GEOPOLITICAL HEAT AND COLD WEATHER ENERGIZE HYDROCARBON PRICES

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA

 

The beginning of the year in the oil market has been anything but boring. Following the U.S. military intervention in Venezuela and announcements that the White House would "administer" the South American country's oil industry, President Trump announced a naval deployment toward Iran's coasts in response to the intensification of the Islamist regime's repression against its dissidents.

 

The market reacted by raising geopolitical risk premiums, as not only Iranian crude production but also transportation routes from that region were at stake. Winter in the northern hemisphere also demonstrated its capacity to affect energy markets. Predictions of a major freeze led to a significant increase in energy prices, particularly natural gas prices.

 

GEOPOLITICS

Tensions with Iran

President Trump announced that he had ordered the USS Abraham Lincoln carrier strike group to head toward Iranian waters. The president commented that "maybe we won't have to use it," but that they were sailing in that direction "just in case." Iranian intelligence interprets the military movements ordered by Trump as a credible threat.

 

Some agencies report that Iranian Supreme Leader Ali Khamenei is hiding in an underground bunker in Tehran. The report indicates that his third son, Masoud Khamenei, handles daily office activities, while his other son, Mojtaba Khamenei, maintains contact with senior regime officials.

 

Russia-Ukraine Conflict

Although the Russia-Ukraine war sometimes seems to disappear from news headlines, the truth is that, one year after President Trump's inauguration and his promise to end the four-year-old conflagration, the conflict continues to claim lives and destroy infrastructure on both sides of the battle line.

 

The first three-way peace talks between Russia, Ukraine, and the United States concluded in Abu Dhabi without apparent progress. The two-day talks ended after waves of Russian airstrikes targeted Ukraine's energy infrastructure and a Ukrainian missile attack against energy infrastructure in Belgorod.

 

Situation in Kazakhstan

Kazakhstan's "Tengizchevroil" company halted production at its Tengiz and Korolev oil fields due to power supply problems caused by fires in two transformers. The shutdown forced the operator to declare force majeure; according to Reuters reports, the production interruption could last up to 10 days.

 

On the other hand, oil from the Kashagan field, also in Kazakhstan, has been diverted to the domestic market for the first time due to bottlenecks at the CPC terminal in Kashagan on the Black Sea, following severe damage to the terminal's equipment from Ukrainian drone attacks.

 

FUNDAMENTALS

OPEC+ Production Policy

At the beginning of the year, OPEC+ reaffirmed its commitment to keep production increases frozen in January, February, and March 2026 to offset low seasonal demand and high supply from countries outside the organization, according to its statement. This position is more than a tactical market-balancing measure given OPEC+'s limited short-term production capacity. Furthermore, any change in that strategy would undermine its closed production potential and weaken its influence on prices.

 

Russian Production

Regarding Russian oil production, Deputy Prime Minister Alexander Novak announced that production in 2025 decreased by nearly 1% to an average of 10.3 million barrels per day (MMBPD). This figure contrasts with OPEC secondary sources measurements, which estimate Russia's production at 9.3 MMBPD, representing a material difference in ongoing global overproduction estimates.

 

Winter Weather Impact

The extreme cold wave hitting the Northern hemisphere has driven up residential heating demand, affecting fuel prices, especially natural gas. On January 23, 2026, the price stood at $5.35/MMBTU, up more than 40% in one month. The weather situation is being closely monitored, as the phenomenon could disrupt oil and gas production due to facility freezing. Flight cancellations and road difficulties also impact liquid fuel consumption.

 

Inventories and Demand

Natural gas inventories, according to the Energy Information Administration (EIA), have dropped significantly. In contrast, commercial crude inventories increased by 3.6 million barrels (MMbbl), which reduces the climate's effect on prices, at least in crude's case.

 

While these uncertainties batter the supply side, demand appears to be consolidating to the point that the International Energy Agency (IEA) increased its oil demand projection for 2026 by 80,000 barrels per day (Mbpd), to 950,000 barrels per day.

 

The agency also notes in its latest report that supply growth did not materialize as predicted. In fact, global oil production decreased by 350,000 barrels per day in December, according to the IEA. And it wasn't the first monthly decline. The agency noted that December's total of 107.4 million barrels per day was 1.6 million barrels per day less than September's record. In other words, global oil production had been declining during the last quarter of 2025.

 

Oil Prices

So the oil market weighed all these changes and concluded that geopolitical pressure was worrisome enough to overcome concerns about supply excess. Thus, at Friday's close on January 23, Brent and WTI benchmark crudes traded at $65.88/bbl and $61.07/bbl, respectively, up 2.8% from the previous week.

 

VENEZUELA

DELCY RODRÍGUEZ, A BRIDGE OR A DEAD END?

In certain Caracas political circles, there is an attempt to draw an analogy between General López Contreras, Vice Admiral Wolfgang Larrazábal, and Mrs. Delcy Rodríguez. We are told that Mrs. Rodríguez, just like the 20th-century military figures, is the transitional figure who will allow Venezuela to leave behind the dictatorship of which she is part.

 

López Contreras and Larrazábal are figures of transition and opening from the military establishment toward civilian rule. Delcy Rodríguez is a figure of preservation and ideological ossification of the current civilian-military power, managing an apparent transition, supervised by external pressures: we do not yet know the result of that experiment, but the regime's performance in these years does not give much hope. It may be that Mrs. Rodríguez and her circle end up surprising us or, more likely, their own colleagues will discard them.

 

Economic Stabilization Phase

The political and economic events resulting from U.S. intervention continue to happen at an unusual speed. The so-called stabilization phase is underway, as announced by Secretary of State Marco Rubio. The disposal of floating crude inventories and ordinary production occurs as a result of restoring the export process. The financial flow called the "Chevron model," which private oil companies have used, appears to be normalizing.

 

PDVSA's production and accumulated inventories are being liquidated through large "traders" at the behest of the U.S. government. Vitol and Trafigura are already authorized and in full activity. Apparently, sales of this crude can be placed in various markets, including the U.S., Europe, and, ironically, China, although the latter is yet to be confirmed.

 

Financial Flow and Sovereign Funds

Income from the sale of PDVSA volumes is deposited directly into a protected account at the Central Bank of Qatar, from which it flows to Venezuela to two "Sovereign Funds" created to control the destination of funds. Meanwhile, income from sales managed by private oil companies (currently Chevron) is handled through private banking, with foreign currency equivalent to royalties, taxes, and the local component of costs and investments entering the foreign exchange market. The fact is that about $300 million of the total $500 million has already reached the BCV, resulting from the "supervised" sale of approximately 12 million barrels.

 

The effect of positive expectations, reinforced by the foreign currency inflows, allowed the differential between the official and parallel rates to narrow to 30%, as parallel market quotes fell by half. The effect should be reflected in goods prices and inflation.

 

Oil Revenue Projection

It is important to understand that 2026 revenues will increase due to higher production volume, about 130,000 barrels per day on average. But the most significant increase is due to the change in export destinations. All crude will be sold at market price, without the discounts or intermediation expenses that the Venezuelan regime used until now to circumvent sanctions. Total oil revenues for 2026 would be around eighteen billion dollars ($18,000 million) at today's prices, 70% higher than those of 2025.

 

Relations with International Institutions

In parallel, Treasury Secretary Scott Bessent announced that sanctions would begin to be lifted and that he would use his good offices to restore relations between the International Monetary Fund (IMF) and the World Bank (WB) with Venezuela. Relations with the IMF are of immense importance for the country's potential reconstruction. Still, they do not seem easy, despite the enormous weight the U.S. holds within this multilateral organization.

 

Indeed, International Monetary Fund Managing Director Kristalina Georgieva stated at the Davos meeting that the IMF is willing to support Venezuela, but needs its main shareholders to recognize the country's leadership and for legitimate authorities to request IMF assistance.

 

Georgieva, in an interview with Reuters, said that despite there having been almost no communication with deposed President Nicolás Maduro's regime since 2019, the IMF has been "closely monitoring the economy" of Venezuela to assess its trajectory; Venezuela is many years behind in delivering the information the Fund requires for its assessments. But, Georgieva stated, "we understand the pressing situation. If the opportunity arises to support the Venezuelan people, they can be sure that the IMF will be there."

 

The official maintained that she is concerned that 8 million Venezuelans have fled the country in recent years, a proportion of the population greater than Ukraine's emigration due to Russia's invasion, which has drastically reduced the country's economy. "Inflation is rebounding. We are concerned that hyperinflation will reappear in Venezuela," Georgieva stated.

 

Earlier Thursday, IMF spokesperson Julie Kozack said in a regular briefing that the IMF would follow the same protocols for engagement with other countries that have experienced irregular changes of government and would assess whether countries with majority votes recognize Venezuela's government as legitimate.

 

Reform of the Organic Hydrocarbons Law

Another surprising development was the presentation of the modification to the Organic Hydrocarbons Law to the National Assembly, apparently one of the requirements the White House made of Delcy Rodríguez. The law was approved with more difficulty than glory in the first "discussion" and is now ready for "public consultation" and discussion of each article before formal approval.

 

The law seeks, in principle, to modify articles of the current 2006 law that hinder private investment. Perhaps the most important change from Hugo Chávez's 2006 law is the recognition that private companies can carry out primary activities (exploration and production) both through Joint Venture schemes and through production-sharing contracts, and the relaxation of the articles that prevent these investors from operating directly.

 

However, the reform maintains, even in what it seeks to make more flexible, a high degree of State discretion. Similarly, in other fundamental aspects, such as the level of royalties per project and crude marketing, as well as potential sanctions on private parties, the State establishes itself as a discretionary barrier and thereby opens the door to influence peddling and corruption.

 

In sum, although applauded by many economic sectors, the proposed reform is a timid attempt that we do not believe will resolve the problems of exacerbated statism that led to the sector's destruction. It is also striking to observe that the political opposition does not participate, by design or absence, in this discussion, one of the most important of all, leaving a space that will later be very difficult to reclaim.

 

Human Rights and Political Transition

A key and worrying aspect of the accelerated political process underway is the continued violation of human rights. It is impossible to imagine a real transition under repression, censorship, and opacity. The mass release of political prisoners announced by Jorge Rodríguez has not been as expected; it has been drop by drop, and those released have not regained their freedom, as they are subject to precautionary measures of appearing before courts, prohibition from leaving the country, and limitations on speaking freely. No less important is the continued violation of the rights of political exiles, who, by definition, are excluded from designing the country's future.

 

Uncertainty About the Transition Process

The main uncertainty in most Venezuelans' minds is the lack of clarity about the path to a genuine transition to a legitimately elected government. Some observers maintain that the process will be relatively quick, as the White House seeks tangible results before the midterm elections, when control of both chambers of Congress is at stake. On the other hand, there are comments that U.S. supervision could last for years due to the lack of concrete announcements about the democratization process following Trump's meeting with María Corina Machado.

 

We must wait for events to unfold; not even a month has passed since they deposed Maduro, and the "express channel" of the economy has yet to be traversed. Now is the time to recover fundamental freedoms, indispensable to deposing tyranny and legitimizing the republic.

 

OIL OPERATIONS

Return to the International Market

Venezuelan crude is returning to oil markets without the sanctioned connotation. Trading companies Vitol and Trafigura are in charge of reestablishing routes to Europe: the tanker Poliegos has loaded 1 million barrels for Italy, while, in parallel, they supplement the volumes that Chevron has been supplying to refineries on the Gulf Coast of America, selling crude to Valero and Phillips, among other refining companies.

 

Operational Activities

Operational activities are returning to a tense normality by reducing inventory levels, and work is underway to restore closed production. As expected, the response is slower in the Orinoco Belt fields.

 

International Contractors

International service contractors are preparing for increased activities, initially from licensed companies and, eventually, from those who decide to invest in country risk, such as Venezuela's. SLB CEO Olivier Le Peuch said the company is well-positioned to rapidly expand its business in Venezuela, given its role as the only international oil services provider with an active operational presence in the country, providing services to Chevron under that company's license. Halliburton has stated the same.

 

Production Figures

This week's production was 854,000 barrels per day (Mbpd), geographically distributed as follows:

 

West: 240 Mbpd (Chevron: 102 Mbpd)

East: 112 Mbpd

Orinoco Belt: 502 Mbpd (Chevron: 124 Mbpd)

TOTAL: 854 Mbpd (Chevron: 226 Mbpd)

 

Refining and Export

In domestic refineries, 220 Mbpd of crude and intermediate products were processed, yielding 76 Mbpd of gasoline and 62 Mbpd of diesel.

 

There is no official information on exports; we can only estimate that approximately 12 million barrels from accumulated inventory (380 Mbpd) were shipped through "traders," along with 200 Mbpd of fresh production, and that Chevron transported 180 Mbpd to the U.S., for a total of around 760 Mbpd. We estimate that the average price achieved is close to $51/bbl.

 

 

¹ International Analyst

² Nonresident Fellow Baker Institute

TRUMP PRESSURES IRAN AND VENEZUELA, THE MARKET REACTS

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA

 

In what appears to be a return to the 1970s, the oil market is experiencing volatility driven by political instability in producing countries, particularly Iran and Venezuela. Geopolitical and climatic factors are thus counterbalancing projections of supply surplus that have been weighing on prices.

Equally significant, production growth estimates are not being met either within or outside OPEC, while demand continues to grow, driven partly by the expansion of China's strategic reserve and improved global economic performance, including in the United States.

Geopolitical Volatility

President Trump's shifting decisions regarding the Iranian crisis and what appears to be his growing influence in Venezuela have had significant repercussions on market expectations. Mid-week, amid a possible U.S. military intervention in Iran to halt the Islamic regime's brutal repression of opposition protesters, prices exceeded $66/bbl (Brent); however, the cancellation of that attack eliminated much of the initial increase.

Similarly, the conflict between Russia and Ukraine continues to affect the market. Russia carries out ongoing attacks against Ukrainian cities and civilian targets to weaken population morale, while Ukraine directs its offensives against the Russian energy system, seeking to undermine its economic capacity. These recent actions have damaged the Caspian Pipeline Consortium (CPC) maritime terminal at Yuzhnaya Ozereevka on the Black Sea, reducing Kazakhstan's export capacity by approximately 10% following Ukrainian drone attacks.

Oil as Strategy

The oil market and the entire region are closely watching developments in Venezuela, though without reaching definitive conclusions, given the complexity of assessing the net impact on the global oil balance. The White House is promoting production growth in Venezuela, though without a clear timeline.

The recent U.S. involvement in Venezuela, particularly regarding oil, is likely strategically designed as a counterweight to OPEC+ energy policy, especially concerning Persian Gulf countries that have shifted from a strategy of price-reactive production cuts to one aimed at recovering market share in the Americas (United States, Brazil, Guyana, and Canada).

This strategy, implemented during 2025, has achieved partial victories, but at the cost of prematurely exhausting much of its spare production capacity. The redirection of investments toward natural gas projects, energy transition, and long-term developments has also impacted production, which, at the beginning of the year, is below announced levels.

Geopolitical Balance

Long-term supply commitments by these countries to China, together with integration into Asian trading systems, have strengthened commercial interdependence without affecting existing security ties with the United States. This situation exemplifies a hedging strategy that prioritizes flexibility over exclusivity in international alliances, which appears to be the best response to the White House's new geopolitical vision.

Market Summary

In summary, the oil market has responded dynamically to geopolitical events in Iran, Venezuela, and other relevant areas, in a context of abundant but increasingly tight supply, sustained demand, and supply that falls short of expectations. At the close of Friday, January 16, Brent and WTI crude traded at of $64.13/bbl and $59.34/bbl, respectively, up approximately 1% from the previous week.

VENEZUELA

Genuine Will for Change or Flight Forward?

Venezuela is currently experiencing a crucial moment in its long oil history. Although it possesses one of the world's largest proven oil and gas reserves, it suffers from having dismantled its industry and is now unable to transform that potential into sustainable production, economic growth, political stability, and international confidence. According to President Trump's statements, U.S. intervention will bring significant changes to the country, particularly to its oil industry.

The Chavista establishment appears to be reacting to U.S. pressure by promoting political and legislative transformations that the country had been demanding for decades, unsuccessfully. It remains to be seen whether this will have the support of the Chavista base and, particularly, the military forces.

U.S. Tutelary Control

The Trump administration quickly implemented a mechanism through oil that closely resembles tutelary control. The argument is that to avoid civil war and stabilize Venezuela's political and economic situation, it was preferable to exercise such control through Delcy Rodríguez, who assumed functions proper to the head of state by mandate of the Supreme Court of Justice, apparently to minimize questions about her legitimacy. Naturally, the narrative from Delcy Rodríguez and the new regime emerging with her is that Venezuela is a sovereign country and that its relationship with the U.S. is purely transactional, ataimed to bringing Venezuela out of its international isolation.

In any case, while the regime puts on the mask of institutions once again, following the military intervention of January 3 and Maduro's forced removal, authorities declared a state of exception and ordered the detention of individuals allegedly supporting the U.S. incursion, thus intensifying repression and reactivating the so-called revolving door of political prisoners.

Controversial Legislative Reforms

In parallel, both the legitimate opposition and international actors called for recognition of Edmundo González's electoral victory, while labeling Delcy Rodríguez's inauguration as illegitimate. The U.S. government ignored these calls, and on January 5, 2026, the legislature corresponding to the 2026-2031 period was installed under Chavista control. This new National Assembly, whose legitimacy is also questionable, announced it would undertake profound legal reforms, including modifications to the Electric System Law and the Organic Hydrocarbons Law, the latter of which is considered partially responsible for the lack of competitiveness in the national oil sector.

Commercialization Under U.S. Conditions

Despite the Caracas regime's boasts of sovereignty, the fact is that the announced commercialization of Venezuelan crude at market prices, under conditions defined by the White House, has already begun. The oil is destined for the U.S. market, and trust funds have been established to accumulate proceeds from these sales to protect against creditor lawsuits. Treasury Secretary Scott Bessent promised to repeal the associated sanctions and to hold meetings with the World Bank and the IMF to reestablish relations with Venezuela.

Likewise, according to Reuters and Bloomberg, Chevron's license terms were revised, OFAC licenses were granted for commercial operations involving Venezuelan crude, and administrative mechanisms were established to manage fund flows to the BCV. Simultaneously, the process of reopening the U.S. embassy in Caracas began, and CIA Director John Ratcliffe made an official visit.

Stabilization Prospects

Various economic actors in Venezuela, as well as the U.S. administration, believe the country is moving toward a stabilization phase as the initial step in the transition plan presented by Marco Rubio. Meanwhile, elements of the second phase are being developed, focused on reactivating the oil industry.

However, immediate results are expected only from Chevron's activities and those of other previously licensed companies, as the rest of the potential investments will depend on the competitiveness of the announced legal reforms and the legal and personal guarantees provided in future oil block contracting processes. Overall stability and regime legitimacy remain determining factors in investment decisions.

It is also possible that the already negotiated natural gas projects in Trinidad could be revived despite the new uncertainties introduced by the new stability, though this may seem a contradiction in terms.

The Uncertain Political Future

Finally, the question arises whether the current stabilization will seek to prolong the tenure of a delegitimized government or, in a third phase, lead to a democratization process that respects the popular will expressed in July 2024 or to new general elections.

Integration into the U.S. Energy System

Within the framework of U.S. efforts to rapidly integrate Venezuelan crude into its energy system, it is reported that consideration is being given to substituting it with lighter crude for storage in the Strategic Petroleum Reserve (SPR), while Venezuelan crude is destined for Gulf of Mexico refineries.

Additionally, the Central Bank of Venezuela (BCV) has been authorized by OFAC to receive the first revenues from the sale of previously blocked crude, allocating up to $500 million to imports for the agro-industrial sector, which will benefit the foreign exchange market in the new context.

Nicolás Maduro already seems to be merely a worn and yellowed page in Chavista history, at least in the book of his until recently comrades, followers, and partners.

OIL OPERATIONS

Oil activities during this past week focused on normalizing processes seriously affected by the naval blockade and the subsequent rush to redirect shipments to the U.S. market.

Production fields have been reopening with varying results. In the West, almost everything affected was recovered, while in the Orinoco Belt, in the east of the country, recovery has been slower.

Weekly Production

This week's production was 843 thousand barrels per day (843 Mbpd), geographically distributed as follows:

• West: 238 Mbpd (Chevron: 102 Mbpd)
• East: 112 Mbpd
• Orinoco Belt: 493 Mbpd (Chevron: 126 Mbpd)
• TOTAL: 843 Mbpd (Chevron: 228 Mbpd)
• 
  

Refining

National refineries processed 218 Mbpd of crude and intermediate products, yielding 76 Mbpd of gasoline and 62 Mbpd of diesel.

Exports

No official information exists on export volumes. We can only estimate that approximately 20 million barrels of stored crude will be liquidated, in addition to what Chevron routinely transports to the U.S. market. This corresponds to approximately 830 Mbpd of crude exports in January. We estimate the average price achieved in this crude sales process at $49.6/bbl.

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

 

Oil Geopolitics and the New American Order

El Taladro Azul

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