What Venezuela’s Regime Change Means for Oil

20:23Ed Elson:Great to be with you.

20:24Mark Zandi:Thanks for having me on today. Absolutely. So the U.S. has captured Maduro. Pretty unbelievable series of events here. It looks as if the administration is going to run Venezuela, at least for the foreseeable future. Let's just start with your initial reactions to what happened here. Were you surprised? What do you make of all of this?

20:50Ed Elson:Well, we weren't surprised and our clients weren't surprised. I can show you the proof. We told clients on December 15th, we raised our odds of the president removing Maduro from 60 to 70 percent. We didn't know the precise timing, but we were very sure the president had decided to remove Maduro. He's been negotiating with him, so it was a question of whether Maduro lives, rather, would leave on Gulfstream 3 and go to an apartment in Madrid or be taken out in a jumpsuit. I mean, there's different options, and that went that way. So we weren't surprised at all. And we're not surprised that the oil markets have taken it sort of in a blasé way so far, because really, Venezuela is not that important in terms of near-term oil supply and price formation.

21:36Ed Elson:You know, when I step back and look at it, though, I have to compare it to, you know, I was in the White House and the National Security Council in the beginning of Iraq, right? And so 2002, 2003. And how very different that started relative to this. So in that case, we we had a decisive removal of the regime. I mean, the military, it was he was gone. And we had then implemented an elaborate plan for the postwar. And it wasn't about oil. We just not hand out all the contracts to U.S. companies, Chinese companies, Russian companies went into Iraq. So with with now, we can argue that that turned out a little rough.

22:21Ed Elson:So I'm not going to say it was a smashing success. But the beginning, it featured that right. Decisive change of regime. We had a plan and it wasn't about U.S. oil companies. This is very different in every respect. There is no decisive change. All we know for sure is that Nicolas Maduro and his wife are in New York and were arraigned today. That's about it. The regime is still there. There's a pressure and coercion that's going on. There doesn't appear to be any kind of a plan for the day after the Maduro regime. And finally, it is not all about oil. It's about many things. But the president has made very clear that getting U.S.

23:05Ed Elson:oil companies back into Venezuela and getting its production back up with U.S. companies is one of the main objectives of this. So in every respect, very different than how the liberation of Iraq took place. So that strikes me. But we're still in this fluid area where we're not quite sure what the end state's going to be in terms of a regime in Caracas.

23:28Mark Zandi:Just looking at the oil market in Venezuela, you mentioned there that it's not that important in the short term. However, they also have the largest oil reserves of any nation in the world. Give us like a detailed or semi-detailed understanding of what actually is going on with the oil in Venezuela. What are their capabilities? How important is it? And why is it that it's not that relevant in the short term?

24:01Ed Elson:So the world consumes about 105 million barrels a day of, we call it liquids, mostly crude oil. There are other things in there, some petrochemical feedstops, some biofuels, refinery gain. But just to keep it simple, 100 or so, 105 million barrels a day. Venezuela provides a little less than a million barrels a day. So less than a percent of total world supply. 25 years ago, Venezuela was up at 3%. It was about 3 million barrels a day, even a little more of production. So its production has fallen from 3 to about, to less than a million barrels a day. Now, Venezuela does have the world's largest proved reserves, a little over 300 billion barrels.

24:47Ed Elson:However, not all reserves are the same. Not all oil is. This is a very important concept for folks to get as we talk about how quickly will they come back and so forth. oil ranges in quality you've got champagne quality oil light low sulfur beautiful u.s shale is like that and then you've got coffee grounds on the other end of the range gunky sulfurous heavy full of metals okay champagne to coffee grounds then as well as the coffee ground variety and to turn that those coffee grounds into the gasoline that you and i drive with or your gas oil or jet fuel, et cetera, you need a lot of work and blending and upgrading.

25:26Ed Elson:Or in Canada, SAG-D, you need a lot of industrial processes to turn this heavy oil. So it's, whereas the champagne kind of oil is almost ready to go. It requires less costly, easy refining. So this is an important feature about Venezuela. Its reserves are enormous, world's biggest, but extremely costly to produce at scale. Now, the good news is Venezuela used to have a world-class state oil company, Pedevesa. And in the 1990s, they opened up to Western companies. And they invited them in. The big U.S. companies went in. Other companies went in. And working with Pedevesa, really talented engineers, relatively low corruption, efficient production, they really boosted Venezuelan production.

26:12Ed Elson:It was exporting more to the United States than even Canada was. but then unfortunately chavez happened hugo chavez comes in communist populist uh dictatorship kicks the u.s companies out except for chevron which has a small license uh and runs the place into the ground so you've seen this in other countries where uh governments come in um they uh they chased away all the talented engineers that they had venezuelans all left for canada the united states middle east they all went and the engineers went to produce oil there They underinvested. They let the equipment run down. So all that expensive equipment that the American companies had invested in to produce that heavy oil at scale was left to go to rot, basically.

26:52Ed Elson:And it declined, and here we are. Venezuela is poor. Production is falling. And getting it back up and running is going to be a mammoth undertaking measured in years to decades and tens of billions of dollars. But look, I think a real important context of sort of what does Venezuela really mean and why does it matter is do we need Venezuelas? Right. Up until a few months ago, you and I were having this conversation a year ago. I mean, the dominant narrative was, well, oil demand is going to peak pretty soon. Look at those EVs coming. Look at climate change policies. Most people believed that oil demand was going to stop growing about 2030 in a few years and then either plateau or fall.

27:30If you believe that, we don't need another Venezuela.

27:34Ed Elson:You may not need major oil new projects at all, including the IEA was saying, look, it's not clear. If we're going to get to net zero, we shouldn't even be permitting new fields. We don't need these new big projects. But what's fortunate for Venezuela and for oil companies is, I would say, toward the end of last year, this narrative, this peak demand narrative really began to break down and collapse. And I think look at the major forecasters from the IEA to the major companies that think tanks have put out for everybody's dialing back and saying, wait a minute, these EVs aren't coming fast enough.

28:08Ed Elson:Climate change policies are being subordinated to energy security, affordability. affordability. Canada, the U.S., California, New York, Europe, China, everywhere is shifting the focus back to affordability and energy security. So the world is starting to realize, oh boy, we need a lot more oil after 2030 than we thought. Not next year, but after 2030. And this is where the timing is perfect for Venezuela to come out and say, well, it just so happens we have 300 billion barrels here, and maybe we'll be willing to, you know, invite capital and expertise, get those Venezuelan expats back and get this thing humming, because it would be just what we needed to avoid too tight of a market early in the next decade.

28:48Mark Zandi:Just thinking about what happens next, I mean, you mentioned that it's short term going to be difficult to make that oil valuable, to get it out of the ground, to fix up the infrastructure and to make it usable. But it seems as though all you need to do is get your act together, invest billions and billions of dollars, which appears to be exactly what Trump and the oil companies are prepared to do. And then I guess the question becomes, what is America's role in this nation moving forward? It seems pretty clear that they are going to commit to getting that oil out of the ground. And Chevron and Exxon, they're all going to go in and figure out how to make money off of this.

29:37Mark Zandi:But I guess the sort of the open question is, where does the U.S. government stand in this transaction? Will they just run the country? Do they just own the oil now? What is their role in this at this point?

29:51Ed Elson:Well, those two questions are linked, right? And I do think you say the U.S. companies are going to get their act together, get the money together, and go in and do it. Slowly. Slowly. Absolutely. Any oil company and the board of an oil company looking to sanction billions of dollars into Venezuela is going to be thinking about the world well beyond the Trump administration. The Trump administration is already over in terms of the lifetime that oil companies think in. Decades, decades. they've got to think about will this investment pay off if gavin newsom is president or aoc is president or jd vance is president um and so i think there's going to be a mismatch honestly between some folks in the trump administration who want to see that capital go in fast and want to see barrels come out soon and the oil companies who are going to be very cautious about this very cautious, not only having gotten kicked out 25 years ago, but is there a stable regime?

30:55Ed Elson:Can our people operate safely there? What kind of contracts are we going to get? How are we going to get our money out? How badly dilapidated is the system is? Because they have other options. You can drill in the Permian. You can produce in Canada. Guyana's doing pretty well. Offshore is attractive. There are other options to spend your capital than betting the farm on the whale of a Venezuelan project, which has had a tumultuous history, to be sure. So even if President Trump stepped up, and I don't hear they're going to do this, and they said, look, we got your back. U.S. government's going to co-invest with you.

31:32Ed Elson:We're going to take a stake. We're going to mitigate all your risk. That's good for another three years or so, assuming they even did it, right? And three years will only begin the very beginning stages of the investment and the workovers and the infrastructure investment that we would need to get Venezuela up and running. So an oil company would have to be confident that, you know, it can manage these risks for decades. And betting that the U.S. government is going to be a solid financial or political partner, given the volatility we've seen politically here, I don't think that's a bet they would easily take.

32:11Mark Zandi:Really fascinating. And I'm sure that this conversation is going to continue probably for the next few weeks, certainly I would say probably months. In any case, this was really interesting. Thanks for your time, Bob.

32:25Ed Elson:Thank you, Ed. Thanks for having me on.

32:32Mark Zandi:Well, we're starting the year with a bang. I assumed our first big story would have something to do with AI or tech or maybe even private credit. I did not think that it would be a military story, and I especially didn't think it would be the forcible removal of a foreign leader, the first one by the US, by the way, in more than three decades. But here we are. That's what's happened. 2026 is up and running. Now, this is a developing story. Our perspective might change as this all unfolds. But while we are here, I will just give you my quick thoughts on Venezuela and what this invasion means for us.

33:15Mark Zandi:So the first thing to consider is what the administration has told us about this invasion. And based on what they have told us, it seems that this whole thing seems to revolve around Maduro and bringing him to justice. The White House has emphasized that Maduro will, quote, finally face justice for his crimes, They said he will, quote, soon face the full wrath of American justice on American soil in American courts. And they also said that this is, quote, not regime change. This is justice. That's what they have told us about what happened. Now, depending on your position on foreign policy, this might seem like a very fair reason to go and invade another nation.

34:04Mark Zandi:In fact, Americans and many Venezuelans would agree on this. They would agree that this is a good thing, that this is a good reason to intervene. But that's not really my question here. I'm actually less interested in whether or not this was a fair reason to invade. I'm more interested in whether or not this was the reason that we invaded. My question is, was this really about bringing a dictator to justice? or was this about something else? Now, if Trump had ever demonstrated an interest in foreign policy and foreign justice at any point in his career, then maybe I'd be inclined to believe the story and the reasoning they're telling us.

34:51Mark Zandi:However, he has never been interested in this kind of thing. In fact, Trump has historically gotten along really well with autocrats and murderous dictators, whether it's Putin or Kim Jong-un or Lukashenko or even the former president of Honduras, who Trump just pardoned after he was found guilty of using his position as president to traffic drugs into the US, which is, by the way, the very thing for which Maduro has been charged himself. In other words, I don't really think that Trump has an issue with people like Nicolas Maduro. He's gotten along with many people just like him before. In addition, It has long been Trump's position that we shouldn't do things like what we just saw, that we shouldn't get involved with other nations' issues and other nations' wars.

35:41Mark Zandi:He was vocally against the war in Iraq, for example. He also said we should, quote, stop racing to topple foreign regimes we know nothing about. He built his campaign on this principle that we need to focus on America and domestic issues, and we need to stop worrying about other nations and their political issues. This was the whole premise of America First. So why is he reversing his position right now? Well, as we often say on this podcast, if you want to know the truth, do not read the press release. You should read and observe what's happening in the markets because the markets usually tell you the real story.

36:24Mark Zandi:So let's look at the markets. In the few days since Maduro was captured, we saw some pretty interesting stock market activity. We'll start with the American oil stocks. ExxonMobil stock has risen more than 2%. CanocoPhillips has risen 4%. Chevron has risen 6%. Moving on to the large American oil refinery companies, we've seen Marathon Petroleum and Phillips 66, both rising 6%. Valero rose more than 9%. Then we look at the oil field service firms, companies like Halliburton, which have risen as much as 10%. Overall, in just a few days, US oil stocks have added more than$100 billion in market value.

37:11Mark Zandi:So the truth is that this invasion, just like any other imperial or colonial operation, is simply about money. And as uncomfortable as that might sound, the reality is taking over another country, occupying their territory, seizing their assets, especially if they've got oil, that is a very profitable business. And that is why so many nations through history have employed this strategy, whether it was the Romans or the British or indeed the United States, Building and expanding your empire through violent force is a great business, and that is the cold, hard truth. Now, the question many would ask is, does that make it right or fair or acceptable to invade another nation?

38:00Mark Zandi:And again, I'm not going to be the one to make a value judgment here, because all I want for us to be clear on is what is actually happening, what we're actually getting ourselves into. Because no, this is not really about justice or liberation. In fact, Trump revealed his true feelings in a press conference where he mentioned the word oil six times more than the word drugs. This is expansionism. This is interventionism. This is really imperialism in its purest form. Our government has decided it wants to build an empire from Greenland to Venezuela, and they found themselves a good place to start.

38:36Mark Zandi:Now, you may like empires. You may not like empires. I don't really care. But all I would ask is that we continue this conversation honestly, and that we recognize this decision for what it is. It's not about Maduro. It's not about human rights. It's not even about socialism. No. As always, this is about money.

39:02Mark Zandi:Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Passan, and engineered by Benjamin Spencer. Our research team is Dan Chalan. Isabella Kinsel, Chris Nodonoghue, and Mia Silverio. Thank you for listening to Property Markets from Property Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

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