Crude Oil Prices Rise with Growing Geopolitical Risks in Venezuela

The global crude oil market is increasingly shaped by geopolitical fault lines. Perhaps the single most significant piece in this unfolding puzzle is Venezuela, a country whose oil-rich reserves and fraught politics are having ripple effects across energy markets worldwide. In this blog post, we'll explore how Venezuela's political and economic crisis is feeding into crude price dynamics, what the supply-risk implications are, and how markets and consumers might react going forward.

Crisis in Venezuela's Oil Sector

This trend has been driven by a dramatic decline in Venezuela's production as an exporter. Once producing millions of barrels per day, current output is thought to have fallen under 1 million bpd because of sanctions, underinvestment, and deteriorating infrastructure.

A few key factors:

The national oil company, Petróleos de Venezuela, S.A. (PDVSA), has been facing years of neglect, absent reinvestment, and loss of access to foreign technology and diluents needed for its extra-heavy crude.

International sanctions, especially from the U.S. Department of the Treasury, targeting Venezuelan oil and companies trading with the country, have further restricted output and export channels.

The quality of Venezuelan crude is heavy and sour; it requires special refineries and blending. Reduced flows and increased risk make Venezuela a weak link in supply stability as seen by the global market.

In short: “Venezuela once held the world’s largest proven oil reserves, yet its production collapse leaves a pivotal gap in the global energy supply chain.”

Geopolitical Risks and the Supply Premium

Why are crude prices rising? One important reason: markets are increasingly pricing in geopolitical risk premiums. What stands out in the case of Venezuela is a number of overlapping risk factors:

Export disruption risk: Sanctions, threats of further restrictions, and political instability raise the risk that Venezuelan barrels will not reach the market. For instance, recent U.S. threats of tariffs on countries buying Venezuelan crude triggered concerns over tighter supply.

Production decline risk: The inability of Venezuela to invest, repair infrastructure, or attract foreign partners means its production may fall further — reducing its buffer for the global market. According to estimates, output may shrink to 700,000 bpd or lower if sanctions deepen.

Substitution and logistical risk: There are limited substitutes for heavy sour crude from Venezuela. If the flows are disrupted, global refiners must pivot, meaning higher cost, logistic adjustments, and uncertainty.

Investor/sentiment risk: Apart from physical supply, markets respond to the expectation of disruption. Researchers find that even tensions between Venezuela and its neighbors such as Guyana can heighten oil-price volatility.

Thus, even relatively minor physical supply risk results in much larger price swings simply because the market must consider “what‐if” scenarios of larger disruptions.

Price Movements and Market Reactions

Recent data bear out the linkage between Venezuela-related risks and price spikes:

In March 2025, crude prices edged up after U.S. crude stock draws were recorded and concerns over Venezuelan supply tightened.

Sanctions could persist and production might fall further, pushing the global Brent crude price into the US$85-90 per barrel range, according to analysts.

What is interesting is that while Venezuela's share of global crude is not enormous at these levels, the risk of loss from its supply is what markets fear, and that justifies the premium.

Implications for Importers & Global Markets

For major crude importers and refiners, the troubles of Venezuela have special implications:

For countries like India and China, the cost advantage they get from sourcing Venezuelan heavy crude erodes as the tariffs or sanctions mount. For example, India’s refiners have faced higher import costs since the United States imposed a 25% tariff on goods from countries buying Venezuelan crude.

For U.S. Gulf Coast refiners, the absence of heavy Venezuelan crude flows necessitates a pivot to alternative supplies; these alternatives come at higher cost and involve logistical re-engineering.

For the global economy, the higher crude prices would imply higher fuel and energy costs, feeding into inflation and slowing growth. In energy-importing economies like India, this can dampen consumer spending and hurt the competitiveness of its manufacturing units.

In other words, disruptions or the threat of disruption in one relatively small supplier country can have widespread effects because supply chains and pricing networks are so highly intertwined.

What Could Happen Next?

Looking ahead, a few scenarios can emerge, which would accordingly lead the direction of crude prices:

Sanctions tighten / production declines even further

Should Venezuela suffer new rounds of sanctions or lose more infrastructure, output could shrink substantially. That could lead to tighter global supply and further price rises.

Partial normalization

If the Venezuelan regime reaches some diplomatic accommodation, such as with U.S. or foreign oil companies, and investment returns, supply could stabilize, placing downward pressure on the risk premium.

Alternative supply offsets

If the OPEC+ members or non-OPEC producers increase output fast enough to fill the gap, then the impact of Venezuela's decline could be muted. But this depends on investment, logistic capacity and timing.

Demand shock

Even in an environment when supply is constrained, if global demand falters-for example, due to economic slowdown-price rises may be limited. The challenge for Venezuela's risk premium comes because markets might overweight the "supply shock" even before this fully materializes. In strategic terms, the market balances between "actual barrels lost" versus "potential barrels at risk". It is usually the latter that drives more of the immediate price response. Lessons and Takeaways Geopolitical supply risk is a factor: Even when a country's current output is modest, its potential to disrupt matters. The case of Venezuela has demonstrated that the fear of disruption can be more influential than the immediate numbers. Heavy crude matters: Quality of crude is as important as quantity. Venezuela's heavy, sour crude has specialized demand and fewer easy substitutes - raising its strategic importance. Refiners and importers must adapt: Regions dependent on Venezuelan supply are thus forced to review sourcing, pricing, and risk management. Energy markets reflect risk, not just fundamentals. Geopolitical risk premiums are priced into the market, so price changes may well precede physical supply changes. To consumers and economies, a hike in crude prices increases energy costs, possibly leading to inflationary pressures and reducing margins for companies dependent on fuel or transport. Conclusion In a world where energy markets are already being transformed by the energy transition, regional supply shifts, and changing demand patterns, the case of Venezuela is a stark reminder that geopolitical fragility remains the dominant driver in the dynamics of oil prices. The combination of a faltering oil sector, sanctions, export bottlenecks, and political instability makes the oil supply of Venezuela a "risk hinge" for global markets. The takeaway for the market watchers is clear: any time Venezuela's oil story is in the news, be it via sanctions, output announcements, or diplomatic gambits, expect increased volatility and upside pressure on crude prices. That means, for consumers and policymakers, being vigilant to the risk that a country's internal turmoil will again translate into external economic pain. Over the coming months, it will be crucial to watch Venezuelan exports, sanction regimes, OPEC+ production responses, and demand growth to understand where the price of crude is likely to go. The supply cushion provided by alternative producers will prevent a dramatic price spike, but the risk premium will remain high, and that should keep prices higher than they otherwise would be.