Oil Markets Face Fragmentation Post-Maduro
A strange overlap between energy sovereignty, OPEC, and Iran
Shortly after the US captured Nicolas Maduro and announced it would be governing Venezuela, including its oil, the Canadian prime minister, Mark Carney, remarked that Venezuelan oil was no threat because Canadian oil was “low risk, low cost, and low carbon.”
Carney was speaking to one audience (Washington), trying to make it clear that Canadian oil was far superior to “anything else” (read Venezuelan oil).
While Canada remains deeply reliant on America, as over 90% of Canadian oil exports go to the US, around 4 million barrels a day, the US is moving in a different direction, signaled by the takeover of Caracas. In the late 1990s, Venezuela was exporting 3 million barrels of crude oil a day, a third of which went to refineries in the Gulf of Mexico. Even in 2019, before sanctions, around 800,000 barrels per day (bpd) of Venezuelan oil made its way to Gulf Coast refineries. Today, Venezuela’s sales have plummeted to less than 1 million bpd, hampered by US red tape.
US Energy Sovereignty
Except now, the US plans to take control of 50 million barrels of Venezuelan oil and control the nation’s vast oil supplies, the largest in the world, indefinitely. Such a strategy squeezes Canada’s “low risk, low cost, and low carbon,” as its biggest customer (the US) pursues high-risk, unknown cost, and high-carbon oil via Caracas.
The big threat for Canada: Within a certain timeline, the US could use Venezuelan oil to replace some Canadian oil.
Once this happens, Canada, already experiencing major economic challenges, will seek out other markets. Except, who is ready to buy millions of barrels of Canadian oil that America may no longer want? It is no coincidence then that Mark Carney is about to visit Beijing and is seeking to reset ties with New Delhi. All of this is occurring in the backdrop of changing energy dynamics and America’s pursuit of true energy sovereignty and independence.
Sovereign Oil Markets
But the situation is far bigger than a fragmentation of North American energy trade.
As the US takes control of Venezuelan oil, it could introduce a new paradigm: sovereign oil markets. Today, oil is bought and sold on global markets. Yet, Venezuelan oil may never make it to global markets. It could instead be pumped directly into America. Why would the US dump the oil on global markets, potentially lower the price of its own energy exports, risk angering Riyadh, and then buy it back?
This creates a new environment, where the US treats Venezuelan oil as a sovereign oil market, not part of the global matrix. If Venezuela begins supplying the US with 1 million to 2 million barrels of oil a day, it will establish an energy corridor outside the contours of global oil markets. Remember, this is no longer a Venezuela that is being invited back to the global economy, as the Biden administration sought after Russia’s invasion of Ukraine in exchange for democratic elections. Instead, Venezuela is now a protectorate of America. Venezuela is being invited back into America’s world.
Added to this, there is nothing stopping America from selling Venezuelan oil, crude or refined, to the world. Once again, these transactions could be unilateral, such as between the US and India, or the US and parts of Africa, outside the standardized mechanisms of oil trade.
Counter OPEC?
This situation becomes even more complicated considering how much oil the US may soon control with Venezuela, plus its own domestic supplies.
So far, Washington has put the spotlight on NATO, BRICS, the UN, WHO, WTO, and other organizations. Could OPEC be next? If the US controls the largest proven oil reserves on the planet, why would it let another group dictate global supplies and pricing?
Depending on what happens next in Venezuela (i.e., formation of a pro-US government, breakdown into civil war), the US could establish its own version of OPEC, for instance, the “American Oil Group (AMOG).” This would fracture oil markets and the global economy, as two separate groups dictate supply and pricing.
Of course, America would have to play a tricky balancing act with its Arab allies. However, even that may be less difficult than imagined, considering the rift between Riyadh and Abu Dhabi over Yemen.
The Iran Link
Surrounding all this is less oil, and more war.
The protests in Iran are swelling to all 31 provinces. People are angry. These protests may not rival the 2022 revolt over the death of Mahsa Amini in size, but they exceed those protests in anger. Because some reports suggest that people have to take loans out to buy meat, eggs have become a luxury, and Tehran is preparing to raise prices by an additional 50% to 100%.
This is not sustainable. There is a clear link between Venezuela and Iran, and it goes beyond Hezbollah. Instead, it has to do with striking Iran. Both the US and Israel have held off against a protracted campaign largely over global energy disruptions, like Iran closing the Strait of Hormuz. Yet, if Venezuelan oil comes back online, the US may be able to offset Iran’s maneuvers. By taking control of Venezuela, regime change in Iran becomes more likely, and energy is a key part of this.
Grey Future
Of course, much remains in the air. It is unclear as to whether the new Venezuelan president, Delcy Rodriguez, is playing ball with the America or not. Her initial comment, that Maduro and his wife, Cilia Flores, must be handed back, pour cold water on appeasement. However, the very Trump-like 180 with Colombia, where President Gustavo Petro, after threatening to take up arms against America, may soon visit Trump in the White House, signals that Washington may not want further military intervention in the region at this moment, placing its attention squarely on Venezuela and building up regional support for a post-Maduro future.
If the US has its way, through Venezuela, global oil markets could fragment. They could become vertical (full of walls and barriers). And a strange reality may form, where America has the ultimate energy security, while the rest of the world runs from pillar to post.
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The concept of sovereign oil markets versus global oil markets is really interesting. Most energy discussions focus on supply volumes, but the structural shift toward bilateralexchanges outside OPEC mechanisms could fundamentally reshape pricing dynamics. I've seen similar fragmentation patterns in other commodities where major producers bypass traditional exchanges. The Canada squeeze angle is underrated, they'd basically need to pivot from US dependency overnight if Venezuelan volumes ramp up.