In my mind, what will be most interesting to watch relates to your first caveat of rule of law. Venezuela had rule of law, stability, and significant foreign capital investment. Then the rug was pulled on all of that and the assets were stolen. How long will it take the oil majors to feel comfortable that rule of law has been re-established and will remain so? If I'm sitting in the Boardroom as the company considers a 9 or 10 figure capital investment program in Venezuela somebody will need to convince me that whatever structure is put in place is going to last a decade so I can earn a return on my capital before it gets expropriated again.
Property rights must be established or the majors won’t pull the big trigger. Chevron will invest and improve, but not go in overgear. Neither will Exxon et al. But they will sure prepare the opportunity as of this afternoon. I mean - all hands on deck kind of preparation.
What got me quite bullish on the rule of law aspect is the presser Q&A. I didn’t expect such clear “black and white” statements by the administration and hence why I am carefully optimistic.
Time will tell. The next 90-180 days will be crucial. But keep in mind that Trump has a lot to lose if this gets messy for the midterms.
Alexander, this is a masterclass in geology. But permit me to offer a different geopolitical vector.
You are absolutely correct on the physics: The Orinoco Belt is indeed a "Liquid Ore" superior to Shale in terms of EROI. As you noted, US Shale was an engineering miracle fighting against geology; Venezuela is simply geology waiting for engineering.
However, from the ChinArb perspective, I see two distinct risks in your "Victory Scenario":
1. The Sovereign Margin Call You frame this as a victory for Rule of Law. I see it as a desperate Physical Hedging by System A. The US refining complex (PADD 3) is structurally short on Heavy Sour crude. It produced too much "Champagne" (Light Sweet Shale) and starved its own "Stomach" (Cokers). Taking Venezuela isn't just about punishing a dictator; it is a Sovereign Margin Call. The US must seize physical assets to backstop its energy security because domestic shale has hit a thermodynamic plateau.
2. The "Cheap Oil" Paradox (The Boomerang) You argue that lower oil prices will "weaken the CCP." This is the fatal miscalculation. System B (China) is the world's largest energy importer. It is a machine designed to convert Energy into Goods. If Trump successfully crashes oil prices to $40/bbl, he is effectively subsidizing the input costs of the entire Chinese manufacturing engine.
Cheaper Oil = Cheaper Logistics for Temu.
Cheaper Oil = Cheaper Petrochemicals for Shein.
Cheaper Oil = A lower break-even point for the R.I.C.E. system.
While low oil hurts Russia/Iran, it supercharges the Chinese deflationary machine that is currently crushing Western industry. Trump might win the Energy War, only to find he has accelerated his defeat in the Industrial War.
Quite a bit to address on a less than ideal format on my iPhone. Perhaps DM on X?
1. Canadian heavy complements the “Champagne” nicely, grows and comes at a decent pipeline monopoly discount. So not sure how much other heavy the US current imports.
But securing future heavy sources is clearly what this is too, although I am unsure how much this admin knows or cares about US refinery diets. Think this is generally about energy and spheres as well as about Cuba, more than China.
2. The Lower for Longer blessing refers to weakening the Kremlin and some bad actors in the Middle East. The former is indirectly not in the CCPs best interest right now, although they are frenemies too.
Lower for longer oil is good for the CCP from an import perspective, as u rightly mention. But for the CCP, oil geopolitics is less about price and MORE about supply security. Hence why they push (coal) powered EVs. They posses coal for 50-150 years and want to reduce oil dependency with less consumption and higher domestic production. Not just oil, every commodity.
3. Pls read my China episodes on this Stack about China’s Investment led growth model, which I call a “unique experiment in economic history” and its subsequent “guaranteed overcapacities”. Think u will enjoy it. Not oil but the CCP eco model is the source of deflation and why China exports unemployment to the West.
While the US actions has the potential to improve the situation in Venezuela it also sets a dangerous precedent. Will you be cheering on the US as they take Greenland and whatever else they want?
Let's assume the coup d'etat goes forward, Venezuela moves towards stability and more capitalist approach to their oil fields. Positive effect on oil proces, granted.
But lower oil prices more peace? Not convinced.
Secondly, this is such an insane blatant abuse of power and crosses international laws that this will be used to condone other interventions in the future - which - create a more unstable world and are NOT likely to lead to peace.
The oil price lens is nice because we pretend we can rewind & replay the past and by making Sunni's a lot poorer, a lot less extremism gets exported. Great. But playing this ceteris paribis is myopic; American shale may be bankrupted and/or drop off production levels; China feels empowered to invade Taiwan, not great.
It was you who made the (odd) comparison with Norway, not me! What's 'weird' is for Venezuela to remain under the day-to-day rule of the same vile regime, (minus the odious Maduro obviously) with its democratically elected leaders excluded and its wealth controlled by American corporations...
'Maduro was an illegitimate leader who lost in 2024, which is why they are replacing him with his illegitimate VP instead of the person who won in 2024. This was done because of Fentanyl but he is being indicted for cocaine' (almost all the fentanyl entering the US comes across the border with Mexico, not via Venezuela). None of this makes sense!
As for socialism, while neither Norway nor Venezuela are socialist, Norway is probably closer to (democratic) socialism than Venezuela.
Norway, of course, wisely created a Sovereign Wealth Fund with the proceeds of their oil and gas wealth, for the benefit of all it's citizens. Will most of Venezuela's (potential) oil wealth end up going to wealthy Americans rather than benefiting the people of Venezuela? As for 'emerging market elites' being too corrupt to be in charge of it, indeed that may often be the case, - but no mention of the unprecedented corruption of the 'developed market' elites currently occupying the White House?
The lack of investment is not only reflected in the pipelines, separators and pumps; human capital is equally important, and Venezuela has lost most of its capable and well-trained engineers and field workers. Even if there is a genuine transition, US companies will need to persuade their staff to move back to Venezuela and reinstate proper education and training in the country. I'm skeptical there will be a rapid production growth while the current regime remains in power under a different disguise.
Would love to hear your opinion on the current state of the permian basin vs Venezuela. Got a Horde of ppl claiming permian is rolling over right now. In my view it takes ages and ramping up Venezuela and other fields is still possible before that happens. Is there a way to figure it out with high certainty? Thanks
I disagree with your political views on this entirely (and no iam not leftist) and think you should train a little to see things with the eyes of non westerners and stop assuming being morally on a high ground. There is also no such thing as common good for humanity. The value structure of different civilizations is vastly different. Imposing Western liberal democracys is a power tool, defacto imperialism with masquerade. And they know it. Only westerners who watched too much Hollywood believe we are the good and dont see things as what they are. Some nations dont want fucking americans and European on their soil and decide for themselves, Simple.
On the oil, very nice post! At what oil prices can they operate profitably? Isnt it still possible to see higher oil prices near/mid term? (1-5 years)
Concerning the political aspects: please be aware that the US is the main driver behind the mass migration. If you look at NGO money flows and media ownership (also European media), you will see it. I dont claim that I fully understand who kicked off what but all routes lead to Washington and big money managers and banks in the US.
Now watch what happens to Iran next. Pax Judeica. I am half-Iranian (not proud, I wish I was fully German and had better genes, white women are too unselective :(, urghs) but I do have a little insights how people think there. They do not like US imperialism knocking on their door again and again. Doesnt mean they like the Mullahs either, but the older Iranians remember how they got plundered by the West a few decades ago. My dad told me if the US attacks, Iranians will fight, they want to keep their sovereignity and with the West, you dont keep it. A nuclear bomb is the only way to scare the US away. But Iran is the power in the region Israel has to take out in order to become itself a local hegemon. They are causing trouble whatever they touch, and I rejected this opinion for most of my life but now I do see it clearly. Israel is strategically knocking every other power in its neighborhood out, fully relying on US power while most US citizen reject this. And the US politics is unfortunately heavily influenced by Israel.
The growing (mainly muslim) anti-semitism in Europe is playing Israel mid-term also into their hands, it incentivices Jews to move "back home", helping them with their own demographic challanges. While this sounds a bit outlandish stupid, I'm still seeking for alternative explanation why big US-Israel NGOs did finance refugee transportation + ships to flood Europe with Africans/ Muslims. Destroying white people is the only alternative (or additional) hypothesis that makes sense. They are building a strong national state while dilution every other that crosses their way.
Its of course not just jews, most elites do benefit from killing nation states and centralizing power into superstate-administrations while making labor 'fluid' and pushes prices down. And many more things (like surveillance, restricting free speech etc.)
Bottom line is that I cant support our elites, they only serve themselves and sold us out, its tragic most people still dont want to see it. But more and more do realize its true. I get now way more approval of my views than 2 years ago
On the oil again, my circle of competence is far away from knowing how US majors decide their investments, it could be they are not even interested in spending large amounts of capex into Venezuela, but likewise I could see that they start thinking long term strategic (or even with political spin to serve the US administration) and invest now to cash in later.
You are right to point this out and generally speaking, oil investments are pro-cyclical. Or as they say, lower oil price is the cure for lower oil price. Or why we have typical capex boom-bust cycles in all commodities.
Having said all that, long-cycle projects behave somewhat differently vs short-cycle Shale projects. Also, any given oil project pipeline of the majors will be constantly tested against breakevens. Orinoco conventionals will rank favorable globally on their list. Also, nobody wants to miss the starting race. Think Guyana and Exxon securing the best blocks.
So anyway, let’s keep my post as a guiding principle and mental model in mind, rather than a forecast. After all, everything is path dependent.
In my mind, what will be most interesting to watch relates to your first caveat of rule of law. Venezuela had rule of law, stability, and significant foreign capital investment. Then the rug was pulled on all of that and the assets were stolen. How long will it take the oil majors to feel comfortable that rule of law has been re-established and will remain so? If I'm sitting in the Boardroom as the company considers a 9 or 10 figure capital investment program in Venezuela somebody will need to convince me that whatever structure is put in place is going to last a decade so I can earn a return on my capital before it gets expropriated again.
100%
Property rights must be established or the majors won’t pull the big trigger. Chevron will invest and improve, but not go in overgear. Neither will Exxon et al. But they will sure prepare the opportunity as of this afternoon. I mean - all hands on deck kind of preparation.
What got me quite bullish on the rule of law aspect is the presser Q&A. I didn’t expect such clear “black and white” statements by the administration and hence why I am carefully optimistic.
Time will tell. The next 90-180 days will be crucial. But keep in mind that Trump has a lot to lose if this gets messy for the midterms.
Alexander, this is a masterclass in geology. But permit me to offer a different geopolitical vector.
You are absolutely correct on the physics: The Orinoco Belt is indeed a "Liquid Ore" superior to Shale in terms of EROI. As you noted, US Shale was an engineering miracle fighting against geology; Venezuela is simply geology waiting for engineering.
However, from the ChinArb perspective, I see two distinct risks in your "Victory Scenario":
1. The Sovereign Margin Call You frame this as a victory for Rule of Law. I see it as a desperate Physical Hedging by System A. The US refining complex (PADD 3) is structurally short on Heavy Sour crude. It produced too much "Champagne" (Light Sweet Shale) and starved its own "Stomach" (Cokers). Taking Venezuela isn't just about punishing a dictator; it is a Sovereign Margin Call. The US must seize physical assets to backstop its energy security because domestic shale has hit a thermodynamic plateau.
2. The "Cheap Oil" Paradox (The Boomerang) You argue that lower oil prices will "weaken the CCP." This is the fatal miscalculation. System B (China) is the world's largest energy importer. It is a machine designed to convert Energy into Goods. If Trump successfully crashes oil prices to $40/bbl, he is effectively subsidizing the input costs of the entire Chinese manufacturing engine.
Cheaper Oil = Cheaper Logistics for Temu.
Cheaper Oil = Cheaper Petrochemicals for Shein.
Cheaper Oil = A lower break-even point for the R.I.C.E. system.
While low oil hurts Russia/Iran, it supercharges the Chinese deflationary machine that is currently crushing Western industry. Trump might win the Energy War, only to find he has accelerated his defeat in the Industrial War.
Physics is impartial. Low energy prices feed the most efficient converter. We just published a deep dive on this "Two Systems" dynamic (“Venezuela and the Arctic” https://substack.com/@chinarbitrageur/note/p-183349785?utm_source=notes-share-action&r=71ctq6 ). Would love your thoughts on the routing implications.
Thx ChinArb
Quite a bit to address on a less than ideal format on my iPhone. Perhaps DM on X?
1. Canadian heavy complements the “Champagne” nicely, grows and comes at a decent pipeline monopoly discount. So not sure how much other heavy the US current imports.
But securing future heavy sources is clearly what this is too, although I am unsure how much this admin knows or cares about US refinery diets. Think this is generally about energy and spheres as well as about Cuba, more than China.
2. The Lower for Longer blessing refers to weakening the Kremlin and some bad actors in the Middle East. The former is indirectly not in the CCPs best interest right now, although they are frenemies too.
Lower for longer oil is good for the CCP from an import perspective, as u rightly mention. But for the CCP, oil geopolitics is less about price and MORE about supply security. Hence why they push (coal) powered EVs. They posses coal for 50-150 years and want to reduce oil dependency with less consumption and higher domestic production. Not just oil, every commodity.
3. Pls read my China episodes on this Stack about China’s Investment led growth model, which I call a “unique experiment in economic history” and its subsequent “guaranteed overcapacities”. Think u will enjoy it. Not oil but the CCP eco model is the source of deflation and why China exports unemployment to the West.
Wbr, Alex.
So Trump and Co are not a corrupt elite ??
You are dead right! Great article!!
While the US actions has the potential to improve the situation in Venezuela it also sets a dangerous precedent. Will you be cheering on the US as they take Greenland and whatever else they want?
Unapproved unsanctioned empire building gets the green light, no matter the cost of diplomatic relations? Not from me.
Approved by whom? You? Nope. And that’s a good thing for humanity all around.
https://www.brookings.edu/articles/venezuela-a-path-out-of-misery/
Andrew you are also very prickly judging by your comments on the comments. Put your ego in a box and have a proper discussion on the points made.
Let's assume the coup d'etat goes forward, Venezuela moves towards stability and more capitalist approach to their oil fields. Positive effect on oil proces, granted.
But lower oil prices more peace? Not convinced.
Secondly, this is such an insane blatant abuse of power and crosses international laws that this will be used to condone other interventions in the future - which - create a more unstable world and are NOT likely to lead to peace.
The oil price lens is nice because we pretend we can rewind & replay the past and by making Sunni's a lot poorer, a lot less extremism gets exported. Great. But playing this ceteris paribis is myopic; American shale may be bankrupted and/or drop off production levels; China feels empowered to invade Taiwan, not great.
So when did a foreign country send in their armed forces to kidnap the Norwegian head of state in order to take over their oil industry?
Weird. Good luck to you
It was you who made the (odd) comparison with Norway, not me! What's 'weird' is for Venezuela to remain under the day-to-day rule of the same vile regime, (minus the odious Maduro obviously) with its democratically elected leaders excluded and its wealth controlled by American corporations...
'Maduro was an illegitimate leader who lost in 2024, which is why they are replacing him with his illegitimate VP instead of the person who won in 2024. This was done because of Fentanyl but he is being indicted for cocaine' (almost all the fentanyl entering the US comes across the border with Mexico, not via Venezuela). None of this makes sense!
As for socialism, while neither Norway nor Venezuela are socialist, Norway is probably closer to (democratic) socialism than Venezuela.
Norway, of course, wisely created a Sovereign Wealth Fund with the proceeds of their oil and gas wealth, for the benefit of all it's citizens. Will most of Venezuela's (potential) oil wealth end up going to wealthy Americans rather than benefiting the people of Venezuela? As for 'emerging market elites' being too corrupt to be in charge of it, indeed that may often be the case, - but no mention of the unprecedented corruption of the 'developed market' elites currently occupying the White House?
https://www.cbc.ca/news/politics/how-venezuelan-crude-could-shake-things-up-for-canadian-producers-9.7019971
I dont see that happening with Brent at $60. You are probably right about the potential. But we need a trigger in price.
The lack of investment is not only reflected in the pipelines, separators and pumps; human capital is equally important, and Venezuela has lost most of its capable and well-trained engineers and field workers. Even if there is a genuine transition, US companies will need to persuade their staff to move back to Venezuela and reinstate proper education and training in the country. I'm skeptical there will be a rapid production growth while the current regime remains in power under a different disguise.
Time is relative. What’s “rapid” for you?
I improved the Stack with the relevant part of the presser. Hopefully that helps.
Would love to hear your opinion on the current state of the permian basin vs Venezuela. Got a Horde of ppl claiming permian is rolling over right now. In my view it takes ages and ramping up Venezuela and other fields is still possible before that happens. Is there a way to figure it out with high certainty? Thanks
I disagree with your political views on this entirely (and no iam not leftist) and think you should train a little to see things with the eyes of non westerners and stop assuming being morally on a high ground. There is also no such thing as common good for humanity. The value structure of different civilizations is vastly different. Imposing Western liberal democracys is a power tool, defacto imperialism with masquerade. And they know it. Only westerners who watched too much Hollywood believe we are the good and dont see things as what they are. Some nations dont want fucking americans and European on their soil and decide for themselves, Simple.
On the oil, very nice post! At what oil prices can they operate profitably? Isnt it still possible to see higher oil prices near/mid term? (1-5 years)
Thx for feedback on oil
But we have to agree to disagree on the former. The rule of law has to be upheld. Political jargon usually hides corruption. The rest is a lie IMHO.
Concerning the political aspects: please be aware that the US is the main driver behind the mass migration. If you look at NGO money flows and media ownership (also European media), you will see it. I dont claim that I fully understand who kicked off what but all routes lead to Washington and big money managers and banks in the US.
Now watch what happens to Iran next. Pax Judeica. I am half-Iranian (not proud, I wish I was fully German and had better genes, white women are too unselective :(, urghs) but I do have a little insights how people think there. They do not like US imperialism knocking on their door again and again. Doesnt mean they like the Mullahs either, but the older Iranians remember how they got plundered by the West a few decades ago. My dad told me if the US attacks, Iranians will fight, they want to keep their sovereignity and with the West, you dont keep it. A nuclear bomb is the only way to scare the US away. But Iran is the power in the region Israel has to take out in order to become itself a local hegemon. They are causing trouble whatever they touch, and I rejected this opinion for most of my life but now I do see it clearly. Israel is strategically knocking every other power in its neighborhood out, fully relying on US power while most US citizen reject this. And the US politics is unfortunately heavily influenced by Israel.
The growing (mainly muslim) anti-semitism in Europe is playing Israel mid-term also into their hands, it incentivices Jews to move "back home", helping them with their own demographic challanges. While this sounds a bit outlandish stupid, I'm still seeking for alternative explanation why big US-Israel NGOs did finance refugee transportation + ships to flood Europe with Africans/ Muslims. Destroying white people is the only alternative (or additional) hypothesis that makes sense. They are building a strong national state while dilution every other that crosses their way.
Its of course not just jews, most elites do benefit from killing nation states and centralizing power into superstate-administrations while making labor 'fluid' and pushes prices down. And many more things (like surveillance, restricting free speech etc.)
Bottom line is that I cant support our elites, they only serve themselves and sold us out, its tragic most people still dont want to see it. But more and more do realize its true. I get now way more approval of my views than 2 years ago
Sure :)
On the oil again, my circle of competence is far away from knowing how US majors decide their investments, it could be they are not even interested in spending large amounts of capex into Venezuela, but likewise I could see that they start thinking long term strategic (or even with political spin to serve the US administration) and invest now to cash in later.
Does it still require a certain price level? I mean if oil drops below $40/b, can it bring back that much volums?
You are right to point this out and generally speaking, oil investments are pro-cyclical. Or as they say, lower oil price is the cure for lower oil price. Or why we have typical capex boom-bust cycles in all commodities.
Having said all that, long-cycle projects behave somewhat differently vs short-cycle Shale projects. Also, any given oil project pipeline of the majors will be constantly tested against breakevens. Orinoco conventionals will rank favorable globally on their list. Also, nobody wants to miss the starting race. Think Guyana and Exxon securing the best blocks.
So anyway, let’s keep my post as a guiding principle and mental model in mind, rather than a forecast. After all, everything is path dependent.
Hope that helps.
Great article! Would you mind let us know how to invest in the Venezuelan oil industry from now?
Not sure it’s that easy in the sort term. Watch out for good oil service names. Think big three. I cannot give direct advice due to regulation.
Remember that Chevron will be well placed long term. But there is the oil price risk against that. So careful with upstream names in 2026/27