2026-01-05 12:03:00
The immediate reaction in markets to the whole Venezuela situation was reflected in oil prices earlier today. But as we have always seen in the past, geopolitical tensions tend to fade and so does the initial market reaction to it. So in looking out to the big picture and what this whole ordeal might entail, I would say it really depends on how China and Russia respond instead.
The world knows that Venezuela is a gold mine in terms of oil reserves (and also actual gold). It is just that political instability and sanctions have made it tough for the country to really do anything about that. However, the thing about Venezuela is that it not only represents oil market security for China and Russia. It is more than that.
For China, Venezuela represents a strategic point in Latin America – one that they can buy their way in and benefit from it. China has put in billions in terms of infrastructure investments, all in hope of securing long-term leverage and dropping an anchor on oil reserves in the country. But why?
Given Venezuela’s richness in terms of natural resources, it is a critical source of oil and other forms of resources that is not part of the Middle East. And given the US influence on Middle East producers, being able to potentially tap into Venezuela’s oil reserves would be a major boon for China’s ever growing economy.
As for Russia, there’s not only key economic ties in all of this but also a more strategic and military one. In exchange for securing some influence on Venezuela’s oil fields, Russia has also provided the country with billions in credit for arms sales and infrastructure. In fact, Venezuela is actually Russia’s largest arms client in Latin America. So, that should give you some perspective.
And in return, Russia has actually been using Venezuela as a military hub with the two countries even signing a “strategic coordination” pact last year. That has led to Moscow even deploying Tu-160 bombers and naval vessels to the region with Venezuela acting as a stronghold just under the US’ noses.
So with the US’ latest actions in Venezuela, all of what is said above is being threatened or is already gone in just one swift move. Trump is often known as a president of action and this is another milestone that literally shows that. Say what you will about the man but his penchant for boldness on the international stage is really something else.
And with the US taking over, all of whatever is said now falls in the hands of Trump. And how he wants to play things out, whether to the US’ own benefit or as leverage will depend on himself. For now, we’re yet to see what becomes of everything.
So, the more pertinent question is how will China and Russia respond to what just happened? Are they just going to sit there and let it slide?
For now, both sides have come out to condemn the US and Trump’s decision to take action. There’s a lot of disagreement and protest but is it all just going to be verbal pushback only? And that’s the risk that Beijing and Moscow will have to weigh.
If they do not actually do something and take more serious action, it practically gives Trump more power to be bold again. And that means he could just take similar action on the likes of Iran and Cuba. So, it does set a precedent for potentially more geopolitical risks that could follow once the dust settles on this one.
In a year where market players were already worried about rising geopolitical tensions, the timing of this Venezeula situation is uncanny. And that continues to send precious metals into overdrive, with fear that more risks like these may crop up down the road as well. So, that will be part of the outlook for global markets in weighing where money flows should enter this year.
