The US executed a military operation in Venezuela that resulted in the capture of President Nicolás Maduro and his wife.They now face narco-terrorism charges. Surely such an event should at least cause jittery markets and a higher oil price? However, Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says despite Venezuela having the world’s largest proven oil reserves (around 300 billion barrels, or roughly 17% of the world’s total), the impact on the oil price was limited.
“This is mainly because current production accounts for less than 1% of daily global oil output, with most going to China, which is reportedly now looking to Canada for more oil of a similar grade. Infrastructure in Venezuela is so neglected that it would take years for production to ramp up significantly, even if there was interest in investing. “For now, the US intends to sell stranded Venezuelan oil reserves, starting with about 50 million barrels, with the proceeds intended to benefit the country (by buying “ONLY America-made products” and with funds going into US-managed accounts).” She points out that the markets also appear to be treating Venezuela as a longer-term geopolitical and reconstruction story rather than an immediate supply shock, which helps to explain the muted oil price response despite the dramatic nature of recent events. “Of course, the long-term impact on the world order could be hugely significant over time and will largely depend on how other countries, notably India, China and to some extent Europe, react and position themselves going forward.” Jee-A van der Linde, senior economist at Oxford Economics Africa, also notes that the immediate market impact of US military action in Venezuela was limited, with little spillover into oil prices or broader geopolitical risk so far.
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