The recent U.S. actions in Venezuela and the volatile situation in Iran as the government cracks down on demonstrations currently appear to have limited impact on the oil market.
“In the near term, there is little scope for a meaningful increase in Venezuelan oil volumes. The key issue is not whether investment interest can be revived, but how far the system can realistically adapt under structural constraints – degraded infrastructure, heavy crude complexity, and institutional risk,” Tatiana Mitrova, research fellow at Columbia University’s Center on Global Energy Policy told NE Global. “Against this background, Venezuelan or Iranian supply stories do not redefine the global oil market trajectory; they are absorbed within an already adaptive system, which is why prices respond more to demand dynamics and substitution capacity than to individual supply narratives,” Mitrova added.
Chris Weafer, CEO of Macro-Advisory, the leading independent strategic business consultancy in the Eurasia region, also noted the U.S. action in Venezuela should have little short to medium-term impact. “Venezuela does indeed have the world’s largest oil reserves, but it is mostly very heavy crude oil. It is a lot more expensive than other oil regions to extract and to transport and the customer base is also relatively limited,” Weafer told NE Global, explaining that it would take many years of investment — repairing existing damage and neglect plus expansion costs — to increase export volumes.
The Trump administration is pursuing plans to sell oil from Venezuela and control the proceeds itself and U.S. President Donald Trump hosted nearly 20 oil executives at the White House on January 9, promising them safety and security if they invest $100 billion in Venezuela. But some of the oil majors including ExxonMobil CEO Darren Woods were skeptical with the latter noting that existing legal and commercial challenges make the country’s oil industry “uninvestable.”
According to Weafer the important considerations to attract investors are:
– The oil is under the Orinoco River Basin, a hugely sensitive environmental area. Any oil major or any bank that gets involved in any effort to develop these resources will be accused of damaging the environment and will again (it happened before) face major criticism and protests from environmental groups.
– The oil is very heavy, so the customer base is relatively limited. Refineries now processing other petroleum grades, e.g. Middle East oil, cannot quickly or cheapy switch to heavy oil.
– There will be considerable uncertainty about political stability, and therefore investment risk, in the region for many years (e.g. what happens when Trump leaves office?) and that also will curb any investment enthusiasm for some time.
The major U.S. oil companies will have to work with Washington to “plan” for investment and to “eventually” increase supply from Venezuela. But none will move quickly, and most will hope the pressure eases so that they have to do nothing, Weafer argued, adding that the prospect of increased Venezuelan oil, i.e. market impacting volumes, is an interesting talking point but it will more likely remain no more than that, and largely irrelevant for the oil price, for a very long time.
Norway-based Francesco Sassi, research fellow in energy geopolitics and markets at R.I.E.-Ricerche Industriali ed Energetiche in Bologna, Italy, and Postdoctoral Fellow at the University of Oslo (UiO), said the case of Venezuela is a timely test proving that politics could supersede economic rationale in energy policymaking in an era of tensions such as this one.
“The White House’s mandated investment in the country appears driven by geopolitical logic rather than market forces, raising questions about how the U.S. will wield its influence as a dominant energy power in the future,” Sassi explained, adding that rising geopolitical tensions are undermining market confidence in today’s abundant supplies. “The security is not threatened by a physical shortage of oil, but by the potential weaponization of energy as a political instrument in the hands of cynical and populist policymakers,” he said.
Global energy market
Oil prices climbed and settled at seven-week highs on January 13 on worries that Iran’s exports could decline. Brent futures rose 53 cents, or 0.8 percent to settle at $63.87 a barrel. U.S. West Texas Intermediate crude rose 38 cents, or 0.6 percent, to settle at $59.50.
There are still major concerns about the trend in the global economy. “Nobody is making any assumptions of a strengthening of activity or in demand for energy,” Weafer said, adding that there are concerns that the U.S. may again target China and other economies with higher tariffs or otherwise spark a trade war which would lead to reduce activity in major economies. Traders are reluctant to be optimistic about future demand growth and will remain reluctant until there is more stability in global trade and politics, he said, noting that is unlikely to happen in 2026 and will continue to suppress the price for oil and keep it in a narrow range either side of $60 Brent and until there is greater clarity in either side of the equation.
Supply concerns
Iran continues to export oil at a heavy discount. These exports are critical for the government’s budget and without it, the economy would collapse more quickly, Weafer said. “It is too early to say what will be the impact of President Trump’s statement that a 25 percent tariff will be imposed on imports from countries trading with Iran. That is directed primarily at China which, according to recent estimates, is buying most of Iran’s approximately 1.6 million barrels daily exports,” he said on January 13.
“If vigorously imposed, then I expect China will back off from Iranian imports as trade with the U.S. is much more important than the discounts it gets from Iran. We have seen this many times previously when sanctions against Russia disrupted trade with Chinese counterparties, albeit relatively quickly workarounds were put in place and trade resumed,” Weafer added. “It is far too early yet to say this will happen. We have become used to President Trump’s U-turns. But Beijing will be wary and will likely at least slow imports from Iran until the full picture and consequences are clearer,” he argued.
Traders are also now focused on what may happen in the Gulf of Aden and the entrance to the Red Sea. “Saudi has made clear it intends to take action to take greater control of Yemen, and the Israeli recognition of the Independence of Somaliland adds another risk factor for 2026. If there were to be an escalation in the region, this could disrupt oil flows even for a few months and push the price higher,” Weafer said, adding that without a major supply outage from Iran or Russia or the Gulf of Aden or a drop in demand due to an escalation in global trade wars, the price of Brent is more likely to stay in a narrow range close to the $60 level for the next six months.
Finally, Saudi Arabia and the core Organization of the Petroleum Exporting Countries (OPEC) states have demonstrated in the past that they will take action to cut supply if the price were to drop too far, Weafer said, adding, “I assume that level is in the low $50s for Brent as while their production costs are much lower, their budgets need a much higher price (in the $80s per barrel for Saudi) to fund their ambitious infrastructure and economic diversification programs.”
