Amid all the geopolitical uncertainty in the world, mainly caused by the unpredictable US administration, the markets should have been jittery after the Venezuela strike
The US administration’s strike against Venezuela last weekend generated a lot of news talk, but it had little effect on the markets and is expected to have no impact on South Africa’s economy. It seems that what matters is not what happened, but what could happen to other countries that find themselves in the crosshairs of the White House.
The US executed a military operation in Venezuela that resulted in the capture of President Nicolás Maduro and his wife. They now face narco-terrorism charges. Surely such an event should at least cause jittery markets and a higher oil price?
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Venezuela strike impact on oil limited
However, Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says despite Venezuela having the world’s largest proven oil reserves (around 300 billion barrels, or roughly 17% of the world’s total), the impact on the oil price was limited.
“This is mainly because current production accounts for less than 1% of daily global oil output, with most going to China, which is reportedly now looking to Canada for more oil of a similar grade. Infrastructure in Venezuela is so neglected that it would take years for production to ramp up significantly, even if there was interest in investing.
“For now, the US intends to sell stranded Venezuelan oil reserves, starting with about 50 million barrels, with the proceeds intended to benefit the country (by buying “ONLY America-made products” and with funds going into US-managed accounts).”
US’s long-term plans for Venezuela
De Schepper says over the longer term, the Trump administration signalled plans to loosen sanctions, encourage US oil firms to help rebuild Venezuela’s oil industry and retain control of oil sales as part of a broader strategy to stabilise the country and support its economic recovery.
She points out that the markets also appear to be treating Venezuela as a longer-term geopolitical and reconstruction story rather than an immediate supply shock, which helps to explain the muted oil price response despite the dramatic nature of recent events.
“Of course, the long-term impact on the world order could be hugely significant over time and will largely depend on how other countries, notably India, China and to some extent Europe, react and position themselves going forward.”
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Immediate impact of Venezuela strike on oil prices limited
Jee-A van der Linde, senior economist at Oxford Economics Africa, also notes that the immediate market impact of US military action in Venezuela was limited, with little spillover into oil prices or broader geopolitical risk so far.
“A key uncertainty is whether developments in Venezuela act as a catalyst for wider geopolitical escalation. The Trump administration’s broader and less constrained policy approach raises the risk that intervention threats extend to other regions, including BRICS-aligned countries, such as Iran or other peer economies Pretoria has close ties with (Cuba, in particular, comes to mind).
“With US-South Africa relations already under strain, any further deterioration could undermine domestic market confidence.”
Van der Linde says from a macroeconomic perspective, military action in Venezuela is unlikely to materially affect South Africa, given limited trade and investment linkages.
“The inflation backdrop remains favourable and we expect domestic GDP growth to strengthen marginally this year, supported by a modest recovery in business investment, easier monetary policy and ongoing tailwinds from mineral export receipts.”
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SA vulnerability as net oil importer
Niall Kramer, spokesperson for the Offshore Petroleum Association of South Africa (Opasa), says its focus is on advocating for responsible offshore development that supports South Africa’s energy security, economic growth and job creation, while respecting the environment.
“Developments affecting global oil supply highlight South Africa’s vulnerability as a net importer of refined petroleum products. This underscores the importance of responsibly developing domestic offshore oil and gas resources to strengthen energy security, reduce import dependence and build a more resilient and balanced energy future.”