Executive Summary
- The US military operation in Venezuela on 3 January 2026 is geopolitically dramatic but economically minor, given Venezuela’s very small role in the global economy.
- Venezuela produces only around 1% of global oil supply today, despite having the world’s largest proven reserves – short-term disruption to Venezuelan oil output can be easily offset by other producers, limiting risks to global energy markets.
- Financial markets reacted calmly, with equities rising, volatility contained, and oil prices showing no sustained disruption.
- A meaningful increase in Venezuelan oil supply would require a durable regime change and is likely to improve the global macro-economic environment if it does happen.
- Well-diversified portfolios not only help investors tide through inevitable shock incidents and periods of volatility but also allow investors to benefit from a large variety of industry, economic and political developments.
What Happened on 3 January 2026?
On Saturday, 3 January 2026, the United States carried out a large-scale military operation in Venezuela in an action described by the Trump administration as targeting drug trafficking and corruption networks. The operation involved strikes on strategic sites including Caracas and especially Venezuela’s largest military installation at Fuerte Tiuna. Nicolás Maduro and his wife, Cilia Flores, were reportedly seized by U.S. special forces there and extracted from Venezuelan territory.
Maduro, who had led Venezuela since 2013 and was controversially inaugurated for a third term in 2025 amid accusations of an unfair election, was taken into U.S. custody. He was flown to New York and placed in federal detention, where he is expected to appear in Manhattan federal court on Monday on drug trafficking and related charges brought by U.S. prosecutors.
Venezuela’s Economic Significance on the Global Stage
As the owner of the world’s largest proven oil reserves, Venezuela is structurally and strategically important, but currently marginal to the global economy. Years of mismanagement, sanctions, institutional collapse, and underinvestment have reduced its actual economic footprint to a fraction of its potential.
Venezuela’s GDP stands at USD96 billion, which is approximately 0.1% of global GDP, and has shrunk by 75% in real terms since 2013. The country is not a material importer or exporter outside crude oil. It also has no meaningful contribution to global manufacturing, global supply chains and global capital markets.
Currently, Venezuela accounts for only about 1% of total oil output. On the other hand, Venezuela claims to hold 300bn barrels of proven crude reserves, even ahead of Saudi Arabia. Its Orinoco Belt contains vast heavy and extra-heavy crude deposits. Hypothetically, Venezuela could be a top 3 global oil producer.
Source: OPEC, Energy Institute, Goldman Sachs Global Investment Research
However, the economics of Venezuela’s oil reserves are very different from Saudi Arabia and other producers in the middle east. Venezuela’s oil is among the heaviest, most viscous, and most capital-intensive in the world to develop and extract, with breakeven price ranging from USD 45–70+/bbl, while Saudi Arabia’s crude is relatively light, low-sulphur, cheap to lift and operationally flexible, with breakeven price ranging from USD 5–10/bbl. In fact, many global refineries are not configured to handle Venezuelan crude. Interestingly, US refineries along the US Gulf Coast are specifically designed to handle heavy, high-sulfur crude oils like those from Venezuela.
On top of difficulties and limitations in realising the economic value of Venezuela’s oil reserves, production has collapsed from 3.2m bpd in the late 1990s to 700–800k bpd, constrained by US sanctions, deteriorating infrastructure, and loss of technical expertise. This production decline has accelerated since Maduro’s election in 2013.
Source: Secondary Sources, Goldman Sachs Global Investment Research
To summarise, Venezuela has no economic significance to the global economy at any level outside of energy markets. Even as an energy producer, Venezuela has very little impact on current output or demand; instead, its significance mainly consists of optionality value, where under a scenario of improving conditions and over a multi-year horizon, it is possible for the country to make a significant difference towards global oil supply. However, these required conditions are very distant from current reality.
Immediate Market Impact of the Military Action on 3 January
The impact of Saturday’s actions on financial markets, while loud and attention grabbing, has ranged from muted to positive. Energy markets were weaker during the first hours of the early trading sessions with both WTI and Brent crude prices falling more than one percent, before gaining some ground overnight and finishing around 1.5% higher.
US equity market futures were positive, with early gains ranging from 0.1% to 0.3% in the immediate aftermath, before gaining ground in the cash trading session and ending nearly 1% higher. Asian markets saw larger positive returns with the Nikkei rising 2% and the STI gaining 0.52%. Tech-heavy north Asian markets in Korea and Taiwan also rose near 3.4% and 1% respectively, clearly more heavily influenced by a strong gain in semiconductor stocks in the previous week, rather than military actions over the weekend.
In the US energy sector, the market reaction was resoundingly positive. Oil majors like Exxon Mobil and Chevron traded up 4.3% and 10.2% respectively in early morning pre-market trading, with the energy sector ETF gaining 4.6%.
In response to the elevated perceived political risk, gold was up approximately 2%. Bond yields and volatility futures declined modestly. The move in currencies was slightly more significant, with US dollar Index gaining 0.3% in the immediate aftermath, before closing slightly negatively, as the equity markets rallied.
Based on the initial market reaction, while events may be fast-moving and further developments may yet be played out, overall volatility has been limited and investors may take comfort that markets appear to have priced the actual impact of the Venezuela event in accordance with the minute economic position of the country relative to the global economy, as outlined above in the sections above.
In other words, markets have not reacted strongly or assigned much weight to potential economic or political risks which may occur because of this event, because Venezuela simply does not influence the global economy, or even energy markets to any significant degree, at least in the short term.
Potential Longer-Term Economic Implications of the Event
In the longer term, there may be some more significant implications for energy markets. As discussed earlier, any decline in Venezuelan production which may occur because of the event is more than readily fulfillable by output adjustments in other major producers.
While there is some initial optimism for a more US-friendly administration to take place, at least based on commentary from the Trump administration, we see this as less-likely without further intervention, given the same cabinet and military factions remain in power, with the appointed replacement also a Maduro loyalist and fellow Chavista. The current rhetoric between both parties is far from conciliatory and does not support a narrative of a US-friendly government being installed. Elections mandated by the Venezuelan constitution would not be a panacea either, given the high likelihood of suspension or control by the ruling party.
While not our base case, a US-friendly government would almost certainly see oil production and exports rise as sanctions are rolled back, infrastructure repaired and oil wells turned back online with foreign assistance and investment. US gulf coast refineries currently dependent on expensive Canadian heavy blends would see a significant freight-cost advantage leading to an improvement in gross refining margins. In the longer term, heavy product production, yield and availability will rise, benefiting not only the refiners, but the general US economy as well, by way of cheaper industrial input and energy prices feeding through to lower inflation and higher production. In a goldilocks scenario, this might allow the Federal Reserve to lower the long-term rate outlook even amidst a strengthening economy.
Ultimately, the long-term impact of a sustainable regime change would be negative for oil prices, and positive for the global economy.
With regards to the US dollar, while media reports have painted a scenario where such a seemingly unilateral and reckless action by the US would further accelerate the decline of US hegemony on the global stage, the immediate market reaction has been the opposite, with the US dollar index rising instead. While this may be a flight-to-safety reaction, the lack of large downside moves in other markets suggest otherwise. On the other hand, it may be that markets perceived this move as a strategically-sound bet by the US, which would in the longer term, maintain or improve the US’ position and hegemony on the global stage. Either way, it is unlikely that the incident will have a direct sizeable impact on the US dollar in-and-off itself. As for longer term implications, the evolving situation will need to be monitored before making any determinations.
Impact of the Incident on Our Portfolios
With the market reaction muted thus far, the impact on our portfolios has been similarly limited. If the market continues to price-in a medium to longer term increase in crude oil supply, the resulting decline in oil prices would likely lower the inflation and interest rate outlook, which would be a net positive for equities, bonds and other assets.
Within the energy sector, the impact would be mixed, with US oil majors with potential access to cheaper Venezuelan crude benefiting from improved margins, while high-cost producers in the rest of the world may suffer from lower prices.
Our portfolios, being tilted towards the value factor, contain higher than benchmark allocations in the energy sector. For example, the DFA Global Core Equity Fund, which is a holding in our Dimensional and Index Plus Portfolios, has a 4.6% allocation in the sector, versus a 3.33% allocation in the MSCI World Index, with about 2% of the fund invested specifically in US energy companies.
Hence, should the objective of opening Venezuela oil production be achieved, we would expect our portfolios to benefit accordingly.
The unexpected incident and subsequent market reaction is a good reminder to investors that while headlines may inspire a plethora of emotions, markets more-often-than-not react rationally, rapidly and unemotionally in discounting the relevant economic impact. Well-diversified portfolios not only help investors tide through inevitable periods of volatility but also allow investors to benefit from a large variety of industries and different economic and political developments.
The writer of this article, Glenn Tan, is Portfolio Manager at Providend Ltd, Southeast Asia’s first fee-only comprehensive wealth advisory firm. He is also a CFA Charterholder and a Certified Financial Risk Manager (FRM).
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