk premium to energy markets.

In Russia’s war against Ukraine, things are not going well for Moscow, at least on the energy front. Its crude output is declining, and its refining and export system has been severely damaged by Ukrainian strikes, causing fuel shortages in the domestic Russian market.

Against this backdrop of uncertainty in the oil market, the International Energy Agency (IEA) released its monthly report on July 10, reiterating its pessimism about the recovery of global oil demand.

The NATO summit in Ankara, Turkey, was marked by a deep divide between the Alliance’s institutional agenda and President Trump’s unpredictable behavior, which analysts dubbed “a dual summit” or a summit “running on parallel tracks.” Even so, the alliance’s 32 members managed to sign a brief, concise final declaration, unanimously reaffirming their ironclad commitment to collective defense under Article 5 of the treaty (“one for all and all for one”).

In sum, it was a turbulent week of extreme volatility—so intense that it even pushed to the background news of the burial of Ayatollah Khamenei in Mashhad, without the presence of his son, the new Supreme Leader.

Geopolitical Fundamentals

International attention returned to the conflict in the Persian Gulf, undermining the optimism generated by June’s Memorandum of Understanding. On July 7, 8, and 12, following Iranian attacks on commercial vessels in the Strait of Hormuz, the U.S. struck targets in Iran. To underscore how seriously it took this breach of the truce, the U.S. Treasury Department revoked the temporary licenses it had granted for the sale of Iranian crude and set July 17 as the deadline for winding down transactions, once again throwing transit through the Strait of Hormuz into doubt. As the week closed, Qatari mediators traveled to Tehran, and Donald Trump said that although the initial ceasefire had ended, both countries would continue negotiating to avoid a prolonged conflict.

This latest military exchange appears to reinforce the notion that Iran’s leadership is divided over negotiations and that a faction within it seeks to keep the conflict going. That can also be inferred from the massive ceremonies held for the funeral of the assassinated Ayatollah Khamenei and his immediate family. Although he did not appear in person, the new Supreme Leader issued a message vowing revenge against the United States. President Trump wasted little time responding that his armed forces had orders to strike Iran hard should such revenge materialize.

The state of global supply reflects the adverse effects of the Russia-Ukraine war, in which Ukraine has managed to damage key parts of Russia’s refining and export infrastructure. This has translated into lower crude exports, a ban on diesel and gasoline exports, and the need to import these fuels from India. As a result, crude production and exports have declined—without even factoring in European sanctions and the pursuit of the “shadow fleet” of tankers Russia uses—and supplying the domestic fuel market has become costly.

IEA REPORT

The International Energy Agency (IEA), in what appears to be a campaign to undermine confidence in the hydrocarbons industry, published its forecasts for the rest of 2026 and extended into 2027. The most controversial finding is its forecast of a 1.0 million-barrel-per-day (mb/d) drop in oil demand in 2026, which would mark the first annual contraction since the 2020 pandemic. According to the IEA, global consumption will fall to an average of 103.46 mb/d, the result of demand destruction following the Persian Gulf crisis.

The report notes that in June, global crude production rebounded strongly, rising by 4.1 million barrels per day following the Middle East truce. However, it warns that the recent escalation is worsening the outlook and threatens the surplus projected for next year—which is, at the very least, contradictory. The Strait of Hormuz is once again effectively in dispute.

The report also states that while supply remains volatile, markets for refined products such as gasoline and diesel remain very tight due to damage to Middle Eastern infrastructure and recurring Ukrainian drone strikes on Russian refineries. As a result, refining margins hit four-year highs, which in turn has drawn accusations of speculation from the White House.

Fuel shortages and higher fuel prices hurt global industrial activity very unevenly, depending on the product and the region. Asian economies dependent on imports suffered the sharpest contraction, and derivatives such as naphtha and LPG recorded the steepest declines.

Consumption in OECD countries in the Americas has held steady, buoyed by the strength of the U.S. economy. Global crude supply will fall by about 3.7 million barrels per day, partly due to a reduction in Russian output to 8.9 million barrels per day caused by Ukrainian attacks on its refineries. A partial reopening of Hormuz allowed Gulf producers to restart their fields in June. According to the agency, if the truce holds, the market could see a supply surplus again in 2027. The report also projects a decline in global natural gas demand. Lower available supply is keeping international prices under pressure. LNG exports from Qatar and the United Arab Emirates fell nearly 80% following Iran’s attacks.

In our view, the IEA is once again showing a somewhat biased analysis, ignoring the mitigating effect on prices of inventory drawdowns and China’s opportunistic policy of balancing the market by temporarily reducing its demand and drawing down its strategic reserves as a complementary, situational tactic. It also ignores India’s plans to boost its strategic reserves and the plans of the U.S. and Japan to replenish their own strategic stockpiles. The agency interprets supply constraints as demand destruction, which it then uses to project a crude oil surplus in the markets. This report is highly likely to be revised before the end of 2026.

The key news items affecting sustained crude supply are as follows:

●      The Strait of Hormuz is once again at the center of concerns over global oil supply—not because Iran has formally closed it, nor because of nightly bombing throughout the area surrounding the strait, but because most tankers and cargo ships have chosen to avoid crossing it, disrupting the regional supply chain.

●      The Ukrainian military struck the tanker Yasa Polaris with a drone. The vessel, chartered by major U.S. oil company Chevron, was en route to the Russian port of Novorossiysk on the Black Sea; the attack forced the ship to abandon its cargo of Kazakh-origin CPC Blend crude and sail toward the Turkish coast.

●      China has lifted restrictions on exports of refined fuels, allowing state refineries as well as one private refinery to resume shipments abroad this month, Reuters reported, citing anonymous sources.

●      The Russian government announced a one-month ban on diesel exports aimed at curbing runaway domestic prices following Ukrainian strikes, removing about 500,000 barrels per day of exports and pushing European diesel prices to a 15-year high of $60 a barrel.

●      State-owned QatarEnergy has completely halted its plans to quickly restart liquefied natural gas (LNG) production at the Ras Laffan complex. The decision follows a projectile attack on the Qatari LNG carrier Al Rekayyat in the Strait of Hormuz. The incident shows that navigation through this maritime chokepoint remains critically unsafe.

●      Turkey and Iraq will sign a one-year agreement in the coming days to keep open the pipeline carrying crude from northern Iraq to the Mediterranean port of Ceyhan, Turkish Energy Minister Alparslan Bayraktar said Thursday. The decades-old agreement governing exports through the pipeline expires on July 27.

●      In a rather curious development, Fatih Birol, the IEA’s executive director, said the European Union should lift its current moratorium on Arctic drilling, an area where Norway has been pushing to drill.

●      In Venezuela, the much-touted production increase will not be achieved this year, given the priority need for aid and reconstruction to assist the many disaster victims, as well as the poor execution of the so-called “opening to private capital.”

●      As this report went to press, Iran had declared the Strait of Hormuz closed once again following renewed U.S. airstrikes.

Price Dynamics

Oil and gas prices trended sharply upward at the start of the week. Crude posted a weekly gain of 4% to 5%, driven by the collapse of the U.S.-Iran ceasefire and the precarious fuel situation in Russia's domestic market. This pushed refining margins higher and, indirectly, put upward pressure on crude. As a result, Brent crude closed around $76/bbl, while West Texas Intermediate (WTI) closed near $71.4/bbl.

Natural gas prices remained elevated due to electricity demand linked to heat waves and the urgency of rebuilding inventories ahead of next winter.

In Europe, the broad rise in energy prices dragged down major stock markets and heightened fears of persistent underlying inflation.

VENEZUELA

TRAGEDY HINDERS NEEDED TRANSFORMATION

As expected, the country’s humanitarian crisis has been compounded by the devastating effects of the double earthquake that struck in late June 2026. Authorities updated the tragic death toll, confirming at least 4,490 dead, more than 16,740 injured, and nearly 18,000 people left homeless. In recent days, the window for finding survivors was declared closed, and several international rescue teams have begun withdrawing. At the same time, heavy machinery is now being used to clear and process the rubble.

According to experts, the central coast is entering a phase of high public-health risk, with a strong likelihood of disease outbreaks that the country’s health institutions are not prepared to handle. The state’s shortcomings are being offset by foreign aid, mainly from the United States, with roughly 2,000 troops handling aid logistics.

On the political front, the most significant development is the legal turning point in the country’s complex transition following the removal of Nicolás Maduro earlier this year: the 180-day period of temporary presidential absence provided for in the Constitution has now elapsed. Delcy Rodríguez, who took over as “acting president,” faces strong challenges from the opposition, which denounces what it calls a consolidation of an illegitimate de facto regime. Compounding this irregular situation, the White House maintains an uncomfortable silence on the transition plan, and voices are beginning to emerge seeking to build a leadership to fill the vacuum left by the absence of María Corina Machado.

Venezuela’s already weakened economy faces enormous financial pressure due to earthquake damage to infrastructure. Reconstruction costs are estimated at more than $30 billion, which would partly compete with the funds needed to revive the hydrocarbons industry and renegotiate the country’s debt. Regime spokespeople formally urged the international community and the United Nations this week to release blocked sovereign assets and resources held abroad (including gold held in the United Kingdom) to fund emergency relief efforts.

The interim government appears unprepared for an emergency of this scale, and rather than coordinating outside help, has shown signs of disorder that have hindered rescue and healthcare response efforts. Even so, public spending rose and strained financing mechanisms, largely funded by oil revenue that the U.S. Treasury channels to Venezuela’s Central Bank (BCV), which remains a “black box.” It should be noted that, due to lower international oil prices, the amounts received in the coming months may be smaller than those seen in June and July 2026.

The government accelerated its bolívar devaluation policy to unify the official and intervention exchange rates, which temporarily helped narrow the gap with the parallel rate. During the week, however, dollar demand caused the parallel rate to spike again. As a result, inflation remains a problem the regime appears unable to solve.

The Pseudo-Opening Imposed From Washington

In the oil sector—key to the second phase of the Trump-Rubio plan—the most significant development was the signing and publication of the Regulations to the Organic Hydrocarbons Law. This text supplements the amended Organic Hydrocarbons Law and attempts to regulate its implementation. The Venezuelan executive branch has presented this legal document as a historic instrument to revitalize the sector and attract foreign capital. However, economists and legal experts have raised criticism and pointed to significant limitations in its real capacity to revive the oil industry.

The main objections and limitations identified by experts can be grouped as follows:

1.     Persistent state discretion and opacity: analysts warn that, while the reform modernizes the fiscal framework, the regulation reaffirms the excessive state discretion already flagged in the law itself. On key issues such as dispute resolution and the granting of tax benefits, the lack of clear rules undermines the predictability that international corporations require.

2.     The regulation preserves structural barriers to private investment. Constitutional and oil-industry lawyers, including José Ignacio Hernández, argue that the text continues to impose operational and institutional restrictions on private capital. Despite announcements of an opening, the regulatory design maintains disabling oversight and grants the public administration full control over the entire energy value chain, limiting operators’ real autonomy.

3.     Although the regulation introduces some positive changes—such as authorizing a more direct crude-marketing model and differentiated taxation schemes based on risk—the industry criticizes labeling this “regulated commercial flexibility,” when in practice companies must comply with strict coordination requirements under the Annual National Marketing Plan and depend on authorizations to acquire the diluents needed for extra-heavy crude directly.

4.     The 29-page regulation published in the Official Gazette drew attention for not mentioning PDVSA even once, even though the new framework’s structure still relies on the presence of a state entity or a joint venture with majority state ownership. In any case, this regulation erases whatever trace of autonomy the state company still had.

5.     The regulation establishes the mechanism for calculating applicable “government takes” rates and for remitting the corresponding amounts to the treasury. However, the scheme makes it difficult to separate royalty amounts from Integral Tax amounts because the tax bases differ between the two calculations. In addition, the mechanism for classifying fields by nature (Greenfield and Brownfield) and by production status creates a somewhat rigid, discretionary structure that, in some cases, is unattractive to investors.

6.     The regulation also enshrines the right to maintain the economic balance of contracts, but severely limits opportunities to seek a review of contract terms. The development plan approved at the outset becomes a straitjacket that could well turn into the operator’s guillotine, since punitive measures remain highly discretionary with the ministry.

7.     Finally, it fails to establish institutional machinery capable of allocating blocks or assets competitively and transparently. This matters because, beyond the letter of the law and the regulation, it remains unclear which government body will manage the many powers this regulation grants.

Our preliminary review indicates that some progress has been made, but overall the measure falls far short of encouraging private investment. It is, rather, an attempt to reinforce the same statism that we already know has not worked in this sector.

Oil Operations

Oil operations faced no major setbacks. Electricity availability was sufficient, and the earthquakes' aftermath did not affect the sector’s activity.

Weekly production averaged 947,000 barrels per day (947 Mbpd), distributed geographically as follows:

    West: 267

    East: 111

    Orinoco Belt: 569

    TOTAL: 947

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”—are currently producing the following volumes:

Chevron: 261 Mbpd

Repsol: 50 Mbpd

M & P: 31 Mbpd

Other joint ventures in the Orinoco Belt closed in June with the following average output:

Sinovensa: 98 Mbpd

PetroRoraima: 32 Mbpd

PetroMonagas: 92 Mbpd

PetroCedeño: 74 Mbpd

Domestic refineries processed 264 Mbpd of crude and intermediate products, yielding 82 Mbpd of gasoline and 79 Mbpd of diesel.

In the petrochemical sector, no changes were reported at the El Tablazo and Morón complexes. At the same time, the José Complex continues operating the same plants, albeit at a reduced level due to a lack of natural gas.

Exports are expected to be lower than in June due to the drawdown of inventories accumulated in January.

Because of lower crude prices in international markets, the average price of the Venezuelan basket fell significantly, to an estimated $66.3/bbl.

[1] International Analyst

[2] Nonresident Fellow, Baker Institute

Midterm Elections Weigh on the White House

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

One of democracy's most defining features is that, sooner or later, the politician must face the judgment of the ordinary citizen at the ballot box. In the case of the United States, that citizen verdict reverberates beyond its borders, since the decisions of its executive branch extend into the geopolitics of regions with their own interests and objectives — and these, in turn, reverberate back into the elections. 

It is this context that the Trump administration is beginning to internalize, one that, beyond its superpower rhetoric, confronts geopolitical situations in which its intervention does not entirely serve its own interests. Given this, the White House is looking to deliver results it can present to voters as progress — both internationally and in the health of the domestic economy, a factor just as decisive as geopolitics, if not more so, ahead of the November midterm elections.

Gasoline prices are one of the key variables every U.S. administration seeks to manage. Lowering and keeping fuel costs down at American gas stations would, under current conditions, mean signing agreements with Iran, even if that contradicts the administration's original plans. From that standpoint, a deal ensuring the normal flow of oil and energy products worldwide could be politically justified if it helps keep fuel prices reasonably low.

Venezuela could also become part of that communications strategy. The effective implementation of the three-phase plan the White House announced early in the year, combined with massive aid for the enormous damage caused by the two earthquakes on June 24, provides elements that could be presented as concrete progress. As for the narrative of a supposed “Venezuelan miracle,” even though reality is far from ideal, the administration will try to cast it in a positive light for American voters, at least until November 2026. Our analysis of that situation is detailed in the Venezuela section.

Even though these tactical moves are designed for U.S. domestic politics, they affect global market perceptions and behavior, given the conviction that Trump will do everything in his power to keep crude prices low and narrow refining margins, at least in the U.S. This is reflected in the sharp sell-off of positions in the futures market. 

Meanwhile, American oil companies have been adding rigs and fracturing crews in the U.S. shale basins, which has driven a slight uptick in production in that region.

As a result, we find ourselves in a scenario where a disconnect has emerged between the price of prompt crude and the prices that fundamentals would otherwise suggest. Indeed, the precarious level of global inventories would, under other circumstances, keep oil prices substantially higher than what we see today — something that will likely happen once China returns to the market and temporary demand savings fade. 

For now, oil prices will likely remain at a floor around $72/bbl for Brent crude (similar to the pre-war price) until transit through the Strait of Hormuz normalizes. The strait is currently in an “escape” mode for tankers that had been stranded for months, which will make it possible to gauge the Persian Gulf countries' current and near-term capacity to bring back the production shut in over the last 100 days.

Geopolitical Fundamentals

Although transit through the Strait of Hormuz is trending toward normalization, outbound traffic still far exceeds inbound traffic due to the administrative work of verifying and updating insurance, as well as the availability of tankers willing to operate on this route. The initial flood of crude into the market will be followed by a recovery period in the production of the Persian Gulf countries that had shut in. The United Arab Emirates (UAE) (now free of quota limits) and Saudi Arabia will recover quickly thanks to smaller cuts, given their alternative market access; Kuwait, Iraq, Iran, and Qatar will take longer because of the depth of the production cuts they had to implement — especially Iraq, given its heavier crude segregations and the looming expiration of its pipeline agreement with Turkey over the Kirkuk-Ceyhan line.

In any case, during these two stages of normalization and beyond, the incremental crude volumes will help rebuild the traditional cushion used to stabilize the oil market through global crude and product inventories. Along the same lines, China will have to resume crude imports well above the levels set by its temporary economic discipline, since its economy shows no sign of slowing and it is unwilling to keep drawing down its strategic reserve or cut its refining runs, which limit its share of the lucrative regional products market. 

In addition, the war between Russia and Ukraine has escalated into mutual destruction, with a tragic toll in lives, civilian facilities, and Ukrainian infrastructure. On the other hand, Ukraine has triggered Russia's worst fuel crisis in decades through its strikes on Russian refineries and terminals, the most recent one near St. Petersburg. At the same time, the Crimean Peninsula, now under Russian control, remains paralyzed under a strict state of emergency due to energy shortages and constant attacks on its logistics and defense networks. Russia has been forced to import gasoline from India and ration fuel. 

As if that weren't enough, Europe is cracking down harder on tankers fraudulently using Cameroon's flag registry to transport Russian oil, including boarding vessels on the high seas — which has led Cameroon to remove 39 of these ships from its registry, adding yet another obstacle to Russian crude exports.

As for the production increases forecast in the International Energy Agency (IEA) report, we find that sustained growth in Canada is not feasible given the constraints on moving crude to the U.S. and Pacific markets, at least until the new 1.0-million-barrel-per-day pipeline is built, which will take several years to complete. Brazil and Guyana will contribute to production increases as new FPSO (Floating Production Storage and Offloading) units come online.

Guyana's FPSO rollout plan (Stabroek block) includes the Errea Wittu (Uaru project), Jaguar (Whiptail), and Hammerhead units, scheduled to come online between 2026 and 2029, plus an additional project proposed for the Longtail field in 2030. Guyana will reach an oil production capacity of nearly 1.7 million barrels per day (MMbpd) by 2030. For now, production is estimated at 1.1 MMbpd by the end of 2026.

In Brazil, there will be more activity in the Presalt area with 5 FPSOs coming online over the next two years, adding roughly 900 Mbpd of production. However, the country has been grappling with steeper-than-expected declines, which limit its net production growth. 

Argentina also contributes to the incremental supply picture, with modest but steady growth typical of the early stages of shale basin development, as is the case with Vaca Muerta.

The seven OPEC+ countries — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman — met virtually on July 5, 2026, to review global market conditions and prospects. The seven participating countries decided to implement a production adjustment of 188,000 barrels per day, stemming from the additional voluntary adjustments announced in April 2023. This adjustment will take effect in August 2026. This is nothing more than a nominal decision that will give participating countries the chance to accelerate their compensation for prior overproduction.

The U.S. shows an increase of 17 rigs in drilling activity over the past two weeks, according to Baker Hughes. Over the same period, Primary Vision reports an increase of 13 hydraulic fracturing crews, pointing to modest growth in crude production that could reach 14 MMbpd by year-end.

In short, the return of Persian Gulf production, Russia's struggle to maintain its export levels, and rising output from Guyana, Brazil, and, to a lesser extent, Argentina and the U.S., set against modestly growing demand and unusually low commercial and strategic inventories, do not appear to add up to the expected overproduction scenario over the next 18 months. This is why we expect prices to trend moderately higher as inventories rebuild.

Price Dynamics

The crude market closed the second quarter with its steepest drop since the pandemic, wiping out most of the geopolitical risk premium built up since February. Prices fluctuated throughout the week but held a broadly downward trend, losing about 4% for the week. Brent crude opened the week around $73/bbl, fell to a low of $69.50/bbl, and closed Friday, July 3, with a slight technical stabilization around $72.12/bbl. WTI crude opened the week above $70.69/bbl, dropped to four-month lows near $67.00/bbl by midweek, and closed Friday at $69/bbl.

Unlike crude, natural gas prices saw a notable rebound and high volatility, hitting multi-week highs on seasonal demand pressure. U.S. natural gas futures traded higher and closed the week at $3.24/MMBtu, driven by spikes in volatility. In Europe, the TTF benchmark for the August contract held firm and rose, closing Friday, July 3, at €45.25/MWh. In both regions, unusually high temperatures drove up air-conditioning use, pushing gas consumption for power generation to yearly highs.

Demand for natural gas at U.S. liquefied natural gas (LNG) export terminals remained extremely strong. This was reinforced by reported structural damage at Persian Gulf facilities (such as Ras Laffan), which forced global buyers to look to U.S. supply instead. 

 

Venezuela

The Double Earthquake Shakes Up Politics and the Three-Phase Plan

Venezuela is facing one of the worst crises in its recent history following the devastating seismic “doubleheader” of June 24, 2026. This disaster has not only caused unimaginable human and material damage but has also deepened the country's structural fractures and reshaped the political dynamic that had been unfolding since January 3. The humanitarian catastrophe is unfolding alongside a scenario of U.S. oversight, the collapse of public services, and growing social outrage over the emergency mismanagement by the triumvirate acting as the interim executive.

The seismic doubleheader shook the north of the country with an intensity that makes it the deadliest in Venezuela in the past hundred years. It severely affected the country's most populous area — Caracas, and the states of Miranda, Aragua, and Carabobo — and, catastrophically, the state of La Guaira, which was declared a disaster zone.

Official figures already show 3,342 dead, 17,740 injured, and losses exceeding $12 billion, while international projections fear far greater human and material losses. 

The political landscape had been shifting dramatically since the start of the year following the capture of Nicolás Maduro by U.S. forces. The acting president has the backing and recognition of the Trump administration, which says it is providing close support aimed at stabilization, recovery, and a phased transition. On July 3, the constitutional deadlines that gave Delcy Rodríguez's interim government a thin veneer of legality expired, and the lack of a clear political path forward adds further complexity to the situation. Polls, both before and after the devastating earthquake, show deep dissatisfaction across all segments of the population with the origin and conduct of the interim government. 

The public had already grown tired of the double talk. There is talk of amnesty and coexistence while hundreds of political prisoners remain behind bars; there is talk of tripling oil revenues and reconstruction funding, yet the average Venezuelan is still earning the same wage and getting scarce public services.

The natural disaster that has plunged the country into mourning has reshuffled priorities. It exposed the lack of institutional strength stemming from ongoing erosion and improvisation. Government figures such as Jorge Rodríguez demand that the tragedy "not be politicized," which means they won't accept criticism. The interim government has opted for tight, centralized control over collection centers, aid, and media coverage, going so far as to crack down on private initiatives or centers collecting supplies and rescuing people trapped under the rubble, which has sparked widespread anger and protests.

Likewise, these events derailed the electoral agenda and the fledgling negotiations over democratic conditions that opposition sectors (such as Dinorah Figuera, at the invitation of the U.S. government) had been holding with the interim government. Those plans and potential negotiations to reform the judiciary and the National Electoral Council (CNE) have lost priority on the agendas of both Caracas and, more importantly, Washington. 

Meanwhile, opposition figures such as María Corina Machado have announced their intention to return to stand with the public and shake up the political landscape amid popular discontent. The interim government and the White House have thrown up countless obstacles to her return to her own country, where she enjoys enormous popularity. Media outlets have reported that a White House official described MCM's interest in returning to Venezuela at this time as “obscene political opportunism.” The remark is baseless given MCM's political and social track record, and it reveals the divisions within the administration over Venezuela.

Even before the tragedy, efforts to revive the oil, mining, and power sectors were nearly at a standstill due to legal uncertainty, the destruction of key infrastructure, and opaque handling of the allocation and reallocation of oil blocks, as well as the negotiations to adapt existing contracts to the demands of the new laws. The urgency of saving lives and clearing rubble now collides head-on with a fragile institutional framework, opening a period of deep uncertainty over the country's democratic and overall future.

On the economic front, funding needs for managing the humanitarian crisis and the need to rebuild roads and other basic services are the dominant concerns, along with dealing with the potentially 25,000 people left homeless. Without question, the bulk of the reconstruction financing will have to come from multilateral organizations, from Venezuelan funds frozen in accounts managed by the U.S. Treasury Department, and from international aid — of which the U.S. will need to be a key pillar, as part of the oversight role it has played since January 2026.

The Central Bank of Venezuela (BCV), for its part, drove an accelerated devaluation of the currency in the official market to bring it closer to the parallel market, narrowing the gap between the two to 15%. The official exchange rate opened the week at 623.02 Bs./$ and climbed sharply to close Friday, July 3, at 652.97 Bs./$ — an increase of more than 7% in just one week. The parallel market (Binance) stayed relatively stable, ranging between 736.10 Bs./$ and 758.93 Bs./$ heading into the weekend. 

Macroeconomic data continued to show a slowing trend in inflation, with monthly figures in the single digits (6.3% in the most recent reading). Even so, the sharp devaluation of the local currency this week generated pressure and uncertainty over businesses' cost structures at the start of the second half of the year.

Oil Operations

Oil operations, as we reported last week, continue without major disruptions; in fact, June was the year's strongest month for production and exports. 

Production for the week averaged 942 Mbpd, distributed geographically as follows: 

•                      West                262      

•                      East                 111

•                      Orinoco Belt    569      

                        TOTAL                         942

National refineries processed 260 Mbpd of crude and intermediate products, yielding 80 Mbpd of gasoline and 77 Mbpd of diesel. 

In the petrochemical industry, no changes in activity were reported at the El Tablazo and Morón complexes. At the same time, the José Complex continues operating the same plants, albeit at a reduced level due to low natural gas feedstock supply.

June exports reached 1.17 MMbpd, of which 760 Mbpd came from the month's production and 410 Mbpd from inventory drawdown and re-exported diluent. Exports over the past 6 months show that more than 43 million barrels of inventories accumulated by the end of last year and early January 2026 have been placed on the market, leaving just over 6 million barrels remaining of the 50 million the U.S. originally estimated at the start of the oversight period. 

With the drop in international crude prices, the Venezuelan basket price fell to $75.8/bbl in early July. Despite the decline in Venezuelan crude prices, around $2.8 billion flowed into the oil revenue account controlled by the U.S. Treasury in June. The lack of transparency in managing those funds persists — and matters more today than ever.

[1] International Analyst

[2] Nonresident Fellow, Baker Institute