M. Juan Szabo [1] y Luis A. Pacheco [2]
As diplomatic exchanges to restore free navigation through the Strait of Hormuz continue, the fragile ceasefire holds despite ongoing skirmishes between Iran and the United States. In response, energy markets are reacting with elevated and volatile prices amid contradictory — and at times exaggerated — messaging from Tehran and Washington. Crude oil prices posted a significant rebound following several dangerous naval confrontations in the Gulf of Oman, reversing the recent downward trend.
The effects of the current hydrocarbon supply crisis are intensifying, affecting everything from the fiscal positions of energy-import-dependent countries to physical shortages of key inputs for economic activity across Asia and Europe. OPEC is also in crisis, with the departure of one of its most significant members — the United Arab Emirates (UAE) — and production constraints stemming from the closure of the strait.
The cartel’s output has fallen sharply and is estimated to drop below 20 MMBPD in May. Even so, at its most recent virtual meeting, OPEC+ announced a production increase of 188,000 barrels per day starting in June. This gesture is more symbolic than effective while transport restrictions persist and a return to normalcy remains slow. Saudi Arabia alone would need to raise output from under 8 MMBPD to more than 10 MMBPD.
The situation is beginning to show up in inventories. Before the war began, global petroleum stocks stood at 106 days of supply; that figure has since fallen to 99 days and is projected to shrink further to 95 days. These are, of course, global averages, and the impact of reduced supply is being felt very differently across regions.
This elevated hydrocarbon price environment is weighing on the global economy by fueling inflation. When inflation persists, central banks face a dilemma: raising interest rates risks contracting the economy without addressing the underlying cause, while cutting them risks stoking further inflation. Ultimately, economies will likely contract, and demand destruction will begin to set in.
The situation at the Federal Reserve (Fed) is further complicated by Jerome Powell’s term as Chair expiring on May 15. Kevin Warsh, Trump’s nominee for the position, received approval from the Senate Banking Committee on April 29, and his full Senate confirmation vote is expected next week — paving the way for him to assume the chairmanship before the end of the month.
On the other active front, Russia and Ukraine have agreed to a three-day ceasefire running from Saturday, May 9, through Monday, May 11, 2026, which includes the release of 1,000 prisoners of war by each side. The truce, brokered by President Trump, coincides with Victory Day celebrations in Russia. Russian presidential adviser Yuri Ushakov confirmed acceptance of the diplomatic proposal, while President Zelensky expressed gratitude for U.S. involvement.
Trump is looking to arrive at his upcoming meeting with Chinese President Xi Jinping in China with as few open fronts as possible, particularly regarding the impact of oil supply on China. Yet, given the way the winds are blowing, oil supply to China is bound to be a major item on the agenda.
Geopolitical Foundations
The United States has put forward a proposal to end the conflict, pressing Iran to choose between diplomacy and confrontation. Washington is weighing and negotiating the details of a peace plan that reportedly addresses both Iran’s nuclear program and the permanent reopening of the Strait of Hormuz, as well as the U.S. naval blockade in the Gulf of Oman. Meanwhile, in the daily back-and-forth, the Pentagon reported that three U.S. Navy destroyers were attacked by Iranian drones, missiles, and fast boats while escorting merchant vessels under “Operation Freedom.” The U.S. response was swift, carrying out intensive strikes against Iranian military installations. Tehran, in turn, accused Washington of attacking an Iranian tanker and hitting military facilities on Qeshm Island. It is, without question, a ceasefire hanging by a thread.
In any case, last Sunday, President Trump flatly rejected Iran’s response to his proposal, calling it “totally unacceptable.”
China’s Foreign Ministry described the insecurity in the strait as “unacceptable,” after a tanker with a Chinese crew was caught up in the conflict. The Revolutionary Guard’s actions appear to lack coordination; in a remarkable turn of events, Iran seized the Ocean Koi in the Gulf of Oman — a sanctioned tanker operating on Iran’s behalf and carrying Iranian crude.
As all of this unfolds on the diplomatic and military fronts, the strait remains blocked, and the U.S. naval blockade in the Gulf of Oman has effectively paralyzed Iran’s ports, including the strategic terminal at Jask, severely hampering Iran’s oil exports. In a chaotic and costly workaround, hundreds of Iranian oil tanker trucks are making their way overland to Pakistan as a pressure valve to prevent production fields from being shut in.
Other oil executives have also warned of crude shortages, which the International Energy Agency (IEA) has described as the largest supply disruption in history. A return to normal will not come until several months after maritime traffic through the Persian Gulf normalizes; for liquefied natural gas (LNG), the recovery will be considerably slower.
OPEC+ Production
OPEC oil production fell to 20.55 MMBPD in April 2026, its lowest level since 1990. This decline, as revealed by a Bloomberg survey, reflects an additional 420,000 barrels per day from the prior month. Significant output reductions were recorded in Kuwait, Iran, Iraq, and Saudi Arabia. Beginning in May, UAE production will no longer be included in OPEC or OPEC+ reporting.
Seven OPEC+ countries will raise their production targets by 188,000 BPD in June, marking the third consecutive monthly increase, according to an OPEC+ statement following a virtual meeting. The increase mirrors the one agreed for May, except for the UAE’s quota, as that country left the group on May 1. The move is intended to signal the group’s willingness to boost supply once the war ends. It indicates that OPEC+ is pressing ahead with a “business as usual” approach despite the UAE’s departure.
Saudi Arabia’s quota, as OPEC+’s largest producer, will rise to 10.291 MMBPD in June under the agreement — well above actual production levels. The kingdom reported current output to OPEC of 7.76 MMbpd. Even once maritime traffic through the Strait of Hormuz resumes, it will take several months for flows to normalize, according to Gulf petroleum executives and international operators.
Confirming our estimates of the crude supplies that have failed to reach the market, Shell CEO Wael Sawan warned: “We have gotten ourselves into a mess with a deficit of almost a billion barrels of crude right now, whether blocked barrels or unproduced barrels, and that mess is getting worse every day,” he said on an earnings call. “The recovery will be long,” Sawan noted that the situation has led to approximately a 5% drop in demand from the aviation sector.
Europe and the Ukraine Conflict
On other fronts, the Kyiv-Moscow truce raised expectations from Trump, who hoped it would be the “beginning of the end” of the war. Long-term peace negotiations remain stalled over territorial disputes in the Donetsk region. Additionally, outlets such as Euronews noted that in practice the agreement mainly ensured that Ukraine would refrain from striking Moscow during the military parade in Red Square commemorating the Soviet victory over Nazi Germany.
These protracted wars in Eastern Europe and the Middle East have tested the loyalties of the various actors involved. It is clear that Europe fears Trump’s unpredictability and his willingness to act decisively; NATO and European authorities are therefore attempting to regroup and build an independent power base. Their precarious economic situation, internal political divisions, and lack of military readiness can only succeed if Russia’s economic and military decline continues.
The military and commercial cooperation between the UAE and Israel — demonstrated by the Emiratis’ defense against Iranian attacks — sends a clear signal that the Abraham Accords are working and represent a trend that could contribute to regional stability.
Production in Other Regions
Incremental oil supplies from other producing regions have been modest or nonexistent. Brazil alone has reported a significant increase in hydrocarbon output so far this year, with production rising by approximately 400,000 barrels per day (MBpd) to 4.2 MMbpd — a record for the South American country. Norway, for its part, has brought a couple of natural gas fields back online, helping to offset the deterioration in Europe’s gas balance caused by the shortage of Qatari gas. The United States and Canada have kept production levels steady, along with their capacity-building activities through drilling and hydraulic fracturing.
At present, most oil producers are unwilling to invest their elevated revenues in new drilling activity. As of late April, fewer rigs were drilling wells in the United States than when the war began, according to energy services firm Baker Hughes. And while U.S. oil production has grown significantly in recent years, domestic output could fall in 2026, according to the Department of Energy (DOE).
On the European geopolitical front, Hungary’s new Prime Minister, Peter Magyar, was sworn in, and closer cooperation within the European Union (EU) is expected under his leadership compared to his predecessor. In Romania, the collapse of the government following the rejection of a coalition between the far right and social democrats has opened a new front of instability on NATO’s and the EU’s eastern flank. Countries such as the Baltic Republics and Poland are approaching an unprecedented level of defense spending — close to 5% of GDP in 2026 — a commitment demanded by NATO that few EU members are meeting.
Price Dynamics
The conflict between the United States and Iran has kept global oil markets in a state of constant instability. Brent crude reached a high of $126.41 per barrel on April 30, and while prices have since moderated to around $104 per barrel today, the underlying risk of missile and drone attacks has not gone away.
Meanwhile, the U.S. Commodity Futures Trading Commission (CFTC) announced it will investigate posts made by President Trump on his Truth Social platform.
According to reports, the CFTC has opened an investigation into unusual activity in the oil market ahead of Trump’s recent social media posts, raising concerns about possible leaks of market-sensitive information or coordinated trading. An analysis by Reuters found that total bets — including those on Brent, WTI, European diesel, and U.S. gasoline futures — amounted to $7 billion. According to the analysis, these large-scale positions were executed in significant blocks over four specific days, often 15 to 20 minutes before announcements that triggered double-digit drops in oil prices.
The investigation is still in its early stages, and no individual or company has been officially named.
As of the market close on Friday, May 8, 2026, benchmark Brent and WTI crudes were trading at $101.29/BBL and $95.42/BBL, respectively, representing a decline of more than 6.4% compared to the prior week’s close.
VENEZUELA
You Can’t Teach an Old Parrot New Tricks
The geopolitical landscape and economic situation in the country remain uncertain. Attempts are being made to combine a forced opening to global markets with severe economic adjustments to curb domestic inflation. Opinions on the progress of the U.S. strategy in Venezuela are divided. While the Trump administration appears satisfied with what has been achieved so far, the interim government seems inclined to carry out its “tutelage” mandates in a manner that reflects Venezuela’s well-known playbook of “changing everything so that nothing really changes” — buying time in the process, whether to hold onto power or to reach elections from a position of advantage.
Economic Situation
On the economic front, the unprecedented surge in oil revenues has exposed a disconnect in the decisions made by Venezuela’s Central Bank (BCV) regarding the banking and financial system. Despite the greater flow of foreign currency, controlling the exchange market has become difficult in an environment of very high public spending and excessive reserve requirements used as liquidity management tools. The result is rising prices throughout the economy — including in dollar terms — and inflation that is eroding the modest wage adjustment approved to begin in May 2026. The pace of adjustment in the official exchange rate slowed, keeping the gap with the parallel rate at around 30%. At week’s close, the official rate stood at 500 Bs./$. In short, a familiar story.
The interim government has also formalized its return to the International Monetary Fund (IMF) and the World Bank, restoring Venezuela’s formal membership and access to financing after years of suspension. Engineer Calixto Ortega Sánchez was appointed as Venezuela’s governor to the IMF.
U.S. Secretary of Energy Chris Wright stated on May 8 that free elections in Venezuela depend on a stabilized economy, outlining a two-phase roadmap in which institutional reconstruction is the current priority. At the same time, drawing on assessments from American experts, he concluded that “Venezuela does not have a functioning banking system.” In his view, the absence of a functional financial structure is the primary obstacle to recovery. It remains unclear whether this reflects the White House’s position or simply a personal opinion expressed by one official.
Venezuelan sovereign bonds have also seen a significant rally following OFAC’s authorization for Caracas to retain advisors to negotiate the restructuring of its external debt, alongside a renewal of Citgo’s protection from PDVSA 2020 bondholders through June 19, 2026.
Social Situation and Human Rights
Despite U.S. tutelary efforts to shore up and stabilize the economy — which include a near-tripling of hard currency revenues and an aggressive push to attract investment in hydrocarbons and mining to revive economic activity — four months after Maduro’s removal, those gains have not filtered down to the population. Venezuelans continue to face ever-higher prices and wages that offer no real improvement. Meanwhile, the modest economic recovery has put the country’s already-deteriorated national power grid under new strain, intensifying outages and blackouts.
Furthermore, mounting evidence that the repressive apparatus and human rights violations continue has deflated the country’s hopes, leading many to conclude that the interim government is more of the same. Protests driven by economic grievances have intensified. Human rights have returned to the forefront following reports of the concealment and delayed disclosure of the death of Mr. Víctor Quero while in state custody and without due process; there are reports that others who have been forcibly disappeared may have suffered the same fate.
Oil Operations
The week has been marked by power outages that have affected production, primarily in the western part of the country. This week’s output stood at 906,000 barrels per day (906 MBpd), distributed geographically as follows:
West: 251 Mbpd
East: 108 Mbpd
Orinoco Belt: 547 Mbpd
TOTAL: 906 Mbpd
The joint ventures operating under OFAC licenses and the new contracts established under the recently amended Hydrocarbons Organic Law (LOH) are producing the following volumes:
Chevron: 249 Mbpd
Repsol: 47 Mbpd
M & P: 31 Mbpd
The Orinoco Belt joint ventures with Chinese and Russian partners produced:
PetroSinovensa: 91 Mbpd
PetroMonagas: 87 Mbpd
National refineries processed 242 MBpd of crude and intermediate products, yielding 72 MBpd of gasoline and 77 MBpd of diesel.
The Petrochemical Complex at José is operating normally, though output was marginally reduced due to electrical issues and limited natural gas availability. Daily production stands at 5,800 metric tons (MT) of methanol, 2,400 MT of ammonia, and 3,300 MT of urea. The Morón Complex remains idle, awaiting a natural gas supply.
April export figures require a revision, as a cargo bound for India departed in time to be counted within the month. Accordingly, crude shipped to India totaled 350 MBpd, bringing the month's total exports to 840 MBpd.
The Venezuelan crude basket averaged $86.3 per BBL.
[1]: International Analyst
[2]: Nonresident Fellow Baker Institute
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