Venezuelan political upheaval, why is the oil market unaffected, and why are the global financial markets calm?

Written by: Zhang Yaqi

Source: Wall Street Insights

The geopolitical shock caused by Venezuelan President Maduro’s detention by the U.S. military has not triggered the expected turbulence in global financial markets. This Latin American country, which once accounted for about 1% of global GDP and 8% of global oil supply in the 1970s, now has a negligible influence on the global economy, allowing markets to dismiss this political storm.

According to reports from Xinhua News Agency and CCTV News, on January 3rd local time (early morning of January 4th Beijing time), U.S. President Trump and Defense Secretary Hegseth held a press conference at Mar-a-Lago in Florida regarding U.S. military action against Venezuela, Maduro’s detention, and transfer out of the country.

Bloomberg columnist and senior market editor John Authers pointed out in his latest commentary that the sharp decline in Venezuela’s economic importance is the core reason for the market’s tepid response. The country currently accounts for only 0.1% of global GDP, with an oil production of about 1 million barrels per day, just 1% of global supply, ranking 18th among oil-producing countries. Years of mismanagement have turned this nation into a “mess,” and even in the face of severe turmoil, its impact on the global economy remains extremely limited.

This regime change triggered by the U.S. “absolute resolve action” has almost no impact on oil prices after the Asian markets opened. Meanwhile, global stock markets continued their rally, with the logic of the tech industry centered on AI computing power and storage chips remaining independent of geopolitical tensions. Strong fundamentals drove Asian stocks and semiconductor sectors to new highs. The market reflects geopolitical risks more in safe-haven assets like gold rather than in large-scale sell-offs of risk assets.

Disappearance of Venezuela’s Economic Influence

Neil Shearing, Chief Economist at Capital Economics, summarized Venezuela’s decline trajectory. Under the Chavez and Maduro regimes, ongoing crises caused by mismanagement led to hyperinflation, with real GDP plummeting by 70%. Venezuelan migration surged to neighboring countries and the U.S., while its oil output fell from an average of 3.5 million barrels per day in the 1970s to around 1 million barrels today.

Rob Thummel of Tortoise Capital Management believes that the current oversupply in the global oil market will not be affected by the situation in Venezuela. Although the country’s oil infrastructure appears to be intact, reducing the risk of production cuts, significant increases in output will still take years to achieve. The reaction of crude oil prices at the Asian market open on Monday confirmed this judgment—prices did not rise as usual but instead unexpectedly fell.

Market Reaction: Rationality Over Panic

Although the Venezuela situation introduces new geopolitical risks for global investors, initial market reactions remain relatively calm. Stock markets rose, with strong performances in technology and defense sectors, the dollar strengthened, and geopolitical risks mainly reflected in safe-haven assets like precious metals. David Chao, Global Market Strategist at Invesco Asia-Pacific, stated:

“Given Venezuela’s relatively minor role in today’s energy landscape, the developments over the weekend are unlikely to have any significant short-term impact on the global macro environment or markets. That’s why oil prices, U.S. stock index futures, and other major macro assets have not experienced notable volatility.”

He added that broader information indicates geopolitical uncertainty has become part of the macro environment, which should continue to support demand for precious metals.

Saxo’s Chief Investment Strategist Charu Chanana summarized the current market features as:

“We are in a system where geopolitical issues have become a persistent feature rather than an anomaly. Unless it threatens broader supply chains, investors tend to downplay initial shocks and refocus on interest rates, earnings, and holdings. Currently, this is more of a geopolitical shock than an oil shock.”

U.S. Strategic Intent and Market Expectations

Last Saturday, President Trump stated that the U.S. would “manage” Venezuela and, if necessary, deploy “ground forces.” This statement was released when markets were closed, avoiding potential panic reactions. By the end of the weekend, Secretary of State Marco Rubio had fully downplayed any Iraq-style occupation, saying the U.S. would leverage its influence over Venezuela’s oil exports to maintain order and was prepared to cooperate with Vice President Delcy Rodriguez.

This strategic choice significantly reduced market concerns. Authers noted that this recalls last year’s decision to bomb Iran’s nuclear facilities—a spectacular precedent and impressive military achievement—but Trump explicitly stated no further escalation was intended, leading to a drop in oil prices.

Marko Papic of BCA Research commented on Trump’s remarks about Cuba:

“Could Cuba be the next? Yes, very likely. But unless you’re a commercial real estate developer (specializing in hotels), we see no market impact.”

Reversal of U.S. Exceptionalism and Market Rotation

Although the Venezuela event itself has limited impact, data from 2025 reveal a more significant market trend: a notable reversal in the relative performance of U.S. markets. The S&P 500, measured in dollars, lagged behind other global markets by 9.9%, marking the worst relative performance since 2009, roughly equivalent to the weakest since 1993.

Research by Andrew Lapthorne, Chief Quantitative Strategist at Société Générale, shows that a country’s performance in 2024 is almost unpredictable for 2025, but initial valuation levels are highly relevant. Countries with lower price-to-earnings ratios at the start of 2025 tend to perform better.

Authers believes this phenomenon has multiple positive implications. First, if investors are already seeking cheaper stocks and countries, it’s hard to argue that the world is in some AI-driven “full-blown bubble.” Markets remain relatively rational. Second, since investors are beginning to look for value opportunities, this trend has considerable room to continue because most markets outside the U.S. are still cheap.

Tai Hui, Chief Market Strategist for J.P. Morgan Asset Management in Asia-Pacific, said:

“So far, the lack of reaction is due to two factors. Venezuela’s oil output is small relative to global production. Years of underinvestment mean it cannot quickly increase production and boost global supply.”

Vishnu Varathan, Head of Macro Research at Mizuho Asia (excluding Japan), pointed out:

“We are reminded that geopolitical risks are far greater than some trade figures suggest. Due to sanctions on Venezuela and its dependence on oil exports, the impact of regime change through trade and investment channels is naturally limited and isolated. That’s why we don’t see large-scale sell-offs.”