Political upheaval in Venezuela: Limited immediate impact on regional financial markets

Following Maduro’s arrest, former Vice President Delcy Rodríguez was installed in office. It is now expected that the United States will effectively govern the country together with Rodríguez until a political transition takes place, a process that could take up to a year. The fact that the US administration did not install the opposition candidate suggests that Rodríguez is considered better positioned to ensure the functioning of government and to keep the various factions of Chavismo united. Given the fragile balance of power, even a small power vacuum could trigger chaos, making a controlled transition inherently risky. However, the presence of US military forces is likely to mitigate these risks. In addition to securing access to further oil resources, one motivation for US intervention is likely to be sending a signal to China to stay away from the continent. At the same time, US actions also send a message to other global powers, which may interpret this intervention as a precedent – structurally increasing geopolitical risks.

Although developments in Venezuela have not yet triggered major market reactions, two potential influence factors remain in focus: possible effects on oil prices and the political signalling impact on other left-wing governments in Latin America.

Implications for the oil market
Venezuela’s current share of global oil production is relatively small, at around 900,000 barrels per day. As a result, the short-term impact on oil prices is likely to be limited, though it will depend on how the situation evolves. Temporary operational disruptions, workforce shortages or precautionary shutdowns cannot be ruled out. If the situation remains stable and the oil embargo is lifted, a modest increase in production would be conceivable. However, given the country’s outdated infrastructure, the scope for such an increase is limited.

While Venezuela holds around one fifth of the world’s proven oil reserves – the largest confirmed reserves globally – their development would require substantial investment and would only materialise over several years. US oil companies are likely to wait for a stable government before committing capital. According to analyst estimates, production could rise to 2–3 million barrels per day over the next five to seven years, requiring annual investments of USD 10–12 billion. Several US oil companies have already expressed interest. Overall, given the backdrop of lower oil prices, we remain somewhat cautious on the sector and prefer state-owned oil producers over independent producers in the region.

Geopolitical implications for Latin America
US involvement in Venezuela has increased geopolitical risks in the region. That said, we do not expect military interventions to be extended to other countries. At the same time, we have observed increasing engagement by the US administration in Latin American countries over recent months. US-friendly governments, such as Argentina’s, have been rewarded with financial support, while opponents – Brazil, for example – have faced growing pressure, including in the form of higher tariffs.

With upcoming elections, there is a particular risk that the US administration may seek to exert indirect influence in Colombia and Brazil to weaken or unseat incumbent left-wing presidents. For Colombia’s President Petro, Maduro’s removal also represents a political setback, as he had consistently defended him publicly. From a market perspective, however, a potential political shift towards the centre or centre-right in Colombia and Brazil would be viewed positively and could offer outperformance potential. We therefore remain overweight in both countries.