M. Juan Szabo [1] y Luis A. Pacheco [2]
Published Originally in Spanish in LA GRAN ALDEA
The global geopolitical situation continues to be defined by instability in the Middle East, a stalled yet active conflict in Ukraine, and a realignment of relations among the major powers — largely driven by the Trump administration — giving rise to a fragmented international order.
Energy markets remain disoriented in a landscape that offers few alternatives. The problem can be summarized as a persistent supply shortfall of 8 million barrels per day (8 MMbpd) of oil and 30 billion cubic feet per day (30,000 MMcfd) of natural gas, which — given robust demand — is draining global inventories to critical levels in some regions.
To many analysts' surprise, oil and natural gas prices, though volatile, do not appear to reflect the severity of the situation. A possible explanation emerges when considering the following factors:
• Peace Negotiations. Despite fruitless back-and-forth between Iran and the United States, there is optimism that the deadlock in the Middle East will soon be broken. This diplomatic path is being pursued by President Trump, who seeks to defuse the conflict; however, fresh attacks against Kuwait and Oman are creating a roller-coaster of expectations.
• China. Given OPEC+'s current impotence, the Asian giant has decided to act as a market stabilizer by cutting its imports by nearly 5 million barrels per day and meeting part of its domestic demand from its strategic reserves, which it had built up ahead of the Persian Gulf conflict by purchasing Russian and Iranian crude at discounted prices. Private refineries, commonly known as “teapots,” are also operating at reduced levels while the crisis persists.
• Hormuz. Transit through the Strait of Hormuz and the U.S. blockade downstream have become somewhat more permeable; approximately 3 MMbpd have been exiting the Persian Gulf, even though it is technically considered blocked.
• Finally — though of lesser weight — crude inventoried in Venezuela in December 2025 and January 2026 has been entering the market at a rate of 300 thousand barrels per day (300 Mbpd), boosting the country’s ordinary exports, as evidenced primarily by a surge in supply to India. Nevertheless, this represents a volume of roughly 30 MMBBL, with its market placement nearly spent.
Supply balances reveal the effectiveness of the U.S. blockade in the Gulf of Oman. Iran’s oil exports collapsed to six-year lows in May, averaging just 250 Mbpd, wiping out the advantage Iran had gained following the closure of the Strait of Hormuz.
The supply decline from the other major producer, Russia, has exacerbated the crisis: falling exports and limited refining capacity, both reportedly due to Ukrainian drone strikes on Russian oil infrastructure. Russian Deputy Prime Minister Alexander Novak acknowledged that the intensification of Ukrainian attacks is affecting Russia’s ability to sell and process crude — an unusually public admission.
In any case, as long as the crisis persists, China’s tactical management of its inventories will largely offset the entire supply shortfall. Once that balance is achieved, global inventories will remain relatively stable at 8,000 MMBBL, thereby stabilizing oil prices.
In summary, the energy crisis is acting as a supply shock, driving up inflation and dampening economic growth. However, the expected global impact will be lasting but moderate compared with past crises, thanks to the system's resilience and diversification. That said, a prolongation of the conflict will erode the positive price effect currently provided by inventory management.
Geopolitical Fundamentals
The Middle East and the Strait of Hormuz
The military stalemate in the U.S.-Iran conflict, combined with the chokehold on hydrocarbon supplies, has led both parties to explore diplomatic off-ramps. According to U.S. government sources, progress was being made toward a possible temporary peace agreement, though Iranian spokespeople have denied it. However, this week’s attacks against Kuwait and the Friday morning bombing in Oman dampened expectations of a U.S.-Iran de-escalation, following the already fragile ceasefire between Israel and Lebanon.
Although Oman’s main port has reportedly resumed operations, the combination of negotiations and military incidents — possibly contradictory due to the absence of a clear central command in Iran — has left the market in a state of paralysis that will only lift when tangible results emerge.
Complicating matters further, Iran launched a missile attack against Israel last Sunday, which Israel then countered with strikes on Iran. Israel accepted the United States’ request to halt its attacks on Iran, but will continue operations against southern Lebanon, according to sources. Iran has suspended its operations against Israel but has warned that it will resume them if attacks on southern Lebanon continue. The Houthis, an Iran-backed militant group that controls much of Yemen, declared a ban on Israeli ships in the Red Sea, threatening a critical shipping route toward the Strait of Hormuz.
China’s Strategy and Inventory Flows
To shield itself from the elevated prices prevailing in today’s market, China is drawing on its strategic crude oil inventory and curtailing runs at private refineries to limit the losses these generate. Together, these measures account for a 19% decline in crude imports in May.
According to data intelligence firm Kpler, China’s seaborne crude imports in May could fall to their lowest level in a decade, reaching 6.5 million barrels per day, down from 8.1 million in April and 9.3 million barrels per day before the conflict.
Iran, meanwhile, has also fallen victim to its own blockade strategy; its exports in May and June represent only 10% of pre-closure volumes. In general, transit through the strait has become less restricted, currently running at between 15% and 17% of normal traffic.
Global Inventories and Incremental Production
Global inventories are the primary gauge of the global oil balance. Unfortunately, their determination relies on estimates and numerical approximations by analysts and researchers, based on published production and demand figures. At the onset of the supply shock, inventories began to fall sharply: in the first two months, they declined by 750 million barrels, an 8% reduction.
As the world adapted to the new reality, however, the pace of inventory decline slowed, thanks to a combination of strategic reserve drawdowns, demand reduction, improved crude evacuation from the Persian Gulf, and incremental production from other regions. The estimated inventory draw in the first days of June is just 2.5 million barrels per day.
OPEC+ has had little relevance throughout; its proposals for symbolic quota increases have had no market impact, as demonstrated by the communiqué from its latest meeting, held this past Sunday.
U.S. operators, though showing signs of increased activity in recent weeks — both in active drilling rigs and hydraulic fracturing crews — have not shown a production uptick, according to the EIA. As a result, the only countries that have contributed incremental production are Brazil and Canada. The Trans Mountain Pipeline is operating at full capacity, allowing incremental cargoes to be shipped to the Far East.
Price Dynamics
Short Term: Summer 2026
Taking into account the events and developments described above, our short-term oil outlook covers a period during which elevated prices prevail, ranging from $95/bbl to $100/bbl, depending on the duration of the supply disruption. Meanwhile, the depletion of regional inventories will generate logistical and economic problems in Asia and Europe. This forecast is premised on a gradual reopening of the strait beginning in early July.
Medium Term: 18 Months
For the medium term, we anticipate a relatively swift recovery in production from Persian Gulf countries, accompanied by incremental output from Brazil, Guyana, Canada, and the United States. However, supply will only rebalance with demand toward the end of 2027, with global inventories recovering only modestly. Consequently, prices will decline only to $80–$90/bbl in 2027.
Oil Price Dynamics
During the week, Brent crude prices fluctuated between $92 and $99/bbl, reacting to developments related to the Strait of Hormuz and the effects of Ukrainian drones, which struck Russian refineries and terminals. At the close of the week — Friday, June 5, 2026 — the benchmark Brent and WTI crudes were trading at $93.09/bbl and $90.54/bbl, respectively, a moderate increase of just over 2% compared to the prior week’s close.
VENEZUELA
Political and Economic Context
The first week of June continued in a whirlwind: it was marked by announcements, visits from potential investors, plans, promotional activity, and new legislation — yet, curiously, by widespread dissatisfaction among the many actors involved. Delcy Rodríguez’s first international trip and key legal reforms aimed at opening the economy to international private capital also made headlines.
On the political front, there was movement, though little progress. The regime appears to be acting to comply with specific directives from Washington, but most of the time the results amount to little more than symbolic gestures. For example, on the five-month anniversary of Nicolás Maduro’s absence from power, a mass prisoner release was announced at El Helicoide — a dark detention and torture center where political prisoners were being held. However, according to the NGO Foro Penal, the prisoners were instead transferred en masse to other detention facilities around the country, creating additional hardship for families and legal advocates. An unplanned consequence of this debacle was the embarrassment of Secretary of State Marco Rubio, who had told Congress that the closure had already taken place.
Legal Framework and Reforms
As problems arise — and possibly at the behest of the U.S. government — the National Assembly (NA) is approving organic laws with little debate, as occurred with the Hydrocarbons Law and the Mining Law. This time, the electricity sector was addressed, given that its constraints represent the Achilles’ heel of any attempt at economic recovery, particularly in the oil sector.
As in previous cases, following more than 15 years of state monopoly, the NA unanimously approved the reform of the Organic Law on the Electrical System and Service on first reading. The bill provides for concessions of up to 25 years, allowing both domestic and international private-sector players to invest in the generation, distribution, and commercialization of energy. The new reform appears to follow the same formula as the earlier laws: the mandate is nominally fulfilled, but the underlying subject has failed. All of these laws, while representing a step in the right direction, lack the elements necessary to attract investors and, in some respects, reaffirm the regime's statist bent: discretionary decisions and a lack of transparency are the most glaring shortcomings. Even Chevron — typically the backbone of Venezuelan production growth and a supporter of the Chavista regime — announced through its CEO that no additional investments will be made unless conditions change.
Secretary of State Marco Rubio maintained before Congress that things were evolving favorably and that only five months had passed, calling for patience. Nevertheless, despite the undeniable fact that oil revenues received by the Venezuelan Central Bank (BCV) had more than tripled, economic stabilization has not been achieved, due to the disjointed management of the foreign exchange market, which continues to maintain a wide gap between the official rate, the intervention rate, and the parallel market, fueling inflation and prices beyond the reach of ordinary citizens. Indeed, the official exchange rate closed at 567 Bs./$ and the spread hovered around 30%.
Another example of this disconnect between what is required and what is being implemented is the draft regulations for the Organic Hydrocarbons Law, which are circulating and clearly require a thorough overhaul. Similarly, a draft model oil contract circulating on social media is being reviewed by the interim government and PDVSA to make the terms more attractive to private companies, following investor complaints about excessive state control and incompatibility with OFAC licenses. Specifically, the clause granting the executive the legal authority to unilaterally cancel contracts with oil companies on grounds of “harm to the public interest” has already been modified — a provision that enabled expropriations over the past 20 years and is remembered with deep unease by investors.
Transparency and Financing
It is important to note the conspicuous lack of transparency in the management of oil revenues in both Washington and Caracas. Except for a few details shared with Congress and in Executive Order 14373, the Trump administration has provided almost no information about the system it has established to sell Venezuelan oil, collect revenues, and allocate the funds. The administration has also not published the written agreements it has entered into with the Venezuelan government, traders, buyers, banks, and other entities involved in the process.
The regime formally launched the process of presenting its new macroeconomic framework and external sovereign debt restructuring plan to the international financial community, with Centerview advising on financial matters and Hogan Lovells on legal matters. The IMF appointed Álvaro Piris as head of the mission for Venezuela. Despite all these steps, no credible recovery plan for the oil industry and the broader economy has emerged that would inspire confidence in the IMF, the World Bank, or the IDB. The absence of an economic model capable of generating future funds to service the debt suggests the process is premature. Moreover, the prospect of carrying out a restructuring without IMF participation seems somewhat far-fetched and even irresponsible.
Politics and Transition
In general, these inconsistencies between the call to invest in the country and the conditions being offered — along with the slow pace of releasing political prisoners, appointing an independent National Electoral Council (CNE), and restructuring the judiciary — are fueling the perception among a large segment of the population that compliance with the conditions of U.S. support is leading to a consolidation of the interim authorities, rather than to an early political transition based on elections. This climate of uncertainty may explain the somewhat surprising visit by General Dan Cain, Chairman of the U.S. Joint Chiefs of Staff.
The opposition, backed by statements from exile figures such as Edmundo González Urrutia, continues to insist on the need for transparent presidential elections, while María Corina Machado keeps pressing for a definitive political solution and her own return to Venezuela.
Separately, it was announced that a major hydrocarbons sector event, “Venezuela Energy Week,” is being organized to showcase the country’s investment conditions and the requirements for reactivating its industry. One hopes the event takes place with a clearer sense of when the political changes necessary to give any of these announcements real meaning will actually begin.
Oil Operations
During the week, power outages and the lingering effects of the accident that occurred a few weeks ago at the Planta Lama facility on Lake Maracaibo curtailed potential production growth.
This week’s production stood at 915 Mbpd, distributed geographically as follows:
West: 249 Mbpd
East: 110 Mbpd
Orinoco Belt: 556 Mbpd
TOTAL: 915 Mbpd
Mixed enterprises operating under OFAC licenses and the new contracts established under the recently reformed Hydrocarbons Law (LOH) are producing the following volumes:
Chevron: 256 Mbpd
Repsol: 50 Mbpd
M & P: 29 Mbpd
Other mixed enterprises in the Orinoco Belt closed the month of May with the following average production figures:
Sinovensa: 102 Mbpd
PetroRoraima: 32 Mbpd
PetroMonagas: 92 Mbpd
PetroCedeño: 90 Mbpd
National refineries processed 260 Mbpd of crude oil and intermediate products, yielding 77 Mbpd of gasoline and 79 Mbpd of diesel.
The José Petrochemical Complex is operating normally, though with limited natural gas availability. Daily production stands at 6,100 metric tons of methanol, 2,400 metric tons of ammonia, and 3,100 metric tons of urea. At the El Tablazo complex, the Chlor-Alkali plant was brought back online following a major maintenance overhaul. The Morón complex remains inactive due to a lack of natural gas.
May Exports
The official closing figures for May exports are as follows: 770 Mbpd were exported from current production, with a drawdown of in-country inventories. An additional 270 Mbpd were exported from offshore and floating inventories, for a total of 1,040 Mbpd exported; 50 Mbpd were shipped from Puerto Miranda to the island of Saint Lucia for inventory purposes.
Of the total exported, 760 Mbpd corresponds to Merey 16 crude, 138 Mbpd to Boscan crude, and 113 Mbpd to Hamaca crude. The crude oil loaded at Puerto Miranda corresponds to Blends 14 and 17, sourced from PetroZamora.
520 Mbpd were exported to the United States, 410 Mbpd to India, and 110 Mbpd to Europe (Spain, Italy, and the Netherlands).
The Venezuelan basket price averaged $87.3/bbl.
[1]: International Analyst
[2]: Nonresident Fellow, Baker Institute
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