US strikes, the capture of President Nicolas Maduro and the US intention to govern Venezuela until a transition takes place implies a long-term agenda on Venezuelan crude exploration & exploration by current US administration. The side results might be a transition to a democratic government as well as economic recovery. In fact we see another side plot developing in the current Venezuelan set of events. We now see a higher probability of US trying to take out current regime in Iran as it now has an alternate source of crude coming up soon. Iran’s current regime’s largest bargaining chip was that it could spoil the middle east crude supply chain and pull crude prices up when Trump administration wants prices to cool down. We have the all crucial 2026 US election on 3rd Nov for all the 435 districts in the US House of representatives & 33 seats in Senate. Trump needs to bring crude prices further down to soften the tariff impact on US consumers. Additionally, it might help in his rate cut demand from Fed. Hence, we now see a strong probability of a US strike enabling change in current Iranian regime which is anyways facing domestic pressure due to rampant inflation and economic turmoil. Iran’s current crude exports are 1.8mbpd which can easily go up to 3 mbpd if sanctions get removed in a new regime as Iran produces almost 4.3 mbpd. So, the combined impact of Venezuela and Iranian supply means 2.5-3 mbpd increase in global crude supply which implies a 10% correction in crude prices in medium term. Hence, we continue to believe Brent is headed towards $50 levels by Q3CY26. On Venezuela itself, we believe it could return to producing about 2.5 million barrels a day in coming years its pre-implosion level up from less than 1 million currently. While Venezuela has some of the world’s largest oil reserves, its role as a player in global markets has significantly declined since 2015. It currently produces around a million barrels a day, about one-third of its 1990s peak and less than 1% of global output. Most of Venezuela’s oil goes to China. Crude production in Venezuela has plunged more than 70% since its peak in the late 1990s, when it pumped more than 3.2 million barrels a day. A recovery in Venezuela’s oil supply to pre-implosion levels would add 1.5 million barrels a day to global output over time and lower prices by about 6-7%. With global output at about 100 million bpd, that would imply a 1.5% increase, adding to an expected glut. We estimate a 1% change in global oil supply moves oil prices in the opposite direction by about 4%. This implies a 1.5% increase in oil supply could result in a close to 6% decline in prices by the time the recovery is complete, all other things being equal.
