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
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