Geopolitical chess or economic folly: The US focus on Venezuelan oil

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While markets eye heavy crude flows and refiners’ gains, the reality is incremental change, not a reset. With Chevron already operating under constraints, Washington’s posture reflects caution amid transition, capital discipline and demand uncertainty rather than a geopolitical reboot.

Venezuelan oil and the short-term reaction

The initial market response has been instructive. Shares of major US refiners rose as investors anticipated increased access to Venezuelan heavy crude if sanctions were eased. US Gulf Coast refineries are structurally well suited to process these barrels, having been configured decades ago to handle heavy grades from Venezuela, Mexico and Canada.

This matters in the near term, but only up to a point. Sanctions policy can change quickly, and crude flows can be rerouted, away from China, which absorbed around 80% of Venezuelan exports, far faster than new supply can be developed. That explains the short-term market reaction. It does not materially alter the underlying supply picture.

Venezuela’s strategic relevance stems from the scale of its reserves, nominally the world’s largest, rather than from its current production, which is less than 1% of the market. Output has fallen from peaks of more than 3.5 million barrels per day to around 1 million barrels per day today, following decades of mismanagement, underinvestment and governance failures. Oil still accounts for more than 90% of Venezuelan exports, leaving the economy acutely exposed to disruption in the sector.

In decline: Venezuela's share of world oil production

The narrative that Venezuela could rapidly re-emerge as a major producer overlooks basic realities of oil production. Venezuelan production is dominated by heavy and extra-heavy sour crudes from the Orinoco Belt, which are costly to extract, carbon-intensive to upgrade and dependent on imported additives. Breakeven estimates for new projects are among the highest globally.

While it may be technically possible to achieve limited production increases, the more insurmountable constraints are above-ground: political instability, legal uncertainty, degraded infrastructure and unresolved arbitration claims.

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These challenges collide with a changed investment environment. Oil markets entered 2025 well supplied, with inventories building. Prices remain moderate. At the same time, investors are demanding sustained capital discipline. As a result, listed oil and gas companies have shifted away from growth toward free cash flow, dividends and buybacks.

That discipline has been evident initially in the slashing of low-carbon investments, but it increasingly applies to upstream exploration and development, particularly in high-risk jurisdictions. Exploration budgets have been cut, frontier projects deferred and long-dated investments subjected to greater downside scrutiny. In that context, large-scale greenfield investment in Venezuela appears misaligned with prevailing investor expectations.

Energy security and the transition context

This creates a tension at the heart of the Venezuelan story. From a geopolitical perspective, oil remains powerful enough, at least in part, to motivate military action. From an investment perspective, however, Venezuela concentrates precisely the risks investors have been working to reduce: high costs, long payback periods, political exposure and uncertain long-term demand.

That demand uncertainty is structural. Energy security is increasingly defined by electrification, grid resilience and control over technologies and critical minerals, rather than simply securing incremental oil and gas supply. Since Russia’s invasion of Ukraine, reducing dependence on imported oil and gas, including LNG, has become an explicit policy objective across Europe and parts of Asia.

Venezuela therefore illustrates the growing gap between geopolitical relevance and investment viability in the energy transition.

For investors, the lesson is not that oil no longer matters. Oil can still shape foreign policy and move markets. Rather, political urgency does not resolve economic reality. In a world of capital discipline, uneven transitions and evolving definitions of energy security, assets that rely on geopolitical intervention to become competitive are precisely those most at risk of stranding.