The oil market has largely shrugged off Venezuela’s political upheaval after the US ousted the country’s leadership on January 3. Benchmark Brent has traded in a tight $60-61/barrel band in the wake of the audacious Caracas raid, not too from levels seen through December.

The aftershocks of President Nicolas Maduro’s capture and arrest continue to reverberate, and uncertainty hangs over President Donald Trump’s plan for a “safe, proper and judicious transition”. Any further jolts to Venezuelan oil production in the coming days may still leave crude largely unmoved. At an average of 930,000 b/d last year, Venezuela accounted for less than 1% of global liquids supply and an already oversupplied market – by most accounts — provides a buffer against any near-term price shock.

Misleading early calm

That early calm, however, is misleading.

The unfolding regime change in Venezuela could trigger the biggest rewiring of global oil flows since Russian crude and product trade flows were reshaped by Western sanctions and embargoes after the February 2022 invasion of Ukraine. The market will, as ever, find ways to adapt – but the stakeholders caught in the cross-currents will face a period of messy adjustment. A fresh layer of geopolitical tension could also emerge, as new winners and losers jockey to protect their interests.

President Trump has already unsettled markets this week by declaring that Venezuela will be “turning over” 30-50 million barrels of its crude to the US. The oil would be sold at “market price”, he wrote in a Truth Social post, a claim that is difficult to take at face value when the balance of power is so heavily tilted towards Washington. The proceeds would be controlled by the US “and used to benefit the people of Venezuela and the United States,” President Trump added.

While the fate of the 50 million barrels may not move the needle globally, it does sharpen the question of what Washington intends to do with Venezuela’s extra-heavy crude going forward. It is prized by US Gulf Coast refiners, has long helped sustain neighbouring Cuba, found an outlet in India before the latest US sanctions, and – at a discount – became a lifeline for China’s small independent “teapot” refiners via sanctions-era trade channels.  

Impact on Gulf Coast

If the US decrees that all Venezuelan crude should be directed to the Gulf Coast, at least initially, it would likely displace some imports of comparable Canadian grades. Those barrels would then need to clear elsewhere, most likely in Asia. The result would be added downward pressure on Canadian crude differentials, potentially enough to broaden its appeal to Asian buyers beyond China. But if and when Caracas eventually steps out from Washington’s shadow, the flows could reshuffle again.

Meanwhile, US control of revenue from Venezuelan oil sales for the foreseeable future would give Washington considerable leverage over the order in which creditors are paid. State-owned PDVSA reportedly owes billions under oil-backed arrangements to the China Development Bank (and possibly other Chinese banks), as well as to Russia’s Rosneft and its Venezuela successor, Roszarubezhneft.

Venezuela and PDVSA also owe an estimated $102 billion to bondholders and face compensation liabilities to a clutch of companies pursuing recovery via US courts, notably ConocoPhillips and Canadian gold miner Crystallex. Separate, older multi-billion-dollar claims stemming from past nationalisations – including those involving ConocoPhillips and ExxonMobil – are part of the overhang.

India’s ONGC Videsh Limited, Indian Oil Corp. and Oil India are also reportedly owed dues, largely in the form of dividends or profit distribution from their upstream joint ventures in Venezuela.

Potential impact on OPEC

Meanwhile, there is also the prospect of the US pressing Venezuela to exit the OPEC/non-OPEC alliance. That may have little immediate market impact, but it could still open up a new seam of tension between Washington and Saudi Arabia — and other Middle Eastern producers at the core of OPEC.

President Trump’s ambition to open up Venezuela’s oil sector, rehabilitate its run-down energy infrastructure, and monetise its vast untapped reserves – often cited as the world’s largest at nearly 304 billion barrels – looks overextended, with a highly uncertain timeline. The administration may coax US companies to step forward, but investment decisions will ultimately hinge on political stability and the emergence of credible, durable fiscal and regulatory frameworks, which could take years.

The Venezuela manoeuvre has also fuelled speculation about whether Washington could attempt something similar elsewhere – in places where it has signalled strategic ambitions, such as Greenland, or remains at loggerheads with the leadership, such as Iran.

Those aims can no longer be waved away as mere rhetoric. For now, the result is likely to be a world in which geopolitical risk stays stubbornly elevated, with fear and mistrust deepening across capitals and where the next flashpoint could ignite fast, with consequences that spiral beyond anyone’s control.