The risks surrounding Venezuela, the world’s largest oil and gas reserves holder, are clearly skyrocketing. With Venezuela’s president, Maduro, calling upon Russia, China, and Iran to assist in a possible military confrontation with the USA, global oil and gas markets are growing increasingly nervous about a potential conflict. The ongoing military buildup by the Trump Administration around Venezuela, officially set up to confront the country’s perceived pivotal role in the international drug trade, almost looks like the so-called military training activities of Vladimir Putin’s Russia before the invasion of Ukraine. While no decision has officially been taken in Washington, military sources are indicating that military action or even an invasion of Venezuela has received the green light. Trump is clearly preparing for all scenarios, possibly not only reshuffling power structures in Latin America and the Caribbean but also affecting global oil markets in due course, with significant geopolitical implications involving Russia, China, and Iran.
While Venezuela holds the largest crude oil reserves in the world — estimated at around 303 billion barrels as of 2023, approximately 17% of global reserves — its total crude oil production is well below expectations. At present, the country produces around 1-1.1 million bpd, indicating a struggling upstream and downstream sector, which has been significantly hindered by factors such as international sanctions, infrastructure constraints, a lack of investment, and technical challenges in extracting and refining heavy crude oil. The country’s potential is gigantic, but reality shows a crude oil giant in despair, struggling not only to produce its heavy-sour barrels but also to export them to global markets. Primary production is currently focused on the Atlantic Basin, much of it tied to Chinese buyers and U.S.-licensed joint ventures. Due to ongoing U.S. sanctions and internal unrest, the country is struggling, showing a significant economic and political crisis, constraining even future developments indefinitely.
While Venezuela’s total production is not of fundamental importance in terms of barrels, the country’s central, absolutely pivotal position stems from its slate-critical supply to markets. A U.S. military campaign will always include disruption or destruction of ports, upgraders, and logistics, which would lead to the removal of so much more than “just another million barrels”. At the same time, while Venezuela’s LNG position is almost non-existent, a military action on Venezuela is expected to freeze the so-called Dragon gas tie-in to Trinidad & Tobago (feed Atlantic LNG). The latter would undoubtedly have a psychological effect on global gas markets.
Looking at Europe’s market position or exposure right now, it is mainly linked to prices, not molecules: Brent, diesel cracks, and war risk premia in the Atlantic. The U.S. would be able to cope in headline barrels (primarily through light-sweet growth), but U.S. refineries would definitely feel refinery-slate pain.
After the collapse during the late 2010s, Venezuelan crude output has shown some rebounds. During 2024-25, it increased production again, mainly through selective licensing and Chinese demand. Still, the country produces only 1-1.1 million bpd, of which about 1 million bpd are crude exports. While volumes are low, quality here puts Venezuela in the spotlight. As the prime exporter of heavy-sour grades and extra-heavy Orinoco blends, it provides precisely the feed that high-complexity cokers and hydrocrackers in the U.S. Gulf Coast (USGC) and parts of Asia are built to process. If Venezuelan production slips or breaks down, refiners will be forced to use fuel oil/resid imports as a substitute feedstock. So far in 2025, USGC plants have been calling upon Middle Eastern and other residual streams.
At this point, some form of military action is expected, with the main concerns centering on the approach taken. In a limited strike/naval blockade scenario, the physical effects will mainly affect export terminals (Jose), with some damage to upgraders and storage. Insurance premiums will jump, while risk-averse crews and war-risk underwriters will leave. Immediate effects are apparent: Brent will spike, and markets will see a higher heavy-sour premium vs. light-sweet. Diesel cracks are expected to jump too.
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With a sustained campaign (months) targeting industrial sectors, the main damage is expected to be to upgraders (Petropiar/PetroMonagas), while logistics is also constrained. Export volumes are down. In this scenario, markets can expect structural heavy-sour deficits in the Atlantic Basin, but OPEC+ could partially offset headline barrels. The primary concern, however, will be a significant quality mismatch, leading to higher diesel prices in Europe and suboptimal diesel yields at USGC refineries, highlighting the potential for long-term effects of the situation.
The primary concern, however, is that the Trump Administration will pursue a regime-change/occupation scenario. That would result in full-scale destabilization, capex freezes, and a breakdown in diluent and naphtha logistics. In this scenario, restoring the oil sector would take 12-18 months, and billions of dollars would be needed to revamp and upgrade.
The above means a significant risk to markets, even if some believe there is an oil glut or too much oil on the water. Venezuela’s million barrels count for more than only numbers, as refiners don’t run spreadsheets but units. Trump’s advisors should address the fact that heavy sour molecules deliver coker feed and diesel yields that light tight oil cannot perfectly replace. He should also look back over the past few months, as the USGC has witnessed a surge in fuel-oil imports intended to backfill constrained Venezuelan and Russian heavy oil supply.
The results for the U.S. are precise, but some should also be looking at Europe. As Europe buys globally priced barrels, any changes in Venezuela have a direct impact on industry and consumer prices. Since the Russian invasion of Ukraine in 2022, Europe has leaned heavily on U.S. diesel and gasoline, as Russian products were sanctioned. Any change in U.S. refinery output will lead to higher product import bills and diesel premiums in Europe. Yes, Middle Eastern diesel and Indian exports could fill some gaps, at a price, but the outcome of new U.S. and EU sanctions on Russia still needs to be assessed. Trump’s war on 3rd party Russian oil products has just started.
As some have already stated, every slate-specific shock shows that headline global balances matter, but molecule chemistry, geography, and insurance matter more in the first 3–9 months of a conflict. For European parties, it would be a smart move to start diversifying product sourcing, having vast inventories of certain quality, and assessing necessary logistics and insurance issues. As in the case of Ukraine, the signs are on the wall, moves are being made, it seems not to be the case “IF the USA will act on Venezuela, but more WHEN”. Any assessment of these developments should also take military strategy into account. As von Moltke stated, “No plan survives first contact with the enemy,” or Dwight D. Eisenhower, “In preparing for battle I have always found that plans are useless, but planning is indispensable”, preparation is needed. Still, the outcome of any further action by the U.S. on Venezuela is unclear. A full-scale military operation could easily bring in unwanted 3rd party responses, especially Russia, China, or even Iran.
A removal of the Maduro regime would entirely undermine Russia’s Vladimir Putin’s planning. At the same time, it uproots part of the growing influence-and-power game China is currently playing in Latin America. Iran is a Dark Horse, as the Tehran regime holds strong economic and military ties to Caracas. Looking at news emerging about Russian planes delivering sophisticated weapons and missiles in recent days, a confrontation could have regional and global implications, outside of the energy sphere, too.
By Cyril Widdershoven for Oilprice.com
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