This past weekend U.S. Special Forces launched a large-scale military operation in Venezuela and in the process captured and arrested Venezuelan President Nicolas Maduro and his wife, Cilia Flores. Maduro and Flores were then flown to New York to face criminal charges as part of a four-count federal indictment including narco-terrorism conspiracy, cocaine-importation conspiracy, and weapons charges. Four other senior Venezuelan officials were named in the indictment - including Maduro’s son, Nicolas Ernesto Maduro Guerra - all of whom remain at large.
As of this morning, the U.S. has not ushered in regime change, as all the other members of the Maduro power structure remain intact. Former Vice President, Delcy Rodriguez has been selected as the new president of Venezuela and most recently struck a conciliatory tone with the U.S. administration, extending an invitation to work together on a cooperation agenda.
For more than a decade, power in Venezuela has been held by a small circle of senior officials with a civilian/military balance. The key people besides Maduro have been Delcy Rodriguez (Vice President), Jorge Rodriguez (Head of National Assembly), Diosdado Cabello (Interior Minister) and Padrino Lopez (Defense Minister)—the latter two being the military component. The power structure makes dismantling Venezuela’s current government more complex than just removing Maduro.
For now, there is no plan to have American troops or administrators in Venezuela, but President Trump is focused on petroleum, saying the U.S. would have a “presence in Venezuela as it pertains to oil.” The most likely intention of the U.S. administration was the removal of Maduro and to replace him with a pliant regime, but it is hard to see free and fair democratic elections in the near term.
Venezuela has been in an economic crisis for a decade but has the world’s largest proven oil reserves. The GDP has contracted by 75 percent since 2014, and it has had one of the worst hyperinflation episodes in modern history. The economy is almost entirely dependent on oil exports but has seen a production drop of over 3 million barrels of oil per day in 1990 to 800,000 barrels per day in 2023 due to underinvestment and sanctions. Resuscitating the country’s oil industry would be a huge task as it would also involve re-negotiating an enormous amount of debt ($65b of defaulted sovereigns and $40b of PDVSA debt).
Overall, there has been very little market reaction directly related to the Maduro arrest. The S&P 500, U.S. Treasuries, Emerging Market equity futures and oil are all higher to start the year. OPEC+ confirmed on Sunday that it will keep oil production steady through the first quarter of 2026, as eight key producers reaffirmed their commitment to market stability amid a steady global economic outlook and what they described as healthy oil market fundamentals. For Venezuelan oil to have a meaningful impact on supply, sanctions will have to be lifted, and large investments will have to be made by international oil companies. Currently, Chevron is the only U.S. company with waivers to work in Venezuela, so it clearly has a head start on the next phase of investment in the country.
