2026 has begun with a series of headline geopolitical risk events. On January 3, President Trump confirmed the capture and indictment of Venezuelan President Maduro, with the US stating its intention to oversee a transition of the Venezuelan government. Delcy Rodriguez was sworn in as interim president of Venezuela on January 6, and a Venezuela-linked, Russian-flagged oil tanker was seized on January 7. These developments have occurred alongside US rhetoric regarding Greenland, with President Trump reiterating prior statements that the US requires Greenland for its national security. Elsewhere, the UK and France have made commitments to send troops to Ukraine in the event of a peace deal with Russia, while ongoing, widespread protests are occurring in Iran.
In commodities, WTI crude oil prices remained largely flat. However, prices of heavy sour crude experienced double-digit declines in the days following Maduro’s capture. Heavy crude constitutes much of Venezuela’s resource base and requires more complex refining equipment. We believe short-term oil price impacts depend on how US policy on Venezuela evolves. While the country accounts for nearly 1/5 of global proven oil reserves, Venezuela oil production declined by 1.5mb/d over the last 10 years of Maduro’s Presidency.1 Higher recovery rates of heavy Venezuelan oil may pose downside risk to oil prices in the long-term. However, investments in oil-processing upgrades and improvements in operational efficiencies, power availability, and oil-transporting infrastructure will take significant time and capital.
In equities, US oil refiners, oilfield services firms, and major energy companies rallied. Conversely, Canadian energy players dipped. We believe a scenario of increased imports of Venezuelan heavy crude to the US would primarily benefit US Gulf Coast refiners, as we discuss below, with Canadian heavy oil producers experiencing increased competition. Venezuela’s domestic equity market rallied, though the country’s stock market plays no significant role in major market indices, and has not been included in the MSCI EM Equity Index since 2006.2
In fixed income, Venezuelan government bonds experienced a strong rally,3 building on significant positive returns in 2025 on speculation regarding US actions to foster political change. We believe further upside remains possible, contingent on the easing of sanctions and securing multilateral financing. However, the outlook is uncertain. Venezuela’s economic recovery is dependent on a substantial increase in oil production, in our view, while phased debt restructuring is unlikely to materialize in the near-term. Venezuela accounts for around 1% of the JPM EMBI Global Diversified Index.4
We are closely monitoring the ability of the new Venezuela leadership to negotiate with the US while managing the situation in Venezuela on the ground. Potential mass protests or military action may make an orderly transition difficult or impossible. The downside risk of a volatile political transition in Venezuela could reintroduce substantial volatility into the pricing of Venezuelan sovereign and PDVSA quasi-sovereign bonds.
We’ve just returned from the Goldman Sachs Energy, CleanTech & Utilities Conference in Florida (January 5-7), where we gathered first-hand insights from discussions with investors and major energy companies. Here’s what we heard:
- High Barriers to Entry for Venezuelan Oil Investment: Major energy companies are unlikely to make significant new capital investments in Venezuela in the short term. Prerequisites include repayment of substantial historical debts, fundamental changes to hydrocarbon laws, robust assurances of contract sanctity (potentially with US government backing), and durable, bipartisan policy support from both the Venezuelan and US governments. Without these, companies appear unwilling to commit new funds due to high operating risks and lack of clear protections. The recent announcement from President Trump that the US will be selling Venezuelan oil production going forward and controlling the proceeds would provide assurance of payment for oil majors, improving the chances of larger investments into the country’s energy industry. Even so, one international oil producer indicated they wouldn’t begin capital spending in Venezuela until around 2030, even if specific conditions were met, given its existing strategic priorities and capex plans.
- Long Lead Times and Substantial Capital for Production Growth: Even if significant barriers were removed, we believe increasing Venezuela’s oil production would be a multi-year, multi-billion dollar endeavor. Initial “low-hanging fruit” opportunities (~500,000 barrels per day (BPD) increase phased in over a multi-year timeframe) would require an estimated $10-20 billion in capital expenditure and 2-4 years for facility upgrades. Achieving a more substantial increase (an eventual additional 1 million BPD) would demand an estimated $70-80 billion and an even longer, undetermined timeframe.5 Oilfield service providers estimate 9-18 months just to bring production online after infrastructure is ready.
- US Gulf Coast Refiners are Likely to be Key Beneficiaries: Increased imports of Venezuelan heavy crude would primarily benefit US Gulf Coast refiners. This influx would likely widen the differential between heavy crude and West Texas Intermediate (WTI) by approximately $3-5 per barrel, allowing these refiners to capture improved margins through lower feedstock costs. Many complex Gulf Coast refineries were originally designed to process Venezuelan crude, potentially leading to more efficient operations. Conversely, Canadian heavy oil producers could see negative impacts due to increased competition.
Our 2026 Investment Outlook highlightedthatthe global economic and geopolitical environment is adopting a more multipolar structure, resulting in greater fragmentation and a broader array of opportunities and risks. Our public investing teams’ CIOs also recently emphasized the importance of monitoring several key macro and market factors in addition to geopolitics, including potential credit events, the AI buildout, China’s economic direction, and US fiscal dynamics.
Ultimately, we favor disciplined risk management, active security selection, and dynamic allocation to areas where fundamentals and policy tailwinds align. While geopolitical headlines can drive short-term volatility, markets remain resilient. Not every geopolitical event that dominates headlines will create a lasting shock. We believe events that slow growth or raise inflation, especially those that alter trade and supply chains, set off the greatest market dips. More than anything, structural uncertainty rattles markets.
