M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
The conflict in the Middle East began as an extension of the confrontation between Israel and Iran's allies, with the expectation that the combined military force of the U.S. and Israel would lead to the capitulation of Tehran's theocratic regime. Today, that capitulation appears out of reach despite the damage inflicted on the Persian nation — the energy market, which for years had watched the regional conflict with indifference, ultimately imposed an unexpected reality on all parties involved.
In recent days, oil prices — which have been riding an unpredictable roller coaster — experienced a sharp drop, driven by expectations that a U.S.–Iran ceasefire is increasingly likely: both sides are trying to avoid prolonging the economic and political deterioration in which they find themselves trapped, as much by design as by default. The potential agreement would include some meaningful gesture related to the handling of Iran's enriched uranium and the reopening of the Strait of Hormuz, generating at least a temporary easing of tensions. 60 days has been mentioned, which would significantly reduce the geopolitical risk premium that has been pressuring crude prices since February.
Amid high volatility, and despite some confrontations between the U.S. Navy and the Iranian Revolutionary Guard, as well as Israel's refusal to include its operations aimed at dismantling Hezbollah in southern Lebanon — where it apparently eliminated several leaders last week — prices fell by close to 10% compared to the previous week's close.
Meanwhile, in Europe, NATO–Russia tensions intensified following a Russian drone strike on a residential building in the city of Galați, Romania. This incident marks the first time such an attack has caused casualties and direct damage to civilian infrastructure in a NATO member state. Additionally, attacks and counterattacks between Russia and Ukraine continued at a high level; particularly noteworthy is Ukraine's sustained success in damaging Russian refining capacity, storage facilities, and loading terminals — 40% of Russian refineries have now been affected.
China, for its part, has positioned Beijing as the epicenter of global diplomacy while managing macroeconomic headwinds and tensions stemming from the Middle East conflict. The Asian giant has been implementing a strategy to reduce oil imports and draw down inventories, which has somewhat eased the supply-demand imbalance in recent weeks. This approach, however, is not sustainable over the medium term.
OPEC and the OPEC+ alliance had no choice but to focus on preparations for their next ministerial summit on June 7, 2026, amid intense geopolitical pressure and the structural fallout from the departure of one of their key members. Vienna is discussing a nominal production increase. Still, actual output and exports remain severely constrained by the conflict in the Middle East.
Geopolitical Foundations
The Iran–U.S. Conflict: Options and Limits
The U.S. and Israel, with the quiet backing of several Arab countries and despite falling short of their military objectives in the war against Iran, remain united around one central goal: preventing Iran from developing nuclear weapons.
The diplomatic options currently considered relevant and achievable are:
• The supervised transfer of the enriched uranium currently in Iran's possession; or
• It’s dilution to enrichment levels that eliminate the immediate risk of weaponization.
The main obstacle, however, remains the profound mutual distrust: the U.S. and Israel will not accept any agreement that cannot be verified directly and credibly. At the same time, Iran fears that such verification would expose it to even greater military vulnerability.
In any case, the Trump administration can hardly sustain an indefinite confrontation whose collateral victim is the deterioration of the global economy. Moreover, prolonging the conflict will likely carry a domestic political cost, particularly in the lead-up to the November midterm elections.
On the Iranian side, the Revolutionary Guard — apparently in control of the country following the elimination of Ayatollah Khamenei — has shown a willingness to continue sacrificing the economy and deepening the already precarious conditions of the population. Yet Tehran also has incentives to accept a cessation of hostilities that would allow it to resume oil production and sales, a cornerstone of its economy. It is therefore likely that both sides will move toward some form of agreement that allows them to de-escalate the conflict without paying an immediate political price.
While markets are pricing in an imminent deal, tensions on the ground have not abated. The Revolutionary Guard fired warning shots in the Strait and intercepted a U.S. drone near Bushehr — signals that underscore the fragility of any ceasefire. Compounding matters, a more durable normalization may also hinge on Israel agreeing to include a cessation of hostilities in Lebanon as part of any broader understanding.
Global Inventories and Price Outlook
Global commercial inventories have fallen to extreme levels, currently estimated at below 8,000 MMBBLS — a reduction of nearly 15% from pre-war levels. In terms of coverage, that equates to just 83 days of global demand.
A drawdown of this magnitude cannot be reversed quickly: its normalization will require a gradual process of one to two years. We therefore estimate that Brent will remain above $90/BBL for the remainder of 2026, barring brief, news-driven volatility spikes.
This estimate accounts for demand destruction from higher fuel costs worldwide, with estimates of 2.4 MMbpd and 1.17 MMbpd for 2026 by the IEA and OPEC, respectively. The sectors most affected are commercial aviation and the petrochemical industry.
The outlook for high energy prices and demand destruction is becoming a puzzle for central banks, which will cautiously attempt to manage inflation without triggering an even sharper slowdown in the global economy.
The Russia–Ukraine Conflict: A Spiral of Violence
The protracted military conflict between Russia and Ukraine, which the United Nations has described as an “out-of-control spiral of violence,” has not diminished in intensity. In recent weeks, the conflict has been marked by record Russian bombardments, Ukrainian strikes against Russian energy infrastructure, and an incident that violated NATO airspace.
Hundreds of Russian drones and missiles struck Ukrainian civilian infrastructure, including in Kyiv, in retaliation for Ukraine's heavy attack on an educational complex used as military accommodation in the occupied city of Starobilsk (Luhansk). Russia issued a formal evacuation warning to diplomats and foreign nationals in Kyiv and announced it would continue systematic strikes against command centers in the capital. The European Union and the embassies of allied countries rejected the coercion and reiterated that they would not leave the city.
Ukrainian forces launched a long-range counteroffensive using Storm Shadow missiles, destroying Russian Aerospace Force reconnaissance systems near Voronezh and Sevastopol, as well as severely damaging the Tuapse oil refinery, airfields in Taganrog, coastal petroleum facilities in the Sea of Azov and the Rostov region, and setting a tanker ablaze in the port of Taganrog.
A smaller but deeply significant incident — both militarily and diplomatically — was the Russian drone strike on Galați, Romania. It remains unclear whether this was the result of an unintentional deviation in the drone's flight path or a deliberate test of NATO's response. This response was, notably, quite muted.
U.S. Production and Drilling
The U.S. continues to produce approximately 13.7 MMbpd of crude oil at stable levels, though a modest uptick is expected in the second half of the year. This is suggested by an increase in rigs in the Permian Basin and 5 hydraulic fracturing crews, according to reports from Baker Hughes and Primary Vision, respectively. Commercial inventories of both crude and distillates continue to decline, according to EIA reports.
Price Dynamics
Crude oil prices were on track for their largest weekly loss in two months, declining nearly 10%, in reaction to reports of a possible 60-day ceasefire extension and a temporary navigation agreement for the Strait of Hormuz. Word has it that only Trump's approval is still needed.
At week's close, a decline of more than 10% from the prior week's close:
Crude | Price (USD/BBL) |
Brent | $91,12 |
WTI | $87,36 |
Venezuela
Much Ado About Nothing
The Three-Stage Plan: Highlights and Shadows
Although the White House has praised progress in the stabilization and recovery stages of Marco Rubio's three-stage plan for Venezuela, the assessment is both flawed and shortsighted. Three times as much foreign currency is indeed flowing in as last year, due to sanctions relief and the Middle East conflict. However, this has not produced the desired effect: the economy has not been stabilized by dollars alone, because the flood of foreign currency has not been accompanied by coordinated policies to unify the exchange rate and control inflation. One need only observe the slide of the official exchange rate to 554 Bs./$ while failing to close the gap with the parallel market, which, as of Friday the 29th's close, remained above 34%. Stabilization remains elusive.
It is equally true that the law providing a legal framework for private oil investment has been amended, generating enormous interest in analyzing investment opportunities in Venezuela. Yet beyond the initiatives of operating companies already in the country — whose activities are largely driven by debt recovery — very little of that interest has translated into genuine investment commitments. This should surprise no one: the process managed by the interim government lacks transparency, is highly discretionary, and does not offer the guarantees that serious companies require to make sustainable commitments in the wake of a transitional period.
The transition itself — the third and much-heralded stage of the plan — remains a somewhat ethereal objective: a light at the end of the tunnel, with no clarity as to how or when it will be reached.
To make matters worse, the statements issued from Washington attempt to make people believe that, before their intervention, Venezuela's history prior to Chavismo never existed. This arrogance or ignorance perhaps limits their ability to analyze the current political, economic, and oil industry situation.
Public Disapproval and Dollarization
A survey conducted by Atlas Intel for Bloomberg News reveals growing public disapproval of interim President Delcy Rodríguez, driven by increasing citizen impatience with the country's bleak economic outlook after five months in office. Seventy-six percent of Venezuelans surveyed rate the employment situation as adverse; 77% consider the national economy to be in a “very bad” state. This is directly linked to persistently low wages, triple-digit inflation, and chronic failures in access to basic services, food, and medicine.
Findings from the same platform indicate that the majority of Venezuelans support formal dollarization of the economy as the primary alternative to halt devaluation and stabilize the cost of living. However, a significant portion of economists do not favor it. U.S. authorities, having determined that Venezuela lacks a functioning banking system, may conclude that dollarization is the answer to the exchange-rate and inflation problems.
Political Prisoners, Repression, and Amnesty
The handling of political prisoners, the dismantling of the repressive apparatus, and the reconciliation and/or amnesty process have also fallen short of expectations. However, it is worth noting that a number of those released from prison and returning exiles have re-entered the country without apparent difficulties.
The Foro Penal and parliamentary representatives confirmed the ongoing release of dozens of political and military prisoners, though in numbers far lower than those announced. These measures form part of the humanitarian judicial reviews announced by the National Assembly.
External Debt Restructuring
The external debt restructuring process is advancing cautiously, in line with the Sectoral Vice Presidency for Economic Affairs’ plan, which covers the public debt of the Republic and PDVSA. The interim government is seeking to reintegrate into the international financial system on the strength of its current OFAC licenses. According to those familiar with the matter, the current state of OFAC licenses is insufficient to initiate the process, largely due to the challenges we have described in recovering oil and gas production. French banker Matthieu Pigasse of Centerview will lead the restructuring process.
Banking Crisis and International Audit
The BDT platform (formerly Banco Bicentenario) experienced a technical outage lasting more than 90 hours, cutting off millions of public employees from digital banking services. As a contingency, physical branches enabled limited over-the-counter cash withdrawals (between 2,000 and 4,000 bolívares), triggering widespread protests and long lines. There are rumors of possible mismanagement that may warrant government intervention in the bank.
The Central Bank of Venezuela (BCV) confirmed that an international firm contracted by the U.S. will audit the use of Venezuelan funds and assets frozen abroad.
María Corina Machado and the Electoral Roadmap
Opposition leader María Corina Machado, after signing the “Panama Manifesto” with the PUD and other political forces, has expressed her willingness to begin formal negotiations with acting President Delcy Rodríguez. The opposition's central objective is to establish the conditions for a free, transparent, and sovereign presidential election.
Oil Operations
During the week, production activities were again hampered by the nationwide power instability. Potential production increases were limited by a lack of or instability in the electrical supply.
Weekly Production
This week's output stood at 912 MBpd:
Region | Output (MBpd) |
West | 249 |
East | 110 |
Orinoco Belt | 553 |
TOTAL | 912 |
Companies under OFAC Licenses and New Contracts (LOH)
The joint ventures operating under OFAC licenses and the new contracts established under the LOH, under the arrangement whereby the minority private partner acts as “Operator,” are producing the following volumes:
Company | Producción (Mbpd) |
Chevron | 254 |
Repsol | 50 |
M & P | 29 |
Refineries and Petrochemicals
National refineries processed 256 MBpd of crude and intermediate products, yielding 78 MBpd of gasoline and 79 MBpd of diesel.
The Petrochemical Complex at José is operating normally, though with constraints on natural gas supply. Daily production stands at 6,000 metric tons (MT) of methanol, 2,500 MT of ammonia, and 3,300 MT of urea. The Morón and El Tablazo complexes remain idle.
Exports and Basket Price
Crude shipments in the first half of May are consistent with exports of 770 MBpd, of which approximately 400 MBpd were sent to the U.S. and more than 300 MBpd to India.
The Venezuelan crude basket averaged $86.5 per BBL.
[1]: International Analyst
[2]: Nonresident Fellow Baker Institute
