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Dow Jones NewsNov 14, 12:31 PM UTC
MW Why any U.S. military strike on Venezuela could damage America's fuel supply and the global oil market
By Myra P. Saefong
A buildup of U.S. military forces in the Caribbean Sea is raising concerns about a potential strike on Venezuela, home to the world's largest oil reserves
Nearly 70% of U.S. refining capacity runs most efficiently with heavier crude, of which Venezuela is a source.
Venezuela may soon become a market-moving force in the oil markets, with a buildup of U.S. military forces in the Caribbean Sea appearing to elevate the prospect of a strike on the Latin American nation, which is home to the world's largest oil reserves.
Of particular importance is Venezuela's production of heavy crude oil, which is an essential feedstock for many U.S. refineries, according to the American Fuel & Petrochemical Manufacturers, or AFPM, a trade association for American fuel companies.
The main reason Venezuela is so critical to the global oil market is the potential for a shortfall of heavy oil, which is used to produce products such as distillate and diesel, said Phil Flynn, senior market analyst at the Price Futures Group.
Nearly 70% of U.S. refining capacity runs most efficiently with heavier crude - which tends to be a cheaper grade of crude oil because it is more difficult to process and requires refiners to absorb significant upfront investment costs, according to AFPM.
Historically, Venezuela has had a major impact on global oil markets as it not only has the world's largest proven oil reserves but was a founding member of OPEC, said Flynn. U.S. Gulf Coast refiners, meanwhile, were built to refine Venezuela's heavy oil because it was "cheap and plentiful - and, of course, yields a lot of diesel and fuels for heavy manufacturing," he said.
The socialist takeover of the country, first by Hugo Chávez, who served as president from 1999 until his death in 2013, followed by his strongman successor, Nicolás Maduro, has "robbed the Venezuelan people, decimating [the country's] oil output," Flynn said.
Venezuela's output edged up to about 945,000 barrels per day in the third quarter of this year, from around 867,000 bpd in 2024, according to a monthly oil report by the Organization of the Petroleum Exporting Countries released Wednesday. However, that's a roughly 70% drop from five years ago, when it was producing an estimated 3.2 million bpd, according to the U.S. Energy Information Administration. For comparison, OPEC's largest oil exporter, Saudi Arabia, saw third-quarter oil production of 9.705 million bpd.
Chevron Corp. (CVX) won a new license to drill in Venezuela earlier this year. That reinstatement of the license means that about 20% of Venezuela's crude-oil exports are destined for the U.S., with the rest predominantly heading to China, said Matt Smith, lead U.S. analyst at commodity markets information and analysis service Kpler.
If the flow of Venezuelan oil were to be interrupted due to a U.S. incursion, "it would be these two countries that would feel the loss of exports," Smith said.
If oil flows from Venezuela were interrupted due to a U.S. military incursion, the U.S. and China would feel the loss of exports, says Matt Smith of Kpler. The chart above shows Venezuela's crude exports vs. production, in thousands of barrels per day.
For the Venezuelan oil industry, however, any U.S. incursion would likely turn out to be positive, Smith said, "particularly over the medium to long term, as investment in the industry would likely return."
Venezuelan oil production peaked in the late 1990s at roughly 3.5 million barrels per day, according to Smith. "Production dropped significantly in the second half of the last decade due to a lack of investment, and, although it has rebounded slightly in recent years, it still remains below 1 million barrels per day."
U.S.-Venezuela tensions moved back into the spotlight last month, particularly after the Miami Herald, citing sources with knowledge of the situation, reported on Halloween that the U.S. planned to attack military installations inside Venezuela.
The U.S. Navy's largest aircraft carrier has since arrived in Latin American waters, expanding the U.S. military buildup in the region, the Wall Street Journal reported on Tuesday.
The U.S. has carried out 19 strikes against alleged drug boats in the Caribbean and in the eastern Pacific Ocean in what the Trump administration has characterized as an effort to halt illicit drug smuggling, according to the Wall Street Journal.
The security of the U.S. homeland and U.S. interests in the hemisphere have been named as top priorities by President Donald Trump and his administration. Trump, a senior administration official told MarketWatch, is prepared to use every element of American power to stop drugs from flooding into the U.S. and to bring those responsible to justice.
Meanwhile, any impact of a disruption to global oil flows is likely to be exacerbated by ongoing U.S. and European sanctions against Russia, which is among the world's largest crude producers. The sanctions have led one of Russia's largest oil companies, Lukoil, to declare force majeure on shipments from one of its majority-owned oil fields in Iraq, according to Reuters - meaning it's unable to meet its contractual obligations.
So "lost barrels [of oil] have the potential to thin out global supplies," particularly with world demand rising, said Denton Cinquegrana, chief oil analyst at the Oil Price Information Service, or OPIS. (OPIS is a unit of Dow Jones, the publisher of MarketWatch.)
An attack by the U.S. would likely "add to the geopolitical premium" - potentially worth another $1 or $2 per barrel - even though Venezuela is "not an exporter of great significance," he said. The EIA estimated its 2025 nominal crude-oil export revenue at $12 billion, and it forecasts that to fall to $9 billion in 2026. Saudi Arabia's, meanwhile, is estimated at $147 billion for this year and $133 billion for next year.
"Tensions between the U.S. and Venezuela have been going on and off since as long as I have been at OPIS," said Cinquegrana, who's been with OPIS for almost 25 years.
"This is certainly something that is amped up but so far does not appear to be having a significant impact on [oil] prices," he said.
-Myra P. Saefong
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11-14-25 0731ET
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