How will OPEC countries react to the Venezuelan drama in the oil market?

In practice, Venezuela’s oil infrastructure has been suffering from underinvestment for a long time, so it does not seem that the South American country will be able to increase production soon. The position of the USA today as an oil exporter is also fundamentally different from what it was in the past. How will the dramatic move of capturing and removing Maduro – affect the oil exporters association OPEC Plus, and what will it do to prices? Or Azran, a research economist in the economics department of Bank Leumi, puts order in the meeting between geopolitics and the global oil market.

Even a dramatic change of regime in Venezuela, in terms of the oil market, “is not expected to bring about a real change in the short term”, says Azran. “It is true that Venezuela has large oil reserves, which are estimated at between 17 and 19 percent of all global reserves. But a developed infrastructure is needed to produce oil, and the number of rigs currently in Venezuela can be counted on one hand. In fact, there are currently only two active, compared to about 70 a decade ago.”

The process of renewing the infrastructure will probably take years. So it’s hard to see how it will affect the oil market. And even if it did happen, it is not at all certain that this would affect the prices: “The market is already in excess of supply, and even if the production increases further, this is not expected to have a significant effect on oil prices”, explains Azran.

China is the main customer

In general, it can be seen that the oil market in Venezuela is in a significant retreat. Even after the recovery since the corona crisis, he is in a position very far from the one that characterized him in the past. 20 years ago, Venezuela was able to produce “3 million barrels of oil per day. Today, the rate has dropped to only about a million,” Azran notes. This is due to a combination of underinvestment under the rule of Chávez and Maduro, who had difficulty attracting international investment.

After that, American sanctions were also imposed which were the last nail in the grave of Venezuela’s oil. According to Azran, there was “an easing of the American sanctions during the Biden era to allow elections for the presidency of Venezuela.” However, after in the eyes of the US, Europe and independent bodies – Maduro falsified their results, and the administration also changed in Washington – the US returned to the approach of maximum pressure on the country. This reached a peak in recent months with the blockade of oil tankers, and then also the capture of the president himself by the American “Delta Force”.

Venezuela’s oil has another problem: it is “heavy” (meaning compressed) and “sour” (meaning it contains a relatively high amount of sulfur), two properties that make it problematic to process. It is true that extremely heavy oil (fuel oil), which requires minimal refining, can be used as fuel for ships, but refining it into more useful fuel products requires dedicated refineries, which only exist in the US and India. And so, despite the strained relations between Venezuela and the US, according to tanker route data – the US is still Venezuela’s main oil export destination, with about 30% of the volume in 2025. But this number is only “On paper”: about 22% is directed to China, and about 28% of the exports were directed to Singapore and Malaysia, which are, apparently, a transit station on the way to China. According to Azran, “Hunuelian oil is not without use, but it requires special infrastructures. And if you can buy better quality oil when the price in the world is already cheap, why get involved?”

How will it affect our pocket?

One of the big questions is: What will they do in the Organization of the Petroleum Exporting Countries, OPEC, in which Venezuela is a member? According to the historical precedents, it can be seen that when an OPEC member country experiences a geopolitical event, which affects production for a limited period of time – there is a certain increase in production by other countries in the first months after the event.

Other countries “bite off” its share, but production usually gathers back after a few months. “Increasing production of this type may contradict OPEC’s official statements, according to which the organization does not intend to increase production,” says Azran. He explains that the strategy used by OPEC to maximize their profits is to reduce production and raise the price. But due to the competition with renewable energies, they are forced to lower the price to keep oil relevant and competitive, and they did so last year. However, the market is currently quite flooded, and OPEC apparently has no interest in increasing production. But each individual country may benefit from increasing its production alone, and “it is possible that countries like Iraq or Kazakhstan will break the ‘coalition discipline’ to benefit from the fact that Venezuela is having trouble exporting oil right now.”

“In general, the relatively low price of oil today makes it difficult and even the oil wells in the US are close to the “breakeven” point. “Current costs of American production are currently still maintaining a profit, but it does slow down investments in increasing production volumes,” says Azran.

So in practice, the meaning of the upheavals in Venezuela is not very big for our pocket. Oil prices are not expected to undergo significant shocks beyond the price drops we have seen so far.

*** Full disclosure: Data per week is a systemic project done in collaboration with Bank Leumi experts. The above should not be considered a recommendation or a substitute for the reader’s independent judgment or an invitation to make a purchase or investments and/or any actions or transactions. It is not a substitute for personal investment advice that takes into account the needs and data of each person