When Oil Rewrites the Macro Script: Trading Implications of Venezuela
When Oil Rewrites the Macro Script: Trading Implications of Venezuela
By:Josh Fabian
War, Oil, and Risk Appetite: How Venezuela Could Reshape Markets in 2026
Edwin Starr once asked, "War! What is it good for?" The song was released in 1970 and part of the anti-war protest movement. But what about just taking out a president of an oil-rich country and asserting military influence? Arguably, the lyrics aren't quite as good, but that doesn't make the question any less valid.
Heading into 2026, my trades largely centered around long metals, long bonds and short equities. My thesis rested primarily on bitcoin serving as a proxy for risk appetite. The 30% selloff in bitcoin suggested to me that investors were dealing with some indigestion. Equity valuations were stretched. Despite a weakening jobs market, inflation was holding steady, negating chances of further interest rate cuts. At the same time, that served as a good floor for bonds, thus my willingness to trade them from the long side on pullbacks. Metals seemed like a good hedge to me, so I looked to buy on pullbacks.
I'm primarily a scalper or short-term term trader. It suits me. But my short-term trades are largely predicated on a longer-term outlook. Until Saturday, the thesis I laid out above hadn't much changed. But the removal of Maduro in Venezuela led me to reconsider some of my assumptions. From inflation to the war in Ukraine and trade with China, a lot of things may have changed. I'll explain.
Venezuelan oil reserves account for as much as 20% of the global reserves. At one point, Venezuela made up 7-10% of world oil output. That has since fallen to 1%. World global output is roughly 85 million barrels per day. With oil at $58, if Venezuela could recapture just 5% of world share, that is worth ~$90B in gross value annually. If the U.S. takes control of those reserves, our oil companies will participate in that and we will have greater influence over oil prices. That can help keep prices low, which in turn can help to keep inflation at bay.
Globally, access to Venezuelan oil means less U.S. reliance on oil imports from Canda. It also gives the U.S. leverage over China, who imports about 5% of their oil from Venezuela. And, if the U.S. decides to flood the market with oil and keep prices low, it will put significant pressure on the Russian economy, which is largely dependent on oil and natural gas exports. That could bring about an end to the war in Ukraine.
Having said all that, we are still a long way from any of this happening. However, let's assume for a minute things do play out this way. In that case, my base case changes a bit.
Bitcoin is already pressing up toward $95K, a level I believe reflects a return of appetite for risk. If inflation can be pushed lower, it opens the door for more interest rate cuts, which is bullish for both equities and bonds. As for metals, the need for a hedge always exists, but returns like we saw last year are insane, and some typical ratios are way out of whack. Take for example the oil to silver ratio.
Typically, oil trades at 3.8x the price of silver. With oil at $58, that would imply a silver price of ~$15. With silver at its current level, based on that ratio, oil should be trading at $290. Now, I'm not suggesting a quick return to that relationship, but clearly the ratio is far from normal. Any attempt at normalization could include a drop in silver, rise in oil or combination. Therefore, longer-term I'm thinking about metals more from the short-side and may look at scalping from the short side.
There is a long way to go before we understand the full implications of removing Maduro. For now, I'm just mapping out my thought process and trying to provide a glimpse into the prism I'm using to view markets. All this could change tomorrow, but that's the beauty of trading.
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