Benchmark crude oil prices could be impacted significantly by escalating military tensions between the US and Venezuela, with the Trump administration tightening pressure on Nicolas Maduros’ regime and signaling the possibility of a US incursion.

Venezuela currently produces 1.1 million barrels per day (bpd) of crude oil, placing this volume at risk depending on the scale of military activity. Although the volume is small in terms of global trade flows, the quality is unique as over 67% of the output is heavy.

Signals

  • US military activity is ramping up near Venezuela with reports that the Trinidad and Tobago government supported the installation of a radar station at the Tobago airport for US use.
  • Venezuela supplies 1.1 million bpd of crude oil, mainly to China. This supply could be reduced or completely shut-in if an incursion occurs.
  • Dubai crude oil price premiums to ICE Brent will likely increase if Venezuelan supply is lost even in part. This will drive global heavy crude oil discounts to lighter grades to narrow until Venezuelan supply is re-established.

Venezuela claims to have the largest proven reserves in the world, around 300 billion barrels as of 2024, concentrated in the Orinoco belt with most being heavy oil. Rystad Energy estimate point towards 4 billion barrels of proven and 23 billion barrels of discovered reserves. In any case, large reserves prompted significant investment historically from a number of countries: China, Russia, Iran, and the US to name a few. Ultimately, irrespective of significant reserves, technical problems and underinvestment have resulted in steady declines in production since the early 2010s. At its peak, Venezuela was responsible for nearly 3 million bpd, but declines set in following a governmental change and nationalization of assets. A trough was hit in 2020 when the total averaged 624,000 bpd. In addition to the output drop, most of Venezuela’s refining capacity is not operational as facilities have fallen into disrepair. While many domestic refining facilities have stopped operating, the PDVSA (The Petróleos de Venezuela, S.A) does own and operate several locations internationally. CITGO, a majority-owned subsidiary of PDVSA, operates three refineries in the US (Lake Charles, Louisiana; Corpus Christi, Texas; and Lemont, Illinois) and is a subsidiary for a number of refineries in the Caribbean and Europe.

In 2024, Venezuela produced 975,000 bpd of crude oil, of which 657,000 bpd was heavy. Light and medium crude oil production averaged 116,000 and 201,000 bpd, respectively. Venezuela’s production was approximately 1% of global supply but 4.5% of global heavy crude oil supply in 2024. This year is expected to be a peak year, topping out at 1.11 million bpd. Production is expected to decline slowly to 901,000 bpd by the end of 2030.

Of this, the vast majority has historically been exported to either the US, China, Spain, or India. Pre-2020, the split of crude oil exports was relatively even between these four countries. As of 2025, however, US sanctions have forced exports to be diverted to China, which in 3Q25 was the destination for 81% of Venezuelan exports. Significant movements away from the US have been prompted in Venezuela by US sanctions which were enacted in 2019 on PDVSA that banned all imports of Venezuelan crude oil. More recently, 25% tariffs on all goods imported to the US from countries which directly or indirectly import Venezuela crude oil have further crippled flows to the US.

US Gulf Coast refineries are configured to process heavy crude oil for up to 30% of their slate, with some in the region capable of running in excess of 75% heavy oil. The sanctions on Venezuela crimped heavy oil supply for the US. China is also dependent on heavy crude supplies to maximize secondary conversion unit utilization. The Venezuelan grades are an ideal fit for these refineries, and the loss of supply would tighten the heavy crude oil balance. While the US no longer runs significant volume of Venezuelan oil, the overall tightening of the global heavy market would strengthen the prices for grades that the US does depend upon, namely the Canadian heavy crude oils that ship to the Pacific markets via the Trans Mountain Pipeline and to US markets through various other pipeline systems.

Dubai is a benchmark grade for the Pacific Basin crude market. It has been trading at a premium to Intercontinental Exchange (ICE) Brent, first with OPEC+ cutting production in 2024, then with deeper sanctions on Russian crude oil making illegal barrels more difficult to source. A temporary loss to Venezuelan production is expected to drive up the price of Dubai against ICE Brent as Asia scrambles to replace the barrels.