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infinityhedge

04 January 2026 20:10

VENEZUELA SITUATION: INFINITYHEDGE

>OIL :
*While Venezuela holds largest est. oil reserves in world on paper (17% of global reserves/300b barrels) but it's really goes btw 80B to 300B barrels depending on the price of oil (technically recoverable but not economically viable, due to extra-heavy crude, expensive to extract & refine)

*Currently, it produces ~800kb/d (due to Blockade but was ~1Mbpd for 2025 on avg). Production could rise by ~150kb/d within a few months if sanctions are lifted but getting back to 2Mb/d or higher would require nearly a decade & $60B-$100B+ in investment over that period

*Trump officials have told oil companies in recent weeks that if they want compensation for their seized rigs, & other property, they must be prepared to return to Venezuela & invest billions to rebuild the oil infra

*Any companies considering investment would need to address security concerns, dilapidated infra, questions about the legality of the US operation to remove Maduro, & potential for long-term political instability. American firms won't return until they have certainty of payment & at least minimal security guarantees. Chevron is the only oil major still operating in Venezuela

Impact on oil:
*US Keeps Blockade: this may not have a meaningful immediate impact on oil due to the relatively small vol from Venezuela & record amount of oil already on water (floating storage), there is already ample oil supply, notably in the Q1, & a temporary loss of Venezuelan oil has largely been priced in
*Chaos & War Game: Oil output could fall further than expected & world enters into a major geopolitical risk

*Bearish to Stable outlook: short-term downside risk to Venezuela production (Blockade) but long-term upside risk from a potential return of Western oil investments (if Peaceful Transition): <infinity hedge>

> Timeline: The entire outcome depends on potential peaceful transition with little resistance. If successful, a significant oil-production ramp up could occur in 5-7 years as infra is repaired & investments get sorted out. However, this depends on everything going right, & much could go wrong

> Political Complications:
*Trump dismissed the idea of working with Machado on a political transition, preferring Venezuela VP (now Interim President) Rodríguez However, she appeared to reject Trump's outreach, stating Maduro remains Venezuela's only president & vowing to defend the country's sovereignty & resources. Trump said "if she doesn’t do what’s right, she is going to pay a very big price, probably bigger than Maduro" while Rubio added "We'll assess based on their actions, US has levers to protect our interests, including the oil blockade", US won’t govern Venezuela but will press changes through oil blockade.

> China: called US to Release Maduro immediately & China Social Media Hails US Maduro Move as a Taiwan Template, "suggest using same method to reclaim Taiwan." China import about 4% of their oil from Venezuela so not a material impact (except the discount). China is also Venezuela’s biggest lender. Chinese firms are heavily invested in Venezuela’s infra (power, telecoms) so efforts to exclude Chinese investments & operators from the country could lead to unintended consequences

> Historical Context: Trump now joins the history of US presidents who have overthrown regimes of oil-rich countries, Bush with Iraq, Obama with Libya. In those cases, the US received zero benefit from the oil. History may repeat itself in Venezuela, an analyst told Reuters

> War Game: US officials ran a war game to assess what the Maduro fall might unleash: Results showed that chaos & violence were likely to erupt within as military units, rival political factions, & even jungle-based guerrilla groups jockeyed for control of the oil-rich country. Even if Maduro agreed to transfer power to a US-friendly successor (they assumed), some security forces could still rebel & even wage a guerrilla-type war, to exploit a power vaccum. The 1989 US invasion of Panama, a country less than 1/10 size of Venezuela, involved about 27k US Troops