M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
Although the beginning of 2026 suggested that the oil market would continue grappling with the threat of oversupply, the first days of the month have brought unexpected developments that, if sustained, could influence the market's direction. Venezuela and Iran, two OPEC member countries, face growing political instability, while Russian production has begun to feel the effects of sanctions.
Situation in Venezuela
The American attack on military installations in Venezuela and the extraction of Nicolás Maduro and his wife, Cilia Flores, continue to reverberate throughout the Western Hemisphere. Despite harsh criticism from regional governments, U.S. President Donald J. Trump has framed this action within what he has dubbed the "Donroe Doctrine," a modern version of the 19th-century Monroe Doctrine, and warns of further actions to control drug trafficking and what he calls the protection of American citizens.
The effects of this new U.S. foreign policy, leveraged by the military power displayed in the Caribbean and through actions in Venezuela, are already spilling over into Cuba, Colombia, Mexico, and even Brazil. Tense discussions between the U.S. and Denmark about Greenland's future can also be considered part of this new doctrine. In short, Washington is expressing a holistic vision of the Americas from Tierra del Fuego to Greenland. Trump does not want other superpowers' influence in his "backyard," much less their participation in the continent's natural resources—or at least that is the rhetoric.
Russia-Ukraine Conflict
Military actions between Russia and Ukraine continued this week with scant advances on the ground and little to no progress in ceasefire negotiations. A Ukrainian drone attack on an oil tanker bound for Russia in the Black Sea and another attack that set fire to a refinery in Volgograd raised concerns about further disruptions to Russian crude supply due to the conflict.
Additionally, reports earlier this week suggested that Trump will approve a bipartisan bill proposing even stricter restrictions on countries trading with Russia, in a continuing effort to pressure Moscow toward a ceasefire. One collateral effect of these sanctions is the Iraqi government's approval of a plan to take control of operations at the West Qurna 2 oil field (operated by Lukoil) to avoid disruptions caused by U.S. sanctions against Russia. This oil field is one of the largest in the world.
Crisis in Iran
In Iran, initial street protests over the economic situation have intensified and transformed into mass calls against the ayatollahs' regime. The opposition in exile, opportunistically led by the son of Iran's last Shah, is promoting civil disobedience. The country has been virtually isolated from the outside world after authorities blocked the internet to hinder the organization of new protests and the dissemination of news about them. Phone calls were not reaching the country; flights were canceled, and Iranian news sites were only updating intermittently.
The protests have been ongoing for two weeks, while authorities intensify their crackdown on demonstrators and label them "enemies of God," a charge that carries the death penalty. Many casualties have been reported among protesters, though reports are confusing. Adding to the complexity, President Trump has threatened Iran's regime with military action, which would open another front for the already omnipresent U.S. administration.
Market Impact
All these geopolitical events, combined with another reduction in U.S. crude inventories that aligns with global terminal inventories, are changing the market's perception of the supply-demand balance at the beginning of 2026, bringing it closer to reality.
Consequently, the Brent and WTI benchmark crudes traded at $63.34/bbl and $59.12/bbl, respectively, at Friday's market close on January 9, up more than 4% from the previous week's close.
VENEZUELA
Forced Transformation of Venezuelan Oil
Just over a week ago, Caracas and the country's Caribbean coast witnessed a surprising and effective military action that ended with the capture of the occupant of Miraflores Palace and his wife, who now face U.S. justice in a New York state court. As expected, this American action has elicited mixed reactions not only in Venezuela but worldwide.
That a foreign country would violate Venezuelan territory is something that should not please any Venezuelan, just as the presence of Cuban troops, Colombian terrorist groups, and other allies of the Chavista regime is unacceptable. This unfortunate outcome is prime evidence of what can happen when internal and regional political actors ignore the institutional and legal decay that has been ongoing in Venezuela for more than two decades.
The New Interim Government
To the surprise of many, the capture of Nicolás Maduro and his wife did not lead to the fall of the Chavista regime. On the contrary, after brief confusion, Vice President Delcy Rodríguez was sworn in as acting president, and the Trump administration claims there is an agreement for Rodríguez to manage the transition, "supervised" by U.S. Secretary of State Marco Rubio and other Trump team executives. This state of affairs could indicate either a prior negotiation in which Maduro was the bargaining chip or an adaptation to an unexpected situation.
Even more curious is that Edmundo González Urrutia and María Corina Machado—the elected president from the July 2024 elections and the undisputed leader of the Venezuelan opposition—were sidelined in this entire operation (or, if we are generous in our interpretation, preserved for a moment to come). The fact is that the U.S. government has stated that the Venezuelan opposition was not prepared to take control of a complex transition, which is why it decided to negotiate with Chavismo.
The position of the acting president presents schizophrenic traits, as although she appears to have agreed to follow American instructions—threatened rather than of her own volition—she must attempt to maintain Chavista unity to survive. For now, an agreement seems to prevail between the Venezuelan interim government and the U.S. administration: Venezuela's regime, in the absence of concrete support from its foreign allies, would adhere to imposed instructions, while in Caracas, it continues to address its followers with anti-imperialist and pro-Maduro rhetoric.
Likely, the precarious state of the economy, showing signs of accelerated deterioration, and the fracturing of Chavista unity are defining the interim government's agenda—a government as illegitimate as it was under Nicolás Maduro. The positions of Diosdado Cabello, Minister of Interior, and General Padrino López, Minister of Defense, who control the security forces, remain unknown, generating all kinds of palace gossip.
Initial Actions and Measures
Following Washington's announcements, events began to unfold rapidly. The American fleet, maintaining an oil blockade on Venezuela, continued seizing tankers from the "shadow fleet" dedicated to transporting sanctioned crude. Half a dozen tankers were boarded and seized by the U.S. Coast Guard; one was even seized after a long high-seas pursuit and despite having changed to a Russian flag.
In Venezuela, the interim government, through the acting president's brother, announced the release of more than 80 political prisoners. Still, to date, this has been just one of many broken promises: only a dozen have been released, of which five are Spanish citizens. One of them is Rocío San Miguel, a well-known human rights defender.
Three-Phase Transition Plan
According to Secretary of State Marco Rubio, the post-Maduro process will have three phases: Stabilization, Recovery, and Transition. The phases will overlap and will not be strictly sequential.
Against this backdrop, it was announced that the U.S. and Venezuela had agreed that some 30 to 50 million barrels of Venezuelan crude currently in inventory on land or in vessels anchored off the Venezuelan coast would be sold on the American market at market prices, with sales proceeds held in an escrow account administered by the U.S.
In this regard, President Trump issued an executive order called "Safeguarding Venezuelan Oil Revenue For The Good Of The American And Venezuelan People," aimed at protecting Venezuela's escrow funds, managed by the U.S., from embargoes and legal actions. This order is part of the stabilization phase.
Complementing the control measure, a U.S. diplomatic group traveled to Caracas as an advance party for the potential reopening of the embassy in the city—another curious development, since after a military attack, diplomatic relations are usually severed. Major U.S. banks—JPMorgan, Bank of America, Wells Fargo, and Citi—are evaluating beginning operations in Caracas.
The Oil Agreement
At the same time, the Venezuelan regime describes the oil agreement with the White House as a Chevron-type transaction. Analyzing the statement, we interpret it to refer to conditions analogous to the repealed GL 41, since the current arrangement (incidentally, still secret) based on royalty payments in kind would make no sense.
Reading between the lines of both countries' announcements, we infer that, from the account managed and protected by U.S. authorities, a flow of timely payments will be maintained through U.S. banks, covering royalty payments, investments, local currency expenses, and income taxes. This flow of funds will allow Venezuelan authorities managing the economy to arrest the bolívar's devaluation and reduce the gap between the exchange rate systems, which, together with a reduction in inorganic money emissions, will help mitigate inflation and relieve pressure on the cost of living. Treasury Secretary Scott Bessent confirms that sanctions would be lifted to facilitate this process and that he will meet with the International Monetary Fund and the World Bank to renew relations with Venezuela.
Recovery Phase and the Oil Industry
For the recovery phase, in a meeting with CEOs of major oil companies at the White House, President Trump indicated that major U.S. oil companies would recover the deteriorated infrastructure and make the multimillion-dollar investments necessary to reactivate Venezuela's hydrocarbon industry.
The U.S. oil industry's response was not as enthusiastic as President Trump expected. Although there is generally much interest in investing in Venezuela, companies will not invest large sums of money without a sustainable and secure legal, fiscal, and institutional framework; the exception is likely companies like Chevron, Repsol, and Maurel & Prom which, driven by their need to recover debts from PDVSA, have structured deals under OFAC licenses that they can now replicate. In particular, Chevron, currently investing in the development of PetroIndependencia in the Orinoco Belt, may have a short-term impact.
ExxonMobil's CEO, Darren Woods—the world's largest private oil company—was the one who dared to express what many undoubtedly think but did not dare say: "If you look at the arrangements and commercial frameworks seen in Venezuela today, you cannot invest today." Trump's subsequent response, unsurprisingly, was that he did not like Woods' attitude. The White House seems to forget that the oil industry is accustomed to taking measured risks, risks that can be mitigated, unlike those in Venezuela today.
Three Scenarios for the Oil Future
To analyze Venezuela's oil future in light of so many uncertainties, we have developed three scenarios:
1. "American Dream" Scenario: The first and most aggressive includes U.S.-managed sales of production and inventories and the forced repeal (we do not believe Chavismo would do this voluntarily) of Venezuelan laws that obstruct the application of free-market conditions.
2. "Back to Reality" Scenario: The second scenario consists of a conceptually similar scheme but one that takes into account the times and requirements often indicated by oil companies, as well as the time required to establish a transitional mechanism applicable during the approval process for new laws and the fiscal and institutional framework, which would likely involve real political change.
3. "More of the Same" Scenario: The third and final scenario corresponds to a process in which U.S. control erodes as differences with the regime emerge that are difficult to overcome, and there is no transition.
According to our interpretation of how the system announced by the U.S. and PDVSA would function, we can conclude that the sale of crude accumulated during the blockade at market prices would have a marked effect at the start of what could be a virtuous cycle (scenarios 1 and 2). It is also observed that the volume difference between scenarios 1 and 2 is not significant during most of the first year. Our calculations indicate that, as announced, the trust would have sufficient funds to cover operations, investments, and payments to the state of legal obligations and, in the long run, to achieve a return on investment.
Unknowns and Concerns
Nevertheless, the process still has many unknowns—some because they have not been made public and others because there appears to be a marked degree of improvisation. One of the biggest unknowns is that no one has discussed how to ensure that a regime properly uses the funds generated, given a long history of corruption and inefficiency, and that this translates into shoring up what was intended to be transformed: a sort of Biden model.
It is also unclear what role the political opposition in Venezuela plays in the transition: elected president Edmundo González Urrutia and opposition leader María Corina Machado. So far, President Trump has only mentioned them briefly in the context of achievements toward the country's democratization. This week, President Trump and Ms. Machado are scheduled to meet, which could provide more clarity on this issue.
We believe that the best scenario for Venezuela is one in which there is a political change that guarantees institutional and fiscal changes that allow investments in the hydrocarbon sector and the beginning of the country's reconstruction; the opposition's challenge is to make it clear to all actors that they are the ones called to do it.
The country's economy has continued to collapse while these events unfold. The official exchange rate has reached Bs330/$, and the gap between the markets exceeds 100%. Undoubtedly, there is no time to waste in alleviating the suffering of the Venezuelan people.
Analysis of Expectations
Another relevant aspect in managing information and data related to Venezuela's production recovery process is the apparent consensus among renowned analysts such as Rystad, Wood Mackenzie, and Javier Blas that infrastructure deterioration only allows increases of 300 to 500 thousand barrels per day in the first years. We agree with this, not so much due to infrastructure limitations but because of the time required to activate rigs and other equipment and implement logistical arrangements.
It is also claimed that additional increases in Venezuelan production require Brent prices of $75-$80/bbl. We disagree with these concepts, which we consider to be based on myths rather than the realities of the country's oil situation. The combination of redevelopment and development in the Orinoco Belt or on the eastern coast of Lake Maracaibo, together with required infrastructure improvements, is highly competitive under the new legal and fiscal conditions that will apply during the reconstruction stage, with no limitations on access to diluents.
Most of the growth is highly attractive with price scenarios of $40 to $45/bbl. In our opinion, the constraints for a quick recovery are related to establishing a new legal and fiscal framework, to security and contractual conditions that allow companies to decide to invest in Venezuela, and to the time required to have equipment, materials, and personnel on site.
Oil Operations
Activities in production fields and terminals have been oriented toward reactivating closed production as storage space is freed up.
For now, the crude being shipped to the U.S. mostly corresponds to what is stored in tankers and to production from Campo Boscán, which did not suffer major disruptions during these times. Apparently, OFAC's license or instructions to Chevron have been expanded in scope regarding the crude it can transport to the U.S. market. Indeed, 11 tankers chartered by Chevron are heading to Venezuela, a number higher than the fleet it has used until now (7).
Additionally, trading companies such as Trafigura and Vitol will be involved in the logistics of transporting and selling Venezuelan crude on the U.S. market.
The change in destination for Venezuelan exports allows for a weighted price far superior to what the country received before the so-called "Great Energy Deal." In fact, the current weighted price is estimated at $50/bbl.
[1]: International Analyst
[2]: Nonresident Fellow, Baker Institute
