Venezuela’s political upheaval is unlikely to rattle markets in the short term, but it could reshape global oil supply and defence spending over the coming years, according to Franklin Templeton.
The United States carried out a major military operation early Saturday 3 January, launching airstrikes across Venezuela’s capital, Caracas, and capturing President Nicolas Maduro and his wife, Cilia Flores. President Donald Trump confirmed the “large-scale strike”, which is believed to have killed at least 40 people, including 24 Venezuelan soldiers.
In the wake of Maduro’s removal, Vice President Delcy Rodriguez was sworn in as interim president, though the political future remains uncertain.
As Rodríguez assumes the role of interim president and signals strong opposition to US plans for so-called “regime change,” the situation in the country remains uncertain and fluid.
Stephen Dover, head of the Franklin Templeton Institute, highlighted the initial implications for markets and investors.
“US intervention is not unprecedented. The US has a long history of intervening in the Western Hemisphere. The US first formally declared its ‘hegemonic interests’ in the region via the Monroe Doctrine of 1823. It would therefore be incorrect, in our view, to consider this action as a fundamental change in US foreign policy, or to suggest that similar steps might be contemplated in the Middle East or elsewhere,” Dover said.
The US military’s actions are expected to reinforce a global trend toward increased national security investment, Dover noted.
“Defence investment becomes more important. The Trump Administration has reinforced the perception that the US is willing to act unilaterally and to use force. Other countries, with territorial interests elsewhere, could be emboldened by the US use of power.”
“This action,” Dover said, “will also likely add to the uncertainty of the dollar’s role as the ‘safe haven’ while raising further questions about deterioration of international institutional pillars. Today’s US military action is therefore likely to reinforce the trend, well underway, for various countries worldwide to invest more in their national security. That has been one of our key investment themes since the Russian invasion of Ukraine.”
Despite Venezuela holding the world’s largest crude reserves, Dover said immediate changes to global oil supply are unlikely.
The country’s aging extraction infrastructure and the low quality of its heavy crude limit output potential, and most Venezuelan oil is exported to China.
“Limited short-term oil supply impact. Given the uncertainties about how Venezuela will be governed and given the checkered US history of ‘regime change’ in petro-countries (e.g., Iraq or Libya), oil markets are unlikely to anticipate a rapid increase in crude oil supply from Venezuela,” he said.
Over the longer term, political stability in Venezuela could unlock significant crude supplies. Dover suggested that, combined with a potential peace deal in Ukraine, more than 5 million barrels per day could enter global markets by the end of the decade.
“Longer-term stability in Venezuela, coupled with a potential peace deal in Ukraine, could release more than 5 million barrels per day of oil onto global crude markets by the end of this decade. If so, that would amount to about 5 per cent or more of global crude output, enough to keep oil prices depressed for longer, which would be a clear positive for global growth and a restraint on inflation,” he said.
According to BlackRock Investment Institute, US action in Venezuela underscores deeper geopolitical fragmentation but the firm says there is limited risk to global markets.
“We see limited global market impact for now. Our pro-risk stance and overweight to US equities, the AI theme and emerging market bonds have not changed,” the firm said in a commentary note.
“For us, one thing is certain: Saturday’s events underscore deepening geopolitical fragmentation: we’re now in the third distinct world order since World War Two, marked by the US resetting its economic and geopolitical relationships with the world, reflected in its recently released National Security Strategy.”
BlackRock is watching how regional fragmentation evolves and any broader ramifications.
“For Venezuela, we are watching any roadmap to a transition and whether Vice President Delcy Rodríguez, a loyalist to Maduro and former President Hugo Chávez, remains central in any interim leadership. How the US administration deals with a future Venezuelan government can play out in a wide variety of ways, but with limited transmission to global markets.”
Other factors the firm is keeping an eye on include migration from Venezuela to neighboring countries and any calls for new elections.
“On the macro front, we expect very limited near-term changes in Venezuela’s oil, gas and mining output.
That means the commodities channel is unlikely to drive immediate macro impacts.”
“The latest geopolitical developments don’t change our assessment of the centre of gravity in this new regime but further underscore the importance of scenario mapping,” BlackRock said.
