Limited global oil price impact from U.S. invasion of Venezuela, U.S.-led production recovery seen as a long-term challenge

U.S. invasion of Venezuela unlikely to have major short-term impact on global oil prices
Despite holding the world’s largest reserves, output accounts for just 1% as infrastructure collapse and U.S. sanctions limit influence
U.S.-led production increases discussed, but multiple constraints seen delaying any meaningful market shift

A view is emerging that the U.S. airstrikes on Venezuela will have little short-term impact on global oil prices. Although Venezuela holds the world’s largest proven crude reserves, actual production remains limited due to collapsed infrastructure and years of export restrictions. Some argue that oil prices could even fall if Venezuela’s production system is rebuilt under U.S. involvement. Still, with numerous obstacles to overcome, the likelihood of a near-term “seismic shift” in the global oil market is seen as low.

Venezuela lacks production capacity relative to its oil reserves

According to the Organization of the Petroleum Exporting Countries (OPEC) on the 5th, Venezuela’s proven crude oil reserves stood at 303.2 billion barrels as of 2025, the largest in the world. That is well above second-ranked Saudi Arabia’s 267.2 billion barrels and amounts to roughly one-fifth of global reserves. Proven reserves refer to the volume of resources that can be commercially extracted given available technology and economic viability. This is also why concerns over a potential rise in international oil prices spread quickly after the United States detained Venezuelan President Nicolás Maduro and his wife on the 3rd (local time). In fact, on the 22nd of last month, when the United States seized an oil tanker off Venezuela’s coast, U.S. West Texas Intermediate (WTI) jumped 2.6%.

Still, some argue the impact of a U.S. invasion on global oil prices will be limited, given Venezuela’s small share of the global oil market. Venezuela’s output has fallen sharply due to the collapse of energy infrastructure under the United Socialist Party’s authoritarian rule, as well as U.S. restrictions. Production, which had reached 3.5 million barrels a day before the party came to power, slid to 1.1 million barrels a day as of last year. That is roughly 1% of global consumption and far below the output of major producers such as the United States (18.3%), Russia (12%), and Saudi Arabia (11.8%).

The fact that Venezuela’s oil production and refining facilities have not suffered direct damage is also reinforcing expectations that the shock to global markets will be limited. Reuters reported on the 3rd that a source at Venezuela’s state-run oil company PDVSA said, “Initial inspections show there is no damage to oil fields or refineries from the U.S. strike carried out to transfer the president,” adding that “production and refining are proceeding normally.”

U.S. eyes bolstering oil dominance through Venezuela

Some argue that global oil prices could even fall if the United States succeeds in restoring Venezuela’s oil production facilities. President Donald Trump said on the 3rd that “very large U.S. oil companies will go in and spend billions of dollars to rebuild badly damaged oil infrastructure” in Venezuela. He added that “much of it was installed by us 25 years ago, and we’re going to replace it,” saying the rebuilt infrastructure would allow oil to be sold on a much larger scale and the proceeds used to “take care of the country.”

The scenario most widely discussed on Wall Street is that the U.S. government would temporarily take over operational control of PDVSA and rebuild Venezuela’s oil infrastructure through joint ventures with major U.S. oil companies. Under this model, oil companies would front the investment costs and later recoup them through production-sharing agreements or oil-backed investment contracts tied to crude sales. This is also the approach taken by Chevron, the only U.S. refiner that had remained active in Venezuela. Chevron currently produces about 250,000 barrels a day through joint ventures with PDVSA and is compensated in physical crude rather than cash.

Even so, analysts expect it to take considerable time for the United States to achieve any meaningful production gains in Venezuela. Francisco Monaldi, head of the Latin American Energy Program at Rice University, said Venezuela would need about $100 billion in investment over the next decade to raise output to 4 million barrels a day. International law could also constrain Trump’s plans, as occupying powers are prohibited from unilaterally exploiting another country’s resources. Matthew Waxman, a law professor at Columbia University, noted that under international law an occupying military power “cannot enrich itself by taking another country’s resources,” while adding that the Trump administration is likely to argue the Venezuelan government never legitimately held those resources in the first place.

To sidestep such legal hurdles, the Trump administration could seek to shape the establishment of a legitimate Venezuelan government and then provide assistance at the formal request of the new authorities. Under this scenario, a transitional government would replace PDVSA’s management, install U.S.-backed figures, and form joint ventures with U.S. and multinational oil companies. A key uncertainty, however, is that the removal of Maduro does not mean Venezuela’s government, military, or public will readily comply with U.S. plans. With regime change driven by U.S. military force, there is a risk that anti-American armed groups or remnants of the former regime could retaliate through attacks. Past precedents—in which the Chávez and Maduro governments unilaterally voided contracts with foreign oil companies and seized assets—add another layer of risk.

U.S.–China relations, oil oversupply add to mounting uncertainties

If the United States moves ahead with plans to take control of Venezuela’s oil sector, trade tensions with China could flare up again. China has provided more than $68.7 billion in support to Venezuela since 2007, with over 91% estimated to be in the form of loans. In return, China secured deliveries of 100,000 to 150,000 barrels of oil per day, and as of last year, roughly 70–80% of Venezuela’s crude exports were bound for China. Trump said immediately after Maduro’s removal that “China will continue to receive its oil,” but the possibility cannot be ruled out that Washington could use Venezuela’s outstanding debt to China as leverage.

Another source of concern is that the global oil market has entered a phase of oversupply. Last year, four non-OPEC+ producers—the United States, Canada, Brazil, and Guyana—boosted output by about 1.52 million barrels per day, lifting their combined market share to 33%. OPEC+ also shifted toward higher production starting in April last year, restoring 2.2 million barrels per day of voluntary cuts out of the 3.85 million barrels per day it had been withholding since 2022. As supply surged, global oil prices remained relatively stable despite turmoil in the Middle East, including the Israel–Iran war and U.S. strikes on Iranian nuclear facilities, as well as strong U.S. and European sanctions on Russian oil.

This trend is expected to continue this year. The U.S. Energy Information Administration (EIA) forecasts that global oil supply will rise by 1.25 million to 2.4 million barrels per day this year, equivalent to a 1.2–2.3% increase from last year. While the pace of growth is slowing, it still exceeds the post-2015 average annual increase of 0.9%. As a result, the EIA expects an oversupply of 2.26 million barrels per day this year, while the International Energy Agency (IEA) projects an even larger surplus of 3.84 million barrels per day. Both would mark the largest oversupply since 2020, the first year of the COVID-19 pandemic. Global oil prices are also expected to remain near their lowest levels since the pandemic. Nine major institutions, including the EIA, Goldman Sachs, and Citigroup, forecast average WTI prices of $57 per barrel in 2026—about $8 lower than last year.