by Hakan Kaya, PhD, Senior Portfolio Manager, Neuberger Berman
Over the weekend, the U.S. carried out a major military operation in Venezuela, capturing President Nicolás Maduro and transferring him to New York for prosecution. The U.S. administration announced plans to oversee Venezuela for the immediate future, with American oil companies expected to play a role in restoring the country’s energy sector. In response, Venezuela’s Supreme Court appointed Vice President Delcy Rodríguez as interim leader. Rodríguez condemned the U.S. action and signaled a defensive but pragmatic stance.
Global and Regional Perspective
The situation remains fluid and developing. In the meantime, there is a risk of a power vacuum occurring, which could trigger a second phase of U.S. military action if instability were to escalate. In historical terms, it’s possible to draw parallels to Iraq in 2003 but these are limited as, for instance, Venezuela lacks deep sectarian and religious fault lines. Regional and global spillovers appear contained: Cuba and Nicaragua are more marginal to U.S. interests, and reactions from China and Russia are likely to be muted. Systemic impact on Latin America and the broader emerging markets space is expected to be minimal.
Oil Market Impact: No Instant Supply Surge
While headlines may suggest a rapid increase in Venezuelan oil supply resulting from the U.S. action, the reality is more nuanced. Maritime enforcement around sanctioned tankers continues in Venezuela, with reports of halted loadings and stricter monitoring. Even if U.S. policy relaxes and broader exemptions for Venezuelan exports are granted, there will be no instant surge of barrels.
Key frictions include:
- Contracts that must be renegotiated
- Licenses that need clarification
- Shipping and insurance that must be rerouted
- Operations that need to be stabilized on the ground
Furthermore, Venezuela’s heavy crude production depends on imported diluents for blending to make it more viscous for transport and handling. Traditional sources of these diluents, such as Iran and Russia, have become unreliable due to tighter enforcement and maritime sanctions. As a result, Venezuela will need to source diluents from the U.S. or other Western suppliers, which requires explicit policy exemptions or licenses.
Beyond the Headlines: Slow Repair, Shifting Incentives and Market Repricing
Restoring Venezuela’s oil sector will be a long and complex process. Decades of underinvestment and mismanagement have left infrastructure, skilled labor and institutional capacity severely degraded. The state-owned oil company Petróleos de Venezuela S.A., or PDVSA, remains deeply intertwined with military interests, complicating reforms. U.S. oil companies may find themselves taking on roles beyond commercial operations, including capacity building and infrastructure management. Political and security risks remain high, and stability is essential for attracting investment and enabling production growth. Foreign stakeholders, particularly those from China and Russia, face uncertainty regarding their interests in Venezuela’s energy sector. The transition period may bring geopolitical friction and complicate operational decisions. Broader economic and social stabilization, including debt restructuring and demilitarization, will be necessary for a sustainable recovery.
Current Venezuelan crude production stands at 0.93 million barrels per day, according to a Goldman Sachs estimate on January 4. If U.S. policy allows the export of diluents such as naphtha, production could step up, especially if flows from other suppliers are interrupted. Market participants generally see this phase as potentially adding several hundred thousand barrels per day over time, but only if contracts, shipping and investment align. Even then, the increase would not be instant. Commercial decisions, operational adjustments and at least some political stability are prerequisites.
At the same time, a potential increase in Venezuelan output may be viewed by U.S. shale producers as a direct threat to their business. This development could be interpreted as adding risk to future investment decisions, leading some shale operators to refrain from incrementally investing in new production. Given the price sensitivity of U.S. shale, the prospect of additional supply from Venezuela may prompt a more cautious approach, with producers holding back on expansion until the market outlook becomes clearer.
Supply Response and Market Structure: How Extra Barrels Feed Through
In the short run, market reactions may show up not just in flat prices, but in:
- Grade differentials (heavy vs. light)
- Location differentials (regional benchmarks)
- The shape of the forward curve
For example, spreads between heavy and light grades, or between regional benchmarks, can widen if Venezuelan supply remains constrained while refiners in the U.S. Gulf Coast, China and other importing countries seek alternatives. As sanctions are lifted and Venezuelan barrels become more widely available, these discounts should narrow, raising costs for buyers who previously benefited from cheap, sanctioned crude. During any period of constraint, importers may face price hikes and tighter differentials, especially if alternative supplies are also limited. The forward curve may steepen in nearby contracts to price short-term tightness if logistical or political risks persist.
Longer term, because many oil fields decline quickly, especially in U.S. shale, increasing production means there is a greater need for replacement barrel volumes to maintain overall supply. As output rises, more wells experience rapid declines, requiring continuous investment in new production just to offset these losses. By the time a sustained Venezuelan increase becomes feasible, natural decline in mature basins, including U.S. shale and non-OPEC conventional fields, will likely be more visible.
On the demand side, traditional drivers such as population growth, urbanization and rising incomes in emerging markets persist, while newer factors like energy usage from data centers and AI computing, and the electrification of infrastructure, continue to rely on hydrocarbons. Additional Venezuelan barrels may be necessary to offset declines and meet growing needs, but they are unlikely to be sufficient to solve the long-term supply challenge.
From Fragile Recovery to Repricing Risk: Venezuela’s Barrels in a Tightening System
Geopolitics also plays a role. On one hand, the removal of Venezuelan military pressure on Guyana is a constructive outcome for supporting stable offshore oil development and supply reliability in the area. On the other hand, in a world where energy is increasingly seen as a national security asset, large importers such as China may frontload their strategic stockpiling of energy assets, especially now that they observe new supply risks directly to their energy security and shifting U.S. policy. Recent protests in Iran have added further engagement risks for the U.S., increasing uncertainty around future supply from the region and contributing to overall supply risk. This competition to secure physical barrels and inventory can underpin structural demand and support the long-run case for staying invested in oil.
Implications for Investors
The recent pause in OPEC production hikes, coupled with its readiness to cut, serves as a stabilizing force, helping to offset volatility and supply uncertainty. Near-term price action is likely to remain noisy rather than decisive. Downside price risks include faster-than-expected normalization of Venezuelan exports, rapid sanction reliefs and potential demand slowdowns. At the same time, there are compelling reasons to stay constructive over the medium to long term. The portfolio implication is clear: look beyond headlines and focus on full-cycle fundamentals, replacement dynamics and signals embedded in differentials and the forward curve. Use short-term volatility as an opportunity to maintain disciplined, diversifying, energy-biased exposure.
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