Key Questions: What Will Be the Economic Impact of the Political Events in Venezuela?

As if 2025 didn’t include enough political/geopolitical theatrics, the new year began right where the prior left off with most of us waking early Saturday morning in a state of surprise. 

Reason being, in a dramatic and carefully choreographed operation, the U.S. captured Venezuelan President Nicolás Maduro and his wife and subsequently transported them to a New York prison where they face charges related to narco-terrorism, cocaine trafficking, and other crimes. 

U.S. forces had been building in the region for months, with the White House sending increasingly hawkish signals, but the timing and precise form of the operation came as a surprise. And while we may likely see wide-ranging and potentially long-lasting political and geopolitical impacts from these events, we don’t believe we will experience any long-lasting significant impact on U.S. financial markets, which instead will be influenced more by economic forces and other factors.

At this point, there are many more questions than answers, and the situation remains extremely fluid. That said, the following are some of our initial questions and preliminary reactions.

Why Is This Happening?

In the past several months, President Trump and some of his advisers have argued for action in Venezuela because of its immense oil reserves (and who should oversee them), Venezuela’s involvement with narco-terrorism, and the notion that America should play a more dominant role in determining what happens in our hemisphere (a policy colloquially known as “the Donroe Doctrine” – a reference to the Monroe Doctrine articulated by President James Monroe in 1823). To some, these concepts represent the basis for Maduro’s arrest, whereas others question the lack of a clearly defined, explicit goal.

What Is the Endgame?

In a press conference Saturday morning, President Trump stated that “we’re going to run the country until such time as we can do a safe, proper and judicious transition.” Just what this will look like is far from clear.

For now, the Maduro regime appears poised to remain largely intact under Vice President Delcy Rodríguez, but the Trump Administration will dictate how the regime must run the country, under threat of further strikes. To some, such a stance lowers the odds that the President will put U.S. boots on the ground, but he also stated that he is “not afraid to do so,” thus creating some anxiety.

In short, at first blush, this does not appear to be the beginning of a large-scale and protracted U.S. military action. But because the risk of a power vacuum/failed state scenario is greater than zero, and because a precise endgame at this point does not appear to be clear, a “risk premium” within certain asset classes will likely persist. 

What Will the Domestic Response Be? Will It Alter the Outcome of the 2026 Mid-Term Elections?

In recent history, wars aimed at regime change have not been popular. That said, in this situation, it remains to be seen how American voters will view the operation over time, and this will depend on what comes next, particularly as it relates to matters directly impacting them such as jobs/ employment, prices at the pump, and, relatedly, affordability. But with the mid-terms almost a full year away, we don't expect a major short-to-medium-term political impact one way or another based on what we know now, although certainly much could change over time.

What Will the International Response Be?

Thus far, a few countries have vigorously supported President Trump’s actions, whereas a few others have harshly criticized them. Most, however, have remained relatively neutral. Still, risks remain as recent events may further prolong Russia’s attacks on Ukraine and/or embolden China’s approach to Taiwan. Geopolitical risks, in short, will remain omnipresent, although we would argue against investors altering their investment strategy because of this.

What Will Be the Economic and Financial Impact?

The displacement of a sitting leader is an exceptionally rare occurrence; however, we do not anticipate that this will cause markets to move sharply in the near term. According to Wolfe Research, Venezuela accounts for approximately only 1% of global crude supply. Recent estimates place production just below one million barrels per day, suggesting minimal economic impact. 

Despite the country’s weak output, Venezuela holds the world’s largest proven oil reserves at roughly 300 billion barrels, or about one-fifth of the global total, based on data from the U.S. Energy Information Administration (EIA).¹ This presents an opportunity for energy producers. However, investment in Venezuela’s oil sector has been severely depleted, reflecting years of underinvestment and deteriorating physical infrastructure.

In sum, while Venezuela’s largest oil reserves may have been one source of motivation for President Trump’s recent actions, because of the country’s woefully low level of output, energy prices are unlikely to move much. Similarly, large negative reactions within stocks and bonds are not expected. In fact, shares of cyclical companies (i.e., energy stocks and small cap stocks, two areas that we have been overweight) might benefit.

However, given the aforementioned unknowns, real assets such as gold are likely to remain in favor, and our continued preference for owning high-quality assets and building and maintaining well-diversified portfolios continues to feature prominently in our thinking.

For more information, please contact your advisor.