Thoughts on Venezuela Attack

January 5, 2026

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Summary

Looking at the market today, you wouldn’t even know anything happened over the weekend.  We’re in “risk-on” mode.  The growth/cyclical stocks are rallying, and the defensive stocks are falling.  Any fears that attacking Venezuela might lead to a broader global conflict are completely absent today.

Yes, the S&P energy stocks are up (XLE +2.5%).  That was kinda expected.  But the financial stocks are up even more (XLF +2.8%). That was kinda not!

Currently, the S&P 500 is +0.8%.  The tech heavy Nasdaq 100 (QQQ) is +1.1%.  Our AI basket is +0.9%.

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Venezuela Attack

The current US-Venezuela drama has been building for several months now.  But really, Venezuela has been a problem for the US since way back in 1999 after the election of Hugo Chavez. Every US President since Clinton has had to take some type of executive action in response to Venezuelan funny business.  Saturday’s dramatic extraction was the culmination of almost three decades of escalating tension.

So, here we are!  How is the stock market taking it?  The oil stocks are moving higher.  The oil refining stocks (i.e., the companies that turn crude oil into gasoline, diesel fuel, etc.) are up the most.   That’s not surprising, given that President Trump implied a new golden age for US oil companies was around the corner.  

But, at the risk of being a Debbie Downer, buying the energy stocks is a bit premature.  Even in the best case, any benefit to US oil companies is YEARS away.  And not to mention, the political uncertainty is extremely high, and the blockade is still in place.  But c’est la vie.  The market these days reacts more to “vibes” more than to earnings.  So, off we go.

Interestingly, the price of oil is also up a little bit today.  Now, you’d think that oil prices would fall.  That is, if we assume there’s a vast tsunami of new Venezuelan oil about to hit.  But, at the moment, the market is more focused on the ongoing blockade.  Sec of State Rubio and others said that the US plans to use the oil blockade as its primary lever to force policy changes in Venezuela.  (I suppose using the US Navy in the Caribbean Sea is more politically agreeable than using US Marines in the Miraflores Palace.)  

So the halt of oil exports is removing whatever small supply is currently coming from Vez.  As a result, the near-term supply outlook for the whole market is actually falling – which is leading to oil prices rising.  Interesting.

What's Next

Well, without boots on the ground, the Trump Administration cannot force Venezuela to do anything.  Instead, it’s going to be a negotiation.  And what will be negotiated?  Oil.  Based on comments from the administration, “who controls the oil” is the main issue.  Democratic reforms, cartel policy, economic reforms, and immigration policy seem to be back-burner for now.

In this negotiation, what does the US want?  Unclear.  The only stated request so far has been restitution to Exxon and ConocoPhillips for the $13 billion-ish that Venezuela still owes to them from nationalizing their assets back in 2007.

But after that?  It gets cloudy. The next step would be to change the law that requires the Venezuelan state-run oil company to hold a majority stake in any oil field development. That’s gotta go.

So, once the money is wired to Exxon and Conoco, and once the “majority stake” law is lifted, then the real negotiations begin.  

Key questions include: How much of the oil proceeds go to Venezuela vs US oil companies?  What happens to China’s investment?  How will the Venezuelan govn guarantee the safety of US oil companies given criminal warlord control of local regions?   These questions are impossible to answer at this point.  

Now, war hawks might say: “These aren’t questions!  If they don’t do what we say, we’ll just force them.”  But how tho?  Political polls (for both Dems and Reps) show a strong dislike for any military intervention.  President Trump and his “America first” voters have a strong distaste for a prolonged occupying conflict, such as Iraq and Afghanistan.  So how much of a threat is “boots on the ground”?  Seems unlikely.  And I think Venezuela knows that.

Could we resend in Delta Force and capture the new President AGAIN?  I’m no expert here, but I imagine the Vez military is taking steps to make that extraction much harder to repeat.  From what I read, that operation took months to plan out.  So… short of dropping bombs on the Presidential Palace (which is possible, I guess), the US primary lever is denying them oil revenue.  And that means the negotiation will take time.

So, stay tuned.  We’re at the point of maximum uncertainty.  For our purposes, the only near- and medium-term outlook for oil stocks and oil prices is “expect more volatility with no clear visibility to a final resolution anytime soon”.