Moving up: the US invasion of Venezuela will lead to higher oil prices

The escalation around Venezuela is increasing. The largest US warship, the aircraft carrier USS Gerald R. Ford, has been spotted in Latin American waters. In response, Caracas conducts exercises and trains air defense forces. If a conflict does occur, the oil market will see a sharp spike in prices, experts told Izvestia. Whether Donald Trump will decide to intervene after the shutdown and how the prices of hydrocarbons will behave further is in the Izvestia article.

Escalation near Venezuela's borders

One of the largest and most famous aircraft carriers in the United States, the USS Gerald R. Ford, has entered the area of responsibility of the southern command of the country's Navy — it covers Latin America and the Caribbean. Earlier, the Pentagon stated that the aircraft carrier group was sent to combat drug trafficking in Venezuela.

There are more than 4,000 military personnel on board the ship, along with squadrons of fighter jets and combat helicopters. The aircraft carrier is expected to join other warships, a nuclear submarine, and aircraft that the United States began deploying back in August to an American base in Puerto Rico. The largest US military buildup near Venezuela's borders since the Panama crisis in 1989 is fueled by Donald Trump's regular statements about the imminent launch of a ground operation against Caracas. The official reason is the fight against drug cartels that distribute illegal substances.

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Earlier, Bloomberg wrote that the United States could launch a military campaign against Venezuela "from about November 15," when the aforementioned "Gerald R. Ford" crosses the Atlantic. Nevertheless, even with the advent of a large aircraft carrier, the United States does not have enough forces to conduct a full-scale ground operation, Viktor Kheifets, professor at the Faculty of International Relations at St. Petersburg State University, told Izvestia. After the ship arrives, about 15,000 military personnel will be stationed at the base in Puerto Rico. Earlier, the media also reported that the United States intends to strike targets in Venezuela, which, according to Washington, are used for drug trafficking.

— Trump continues to put maximum pressure on Venezuela. Presumably, he is seeking either a change of top officials at the head of state, or an expansion of American influence and a reduction in Russian and Chinese. Therefore, the possibility of American airstrikes on the territory of Venezuela remains," the expert believes.

Against this background, the Latin American state began to prepare for a possible invasion by the United States. Venezuelan President Nicolas Maduro announced the general mobilization of the Bolivarian National Militia and signed a law passed by parliament on the command of the integrated defense of the nation. The Independence 200 command exercises have also begun in the country, with maneuvers taking place in several states and the metropolitan region. In case of airstrikes, air defense forces are put on alert. In Caracas, they are confident that Trump's true goal is to overthrow Nicolas Maduro.

"This is an attempt to carry out an operation that has already failed, namely to overthrow the legitimate and constitutional president of the Bolivarian Republic of Venezuela, Nicolas Maduro Moros, in order to establish a puppet regime and turn our country into a colony," Venezuela's permanent representative to the UN, Samuel Moncada, said earlier.

A number of experts believe that Trump did not decide to invade because of the shutdown in the United States. The partial shutdown of the government cut off the financing of some ministries and departments. At the same time, the White House stated that they would continue to pay salaries to the military, so the fact of the shutdown cannot be directly related to the fact that Washington has not yet launched hostilities against Caracas, Viktor Kheifets believes.

By the way, the record-breaking shutdown is nearing completion. In the Senate, Democrats and Republicans have already agreed. After the vote in the House of Representatives, the budget bill will be signed by Donald Trump, which will mean the restoration of full-fledged government work.

How will the invasion of Venezuela affect the oil market

According to 2020 data, the Latin American country had 18% of the world's total oil reserves, with Saudi Arabia in second place with 17%. In addition, Caracas ranks fourth in the world in terms of natural gas reserves, and second in terms of the amount of gold in addition to other important natural resources: iron, coal, diamonds and bauxite.

The start of an operation or the invasion of ships into Venezuela's territorial waters will lead to tankers not venturing to load oil, which will force Caracas to stop production, Igor Yushkov, a leading analyst at the National Energy Security Fund and an expert at the Financial University under the Government of the Russian Federation, told Izvestia. "This will push oil prices up, even though Venezuela is currently producing and exporting very little, but nevertheless, these crumbs will stop," he says.

In the short term, the market reaction will be violent, and prices may jump, Alexander Frolov, Deputy Director General of the Institute of National Energy and editor-in-chief of InfoTEK, agrees in a conversation with Izvestia. But due to the fact that Venezuela produces little oil, despite its large reserves, prices will stabilize in the future.

— Venezuela exports about 600 thousand barrels per day. Is this a significant volume? Yes, absolutely. But against the background of global consumption of 104-105 million barrels per day, these 600 thousand they don't look like that significant value anymore," the expert emphasizes.

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Among the main importers of Venezuelan oil is China, which buys about 85%. Next are Cuba, a number of European countries and the United States. At the same time, if, with the start of the operation, Caracas will not be able to supply oil to Beijing, then the latter will refocus on its purchase from other countries and will not suffer losses, Frolov believes. In particular, China will import more from Russia, Saudi Arabia, Iraq or Iran.

— To understand the scale: China buys 1 million barrels per day from Iran, and all production in Venezuela is less than this figure. The Russian Federation has the right to produce about 9.5 million barrels per day," Frolov recalls.

The situation will be more complicated with Cuba, which also buys oil from Caracas, as it is under sanctions, but with the help of supplies from Russia or China, it will also be able to cope. At the same time, it is likely that Washington will be able to succeed and put its own man in charge of Venezuela. Such a development may lead to a weakening of the sanctions regime and lower oil prices, Igor Yushkov believes.

— Companies will come to Venezuela, make investments, develop deposits and the country will increase production. Therefore, at the first stage, prices may go up, but then, if it becomes clear that Maduro is losing, prices may sharply go down, just in anticipation of further production growth inside Venezuela, the expert believes.

It should be borne in mind that Venezuelan oil is heavy and superheavy in its composition, so not all terminals in different countries can process it, Viktor Kheifets recalls. Experts are confident that increasing production will require large investments and several years, during which it will be possible to build the necessary infrastructure and realize the significant oil reserves of Caracas.