M. Juan Szabo [1] y Luis A. Pacheco [2]
Despite the back-and-forth between the United States and Iran — advances and retreats toward a negotiated resolution — the Strait of Hormuz remains blocked. Iran is attempting to force a settlement by strangling the global economy, while the U.S. seeks to cut off the oil flows that sustain Iran's economy.
Announcements of openness to negotiations, followed almost immediately by withdrawals, have become a near-daily occurrence, sowing confusion in the market and driving price volatility. Aviation and automotive fuel supplies are beginning to run short, despite efforts to draw down inventories to cushion the blow. The energy crisis has also been worsened by successful Ukrainian attacks on Russian refineries and petroleum infrastructure. Meanwhile, Israel is mounting forceful operations in response to the drones and missiles that Hezbollah continues to fire from Lebanon into Israeli territory, in violation of the ceasefire.
As if that were not enough, the complexity of the oil market has deepened further following the announcement by the United Arab Emirates (UAE) that it is withdrawing from both OPEC and OPEC+, ending a membership in the cartel that had lasted more than fifty years. This decision represents a significant blow to OPEC+'s capacity for collective action and reflects a widening rift between the UAE's objectives and Saudi Arabia's leadership. The proverbial last straw — or at least the stated reason for the decision — is the UAE's view that the other Arab members of the cartel were not sufficiently proactive in defending the Emirates against Iran's attacks on its oil installations, amid the ongoing Gulf War.
Another potentially dangerous situation is unfolding in the Indian Ocean and the Gulf of Oman. China is quietly deploying a substantial naval force — destroyers, intelligence-gathering vessels, and submarines — to protect its trade routes. This posture could place it on a collision course with the United States, as well as with the blockade of vessels linked to Iranian exports.
For its part, the Kremlin is advising and supporting the Iranian regime, a development that could jeopardize its alliances in the war against Ukraine. Putin assured Iran's foreign minister that Russia would do its utmost to fulfill Iran's wishes within the context of the conflict. The White House says it has evidence that this cooperation extends beyond published statements and is not treating the situation lightly.
It has been, in short, a week packed with news that has rattled and then calmed the market on multiple occasions, driving oil prices to their highest levels since the war began — before cooling again following Iran's negotiating proposal, with prices settling below $110/BBL by the week's close.
In the United States, expectations are building around the potential revocation of Trump's war powers through legislative action.
Geopolitical Fundamentals
The U.S.–Israel–Iran Conflict
The war waged by the United States and Israel against Iran — which began on February 28 — undertaken primarily to eliminate the risks posed by a nuclear-armed Iran, continues on an unpredictable course. Following a truce agreed upon by the parties, diplomatic efforts have intensified to prevent further escalation, which has already caused severe disruptions to global energy supplies, and in which the presence and potential intervention of China and Russia represent a grave danger.
President Trump notified Congress of the cessation of direct hostilities with Iran just as the 60-day limit under the War Powers Resolution was reached. The truce has, in principle, held without direct exchanges of fire between the U.S. and Iran since April 7; it was extended by Trump on April 21 while awaiting an Iranian peace proposal. The proposal arrived, but appears not to satisfy the White House.
The President of the United States may only deploy the Armed Forces for 60 days without Congressional authorization. Optimists view the current quiet in the Persian Gulf as the end of hostilities, while skeptics counter that Trump is merely resetting the 60-day clock — circumventing the legal constraint — in order to strike again, likely in the near term.
Notwithstanding the U.S. announcement, Israeli Defense Minister Israel Katz warned that Israel might strike Iran again if its security objectives are not guaranteed. Indeed, the Israel Defense Forces eliminated more than 40 Hezbollah positions in southern Lebanon in a single day, destroying logistics hubs, tunnels, and command posts.
The Strait of Hormuz and the Global Energy Balance
The linchpin of the conflict remains Iranian control over maritime traffic through the Strait of Hormuz, to which the U.S. has responded by blockading vessels attempting to enter or leave Iranian ports in the Persian Gulf. As long as supply remains choked off by the impossibility of transiting the Strait of Hormuz and the Gulf of Oman, the global energy balance will continue to suffer severe disruptions. In the Western Hemisphere, this effect has so far been limited to elevated crude and fuel prices; in the rest of the world, however, shortages are worsening, with spot market prices exceeding those projected in futures markets. Compounding the situation is the impact on the LNG, fertilizer, and other input markets that are crucial to the global economy.
To date, the market has been deprived of roughly 540 million barrels of crude and refined products and approximately 455 BCF (455 billion cubic feet) of natural gas. In the latter category, the shortfall caused by the closure of the Strait has been partially offset by increased LNG supplies from the United States. Kuwait just announced that it exported zero barrels of crude oil in a single month for the first time in over 30 years
The UAE's Exit from OPEC
Against this backdrop of sustained crisis, the oil market is asking why the UAE chose this moment to break with OPEC and OPEC+. In an environment of production constrained by physical limitations in and around the Persian Gulf, the UAE would not benefit from incremental output in the near term. Many factors were surely weighed in this historic decision, but the fundamental reality is that the cartel's quota strategy is not aligned with the UAE's market objectives. The Emirates chose a strategically opportune moment to leave, since the decision will not materially affect Persian Gulf production volumes for as long as the Strait of Hormuz remains closed. Nonetheless, the withdrawal will free the UAE to ramp up production in line with its full potential — unconstrained — as soon as the Strait normalizes.
OPEC will not be severely affected in the short term, unless the UAE's decision triggers a domino effect among other members and associates, ultimately weakening Saudi Arabia's leadership of the group.
China's Position
China is one of the countries most severely affected by the shortfall in supplies from the Persian Gulf, making its actions critical to resolving the puzzle. Notably, China has been consolidating its naval strategy in the Indian Ocean over recent months by maintaining a sustained presence along trade routes vital to its commerce. In February and March 2026, it deployed destroyers to the Gulf of Oman and northern Indian Ocean to conduct joint exercises with the Russian and Iranian navies. Additionally, a "quiet" deployment of research and signals-intelligence vessels has been detected.
The Russia–Ukraine War and Its Energy Impact
The war between Russia and Ukraine is also playing a significant role in the global energy picture. Over the past week, Ukraine significantly intensified its long-range drone campaign targeting key Russian energy infrastructure in increasingly distant regions. The most significant damage reported involves the Tuapse refinery (Black Sea), operated by Rosneft, which has been the primary target and has sustained at least three strikes in the past two weeks. The most recent attack, on April 28–29, triggered a large-scale fire that damaged fuel storage tanks, pipelines, and the maritime terminal's loading arms.
Ukrainian drones reached refineries in the Ural region, approximately 1,500 km from the border, demonstrating a record-breaking strike capability. Successful attacks were reported against the Perm refinery and the Orsknefteorgsintez plant in Orsk between Wednesday and Thursday of the week. The Ryazan refinery — located roughly 180 km from Moscow, Russia's seventh-largest, also operated by Rosneft — sustained a fire following a drone strike that affected its operations. Beyond Tuapse, damage has been reported at the Sheskharis terminal in Novorossiysk (Black Sea), with earlier attacks against the port of Vysotsk (Baltic Sea) having disrupted refined product export logistics.
These strikes are estimated to have reduced Russia's crude processing capacity to historically low levels, with a decline of more than 15% of total refining capacity and approximately 5% of loading capacity at its terminals. In April 2026 alone, at least 21 successful attacks against Russian petroleum infrastructure were recorded. These strikes are eroding the ability of Russia — the world's third-largest producer — to fully capitalize on elevated prices that, ultimately, are what finance its war effort against Ukraine.
The United States: The Sleeping Giant
The United States remains the sleeping giant in this conjuncture. Though politically stung by gas prices at the pump exceeding $4 per gallon, the country is benefiting from the high prices its crude, product, and gas exports command — which is also enhancing its geopolitical leverage globally. Crude production, while still the world's highest, continues its gradual decline, offset by an equivalent increase in natural gas liquids output. Commercial crude and product inventories fell this week, but under current circumstances, they carry little weight in the oil market's perception. The Federal Reserve left interest rates unchanged, opting not to disrupt the current course.
Mexico: The Perfect Storm
President Sheinbaum stated on Thursday that she hopes state oil company Pemex and its Brazilian counterpart Petrobras will reach an agreement, following the Brazilian president's proposal of a partnership earlier this year. Sheinbaum indicated she would travel to Brazil to sign an agreement with President Luiz Inácio Lula da Silva and that she was considering possible dates.
Though not explicitly stated, the objective is to leverage Petrobras's deep-water exploration and production expertise to begin operations in the Mexican portion of the basin, which features multiple developments on the U.S. side of the Gulf of Mexico (America). Mexico's energy situation is precarious: rising natural gas and imported fuel prices, refinery failures, and declining production fields — a result of Pemex's chronic underinvestment driven by its extreme indebtedness — together constitute a perfect storm.
Price Dynamics
Oil prices closed the week below $110 per barrel, marking a week of extreme volatility: the June Brent contract reached $126 per barrel on Thursday. Iran's latest negotiating proposal, conveyed to the Trump administration through Pakistani intermediaries, appears not to meet Trump's demands and has been the primary driver of market pessimism.
The Brent and WTI benchmark crudes, at the close of markets on Friday, May 1, 2026, were trading at $108.17/BBL and $101.94/BBL, respectively — representing an increase of approximately 3% for Brent and nearly 8% for WTI compared to the prior week's close.
Venezuela
Fool's Gold
Despite the initial signals from the White House following the extraction of Nicolás Maduro — signals that briefly raised expectations of political and economic change — hard reality now appears to point, at least for the time being, toward an unlawful continuation of the Chavista regime under Delcy Rodríguez. The capricious manipulation of the Constitution, compounded by the interests of both foreign and domestic economic and political actors, has prevailed over the interests of a population that once again sees its hopes dashed.
Wages and Labor Conditions
Against this backdrop, significant expectations had built around an anticipated announcement of wage adjustments on Labor Day. On April 30, 2026, the regime announced an increase in the Comprehensive Minimum Income to $240 per month for active workers — a 26% raise. Pensions were set at approximately $70 per month.
This announcement proved a fresh disappointment for the majority of the population, who are barely surviving. Ultimately, however, it is the product of decades of economic mismanagement that make it nearly impossible to do otherwise, unless labor laws and the state's unmanageable payroll are brought into line with reality.
The base salary in bolívares remains frozen at 130 Bs. (worth less than $1 at today's exchange rate), meaning the bulk of workers' income continues to depend on indexed bonuses (Bonos de la Patria and Cestaticket). Predictably, trade unions and workers broadly rejected the adjustment and attempted to march in protest toward the presidential palace; the demonstration was halted by police, a clear signal that repression remains the government's preferred instrument.
The 'Great National Pilgrimage'
In what the regime dubbed the "Great National Pilgrimage" — which concluded on May 1 and drew sparse attendance — Rodríguez urged all political sectors to set aside their differences and called for the complete lifting of the economic sanctions still imposed on the country. In the regime's political lexicon, "setting aside differences" is synonymous with the absence of opposition. The interim president, for example, has offered no explanation for the slowdown in the release of political prisoners, nor has she provided any roadmap for a transition toward general elections and a return to political stability.
Economic Outlook
Various institutions project significant GDP growth for Venezuela in 2026, with estimates ranging from 7.4% (according to the UNDP) to 12% or even 14% (according to other sources and ECLAC), which would position Venezuela as one of the region's fastest-growing economies this year. It should be noted that, given Venezuela's extremely low economic base, any growth is proportionally significant — though not necessarily meaningful in absolute terms. These projections are grounded in the potential of the hydrocarbon sector, both in terms of volume and prices.
Investment Euphoria: Opportunities and Risks
The global energy situation has generated considerable excitement around investment opportunities in Venezuela, underpinned by the country's well-known geology, the recent amendments to the Organic Hydrocarbons Law (OHL), U.S. backing, and the issuance of a significant number of OFAC licenses that ease economic sanctions. There is also hope that the OHL's shortcomings will be addressed in implementing regulations expected to be published shortly.
In this regard, there is a wide divergence in the information circulating about oil production, as well as the sector's opportunities and limitations. Both the U.S. and Venezuelan governments continue to promote the advantages of investing in the country, even as large capital players remain markedly cautious.
Specialized consultants and several law firms have fueled the initial euphoria — particularly among small and mid-sized investors — perhaps making up for their inactivity in recent years. This euphoria is unfortunately also fed by the lack of transparency in how new blocks are awarded and contracts approved, in some cases under the Anti-Blockade Law. Dozens of oil executives have held meetings with the interim government: the Venezuelan Petroleum Chamber, domestic service companies, management groups, financiers, brokers, and law firms have all been seeking what might be called "low-hanging fruit." The Venezuelan Petroleum Chamber organized an event called "Venezuela Energética 2026" that drew a large crowd of interested parties, both domestic and foreign, and was attended by the new U.S. chargé d'affaires. There is a great deal of what might be called FOMO (Fear of Missing Out).
Sooner rather than later, this swirl of interest must be tempered by the realities of Venezuela's oil industry — one that has deteriorated over two decades of mismanagement and corruption. For example, reliable and relevant data for evaluating investment opportunities is scarce, outdated, and difficult to obtain. Institutionally, a lack of transparency about how contracts are awarded and who exercises the discretion implicit in the new OHL remains unresolved. In terms of legal certainty, the separation of powers is only just beginning to be discussed, with no indication of whether it will achieve its stated objective. And that is before even considering the deteriorated state of production infrastructure, the power grid, and competition for skilled human resources.
Given all this, we believe that, despite the euphoria, material investment in the near term will come primarily from companies already present in Venezuela or those with a sufficiently compelling specific objective to offset the current country risk — namely Chevron, Repsol, Maurel & Prom, ENI, and Shell.
Macroeconomics and the IMF
Macroeconomic imbalances persist that even the inflated revenues generated by elevated international oil prices have been unable to contain. Inflation remains out of control. The basic household consumption basket is estimated at around $692, making it clear that the new $240 minimum wage remains wholly insufficient to cover the basic needs of most of the population.
The restoration of relations with the IMF is, without doubt, a positive development and may open the door to access of nearly $5 billion in Special Drawing Rights (SDRs). However, close attention should be paid to the words of IMF Managing Director Kristalina Georgieva, who warned that "after the first flush of excitement comes the hard reality," noting that establishing a financial program with the IMF requires time, credible data, institutional reconstruction, and debt sustainability.
In the foreign exchange market, the gap between the official and parallel exchange rates stands at 29%, with the official rate having reached 490 Bs./$, representing a devaluation of 61% since the start of the year.
There also appears to be a considerable divergence between what the overwhelming majority of Venezuelans demand and expect and the U.S. government's vision of an electoral path, at least in the near term.
Petroleum Operations
Weekly Production
No adverse effects were reported from power outages or limitations in Orinoco Belt crude blending capacity. Diluent availability was satisfactory: 100 Mbpd were imported during April. Weekly production stood at 910 Mbpd, distributed geographically as follows:
• West: 258 Mbpd
• East: 108 Mbpd
• Orinoco Belt: 544 Mbpd
TOTAL: 910 Mbpd
The 6 Mbpd increase came from Urdaneta Oeste in Lake Maracaibo and the Orinoco Belt (2 Mbpd from Chevron and 2 Mbpd from minor operators).
Mixed Companies Under the New Contract Modality
The mixed companies operating under licenses with the new contract modality, in which the private minority partner serves as "Operator," produced the following volumes:
• Chevron: 249 Mbpd
• Repsol: 47 Mbpd
• Maurel & Prom: 31 Mbpd
The Orinoco Belt mixed companies with Chinese and Russian partners (the Russian partner in PetroMonagas has relinquished its stake) produced:
• PetroSinovensa: 91 Mbpd
• PetroMonagas: 87 Mbpd
Refining and Exports
Domestic refineries processed 246 Mbpd of crude and intermediate products, yielding 70 Mbpd of gasoline and 77 Mbpd of diesel. The catalytic cracking unit at the Cardón refinery experienced technical failures and is currently offline.
In April, 950 Mbpd departed from the country's terminals, of which 180 Mbpd went to intermediate inventories in the Caribbean and 770 Mbpd corresponded to commercial sales:
• United States: 370 Mbpd
• India: 280 Mbpd
• Europe: 120 Mbpd
The Venezuelan crude basket averaged $87.7/BBL.
[1] International Analyst
[2] Nonresident Fellow, Baker Institute
