M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
The Trump administration's hope of achieving an expeditious resolution to the war that began with Russia's invasion of Ukraine suffered a not entirely unexpected setback. When it became evident that President Putin intended not to negotiate but rather to reiterate his position, just as he did in Alaska, Trump canceled the scheduled meeting between the two leaders in Budapest, Hungary.
Donald Trump had already threatened to impose additional sanctions on the Kremlin, although he thought it would not be necessary to go to that extreme; it turned out to be nothing more than wishful thinking, and he had to reconsider. Treasury Secretary Scott Bessent announced OFAC sanctions against Russian oil companies Rosneft and Lukoil, which, together with pressure on India and China, have significantly reduced Russian crude sales to those countries, despite the discounts. In parallel, the European Union (EU) approved a new package of sanctions against Russia.
All these decisions aim to weaken Russia's ability to finance its military capacity amid a Russian macroeconomy plagued by inflation and headed toward recession. The oil market reacted immediately with a price rebound that recovered the losses accumulated this month.
This severe market reaction has two interpretations: on one hand, the market estimates that the sanctions imply a potential collapse in Russian exports of between 1.0 and 2.0 million barrels per day (MMbpd); on the other hand, the much-touted oil overproduction now looks less likely than the pessimistic perception assumed. In any case, this extreme price volatility does the market no favors, although it does inject dynamism, especially in short-term speculative transactions.
GEOPOLITICS
In a one-hundred-eighty-degree turn from last week, geopolitical risk returned to center stage, causing a reversal in market sentiment. This time, it concerns how rigid the Kremlin occupant's war strategy appears to be: victory at any cost.
Russia-Ukraine
Donald Trump's insistence on pressing for a solution and Vladimir Putin's intransigence in his position are generating significant effects in the global oil market. Economic sanctions, pressure on buyers, and supply disruptions raise risk perception. A short list of the West's reaction to the deafness is as follows:
· The U.S. announced sanctions against Russia's two largest oil and gas companies, Rosneft and Lukoil.
· Trump threatened to impose secondary tariffs on countries that continue to buy Russian oil if Russia does not cooperate with peace agreements.
· Pressure measures against India and China apparently took effect, and both are willing to reduce purchases of Russian crude.
· The EU approved a new package of sanctions against Russia, No. 19, which will introduce new measures on oil and gas, the shadow fleet, and the Russian financial sector, in addition to personal sanctions against Russian officials.
· For his part, Putin has adopted a defiant stance, refusing to yield to external pressures and warning that a reduction in Russian oil supply could trigger crude oil prices, as occurred this week.
· On the negotiation with Zelensky, the EU decided to supply Ukraine with long-range missiles manufactured by Germany. The U.S. is reconsidering providing and allowing the use of Tomahawk missiles, which would put Russia's hydrocarbon infrastructure in check.
· Russia, to demonstrate that it also has cards, announced the successful test of a new nuclear-powered cruise missile called Burevestnik. It is designed to evade missile defenses and supposedly has unlimited range.
Control of the Donbas region remains a strategic priority for the Kremlin. Apparently, Putin's positioning is designed to buy time and achieve military control of this region, which is part of what Putin calls "Novorossiya" or New Russia. This concept dates back to the 18th century during imperial expansion toward the Black Sea and the Balkans.
The Donbas is the industrial heart of Ukraine, with an area of about 52,000 km². It is rich in coal mines, steel mills, metallurgical plants, and strategic ports, including Mariupol, on the coast of the Sea of Azov. During the Soviet era, it was considered the economic engine of industrialization, essential for the development of the USSR. Still, in recent times, leading to the collapse in 1991, the region fell into economic and demographic decline, marked by disinvestment and the obsolescence of its infrastructure.
For Russia, the Ukrainian situation comes down to a balance between the pain caused by sanctions, the loss of lives and equipment in trench warfare and bombardments, and the importance of the Donbas region for Putin and for the post-war period of the area.
From an oil perspective, the fall in Russian exports could be between a maximum of 3.0 MMbpd and a more likely level of 1.0 MMbpd, which implies a drop in monthly revenues of 2,000 to 4,400 million dollars, a not insignificant amount in lean times. It has been reported that Chinese state-owned companies have already begun canceling Russian crude purchases.
Middle East
Between Israel and Hamas, a fragile truce is maintained, which has been announced will be guarded by a multinational force. However, not much progress has been made after taking the first step of the "Trump deal." The return of the remains of hostages who lost their lives in captivity has been like a slow drip; by the end of the week, only 15 of the 28 bodies have reached Israel. Trump's visit to Israel was followed by visits from Vice President J.D. Vance and U.S. Secretary of State Marco Rubio, designed to reinforce the White House's commitment to the fragile peace agreement.
Rubio, on his visit to Israel, declared that Hamas "cannot participate in the government of Gaza in the future." Rubio also stated that the UN agency for Palestinian refugees (UNRWA) "cannot play any role in Gaza" and described it as a "subsidiary of Hamas." In Rubio's opinion, Israel should be comfortable with international contributions to a future security force in Gaza, following reports that Prime Minister Benjamin Netanyahu opposed Turkish participation.
Rubio added that more countries are willing to normalize relations with Israel, but the decision would depend on a broader and sustained regional peace agreement. This would encourage more countries to join the Abraham Accords, just as the United Arab Emirates, Bahrain, and Morocco did, which normalized their relations with Israel in 2020.
Netanyahu ordered a halt to the advancement of bills in the Israeli Parliament related to the annexation of the West Bank after U.S. Vice President J.D. Vance expressed his disagreement with the voting on two proposals in the Knesset. The bills seek to apply Israeli legislation in the occupied West Bank, which would imply the annexation of territories claimed by Palestinians to establish a State, without considering the preliminary approval of the plan previously proposed by Trump by the Knesset.
In Egypt, delegations from Hamas and Fatah met to discuss agreements on the post-conflict period in Gaza, according to a report Thursday by the newspaper Al-Qahera News, an Egyptian state-linked media outlet. According to the 20-point plan proposed by Trump, an international security force made up of Arab and Muslim allies would manage the transition in Gaza during the progressive withdrawal of Israeli troops.
In southern Lebanon, Hezbollah terrorists are attempting to regroup, but Israeli forces are bombing them.
U.S.-China Trade
At the end of October 2025, trade negotiations between the United States and China are at a critical juncture, marked by fruitless talks and an escalation of tensions. A meeting between U.S. President Donald Trump and Chinese President Xi Jinping is scheduled for October 30 in South Korea, generating hope and great uncertainty.
Senior economic officials from both countries met in Kuala Lumpur on October 25 to reduce tension before the leaders' summit. A U.S. Treasury spokesperson described these talks as "very constructive" and stated they would continue. Much is at stake, as President Trump has threatened to impose 100% tariffs on Chinese imports starting on November 1 if an agreement is not reached.
In general, Donald Trump continued with active diplomacy, maintaining various confrontations in parallel: Venezuela, Mexico, and Colombia over narcoterrorism (President Petro was subject to OFAC sanctions). He also suspended trade negotiations with Canada for what he considered propaganda manipulated by the government of the province of Ottawa. Trump accused China of using Venezuela as a bridge for fentanyl trafficking.
In Argentina, the unexpected electoral victory of parties aligned with President Milei changed the board, providing critical support for the changes advocated by the occupant of the Casa Rosada. This will be well received by companies promoting the development of the Vaca Muerta basin.
U.S. Government Shutdown
The U.S. government remains partially closed. Monday's vote in the Senate did not reach the necessary support of 60 votes, as Democrats rejected the short-term funding measure approved by the Republican majority in the House of Representatives. That was a short-term measure to extend the "wrinkle" until November 21; hence its name: "continuing resolution."
No tangible signs of negotiation have emerged between congressional leaders since President Donald Trump met with them last week. The White House said Trump had spoken with Republican leaders, but not with the leading congressional Democrats. "His position is apparent," he said. "There is nothing to negotiate."
FUNDAMENTALS
Oil fundamentals took a back seat this week as geopolitics captured the market's attention.
In the U.S., as is now customary, there were no surprises. The Energy Information Administration (EIA), in its weekly report, maintains the production level at around 13.5 million barrels per day (13.5 MMbpd) and commercial crude inventories falling by a modest 1.0 million barrels (1.0 MMbbls). However, that volume becomes more significant considering there are about 4 MMbbls of additional imported crude and 1.5 MMbbls less refining than the previous week.
Baker Hughes reports an increase of 2 rigs activated during the week; the balance of 2 rigs that stopped operating in unconventional basins in Texas and four rigs activated in deep waters, which points to what was mentioned regarding the greater relevance of activity in those basins.
Although without a short-term effect, limitations on drilling offshore in Alaska were removed, and it is expected that, with this new regulation, the decline in production in the state will be mitigated or reversed.
In neighboring Canada, oil activity is on a plateau of caution. Drilling continues to be limited, as producers exercise caution with their capital spending programs due to downward pressure on crude prices. A 30% increase in Canadian oil exports to China provided a positive note; Canada and Venezuela appear to be replacing Russian crude in the Chinese market.
OPEC+ has been closing the gap between crude opening announcements and actual production; at the close of September, the cartel had increased its output by about 500,000 barrels per day (500 Mbpd), still 600 Mbpd below the total announced since April. As the geopolitics section explains, Russia's problems exporting crude will affect the gap.
Price Behavior
The pessimism generated by announcements of an oversupplied market and predictions of unusually low demand increases was silenced by a sudden rise in geopolitical risk threatening Russian exports.
Geopolitical risk has pushed into the background news about record volumes of crude on the water, the flattening of backwardation curves, and China's weakening of strategic reserve purchases.
At the close of markets on Friday, October 24, the benchmark crudes, Brent and WTI, were trading at $65.94/bbl and $61.50/bbl, respectively—a week-over-week gain of around 7%.
VENEZUELA
Rising Uncertainty
Venezuela faces a crisis characterized by multiple variables. Political instability, external threats linked to narcoterrorism, high country risk, and economic recession interact and aggravate the national situation. Added to this are the humanitarian emergency affecting millions of people, the increase in political repression, the renewal of international sanctions, and the economic deterioration that nullifies any previous progress; all these factors configure a complex and challenging scenario for the country.
The presence of the U.S. naval force, stationed in the southern Caribbean Sea and, recently, in Trinidad, has so far resulted in the elimination of 9 boats and one submersible unit, allegedly in service for drug trafficking; about thirty deaths are reported. One of the two survivors of these attacks, a native of Ecuador, turned out to be a criminal convicted in the U.S. and deported to his country of origin, where he was released for lack of evidence.
According to statements by the U.S. president, the second phase of the operation consists of reducing narcoterrorist activities on land, which implies a potential increase in pressure on the Venezuelan regime. The deployed force is also increasing by incorporating the destroyer USS Gravely, which arrived in Trinidad. There is speculation that the aircraft carrier Gerald Ford is sailing toward the Caribbean.
On the Venezuelan side, Maduro and his administration focused on presenting themselves as a power in defensive armament. They spoke of more than 5,000 anti-aircraft missiles of Russian origin deployed in the national territory and of militia training. In the diplomatic sphere, he made efforts to obtain sympathy and close ranks with leftist governments and his traditional allies, Iran, Russia, and China.
There was also friction between the authorities and the Catholic Church. Without presenting evidence, Maduro accused Cardinal Baltazar Porras of attempting to obstruct the canonization of Dr. José Gregorio Hernández before the Vatican and claimed credit for having personally promoted the canonization process of the new Venezuelan saint. This was a response to the messages of Cardinal Porras, which replicate the message of the Vatican Secretary of State, Cardinal Pietro Parolin, who presided over a thanksgiving mass for the canonization of the first two Venezuelan saints and denounced the existence of "unjust imprisonments" and "oppression" in the country.
The economy continues to be the weakest link due to the need for foreign currency, which is not obtained through the sale of hydrocarbons. The continued shortage of foreign currency has generated the need for monetary financing, which has translated into an increase in the gap between the official and parallel exchange markets. So, the financial authorities have dedicated themselves completely and with some success to reducing that gap.
Thus, public spending was reduced, tax collection increased, and, perhaps most relevant, the bolivar's devaluation rate was accelerated. The injection of foreign currency at the official exchange rate was considerably reduced. Meanwhile, via cryptocurrencies, mainly USDT, it increased to values well above the official rate.
All these measures managed to reduce the gap between both markets, going from a maximum of 65% to half (32%), with a downward trend. However, this is not extrapolable because some adjustment sources have already been used, and October revenues will likely be lower than September's.
Oil Operations
Activities in the hydrocarbon field designed to generate greater production through mixed companies (EM) and participation contracts (CPP) are ineffective due to adverse investment conditions, either for legal or ethical reasons or due to pressure from U.S. sanctions. Under these limitations, it is impossible to structure a sustained recovery of the national oil business.
Having said this, production has shown a modest increase to 870 Mbpd, distributed geographically as follows:
• West 225 Chevron: 109
• East 119
• Orinoco Belt 519 Chevron: 124
• TOTAL 863 Chevron 233
The increase in production in the West comes from the mixed company PetroZamora. The PetroPiar upgrader produced 91 Mbpd of Hamaca crude.
National refineries processed 220 Mbpd of crude and intermediate products, yielding 73 Mbpd in gasoline and 77 Mbpd in diesel.
In the petrochemical sector, no changes have been reported since last week.
So far this month, in 24 days, about 20 million barrels of crude oil have been dispatched or loaded, equivalent to 650 Mbpd. The most significant part (480 Mbpd) is destined for the Far East (China), 135 Mbpd to the U.S., and 35 Mbpd to Cuba.
The exported segregations were: 410 Mbpd of Merey, 80 Mbpd of Hamaca, and 60 Mbpd of Boscán.
We estimate that the weighted price of exported crudes is $31.4/bbl.
[1]: International Analyst
[2]: Nonresident Fellow Baker Institute
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