Barclays explores market implications of the upheaval in Venezuela

Investing.com - Following an audacious U.S. strike earlier this month which resulted in the capture of Venezuelan leader Nicolas Maduro, much uncertainty has surrounded the future of this Latin American country.

U.S. President Donald Trump, for his part, has hinted that he, along with major American energy companies, will assume control over much of Venezuela’s lucrative and vast oil reserves -- perhaps even "indefinitely." The U.S. also moved in recent days to seize two Venezuela-linked tankers in the Atlantic Ocean, in a possible sign of the White House’s resolve in dominating oil flows from the country.

Trump has added that Venezuela has agreed to export as much as 50 million barrels of oil to the U.S., potentially cutting out its supply to its longstanding biggest buyer, and major creditor, China.

Around 30% of Venezula’s crude is directed to Chinese state-owned enterprises as part of an ongoing loan repayment program. Analysts have estimated that as much as $60 billion has been lent by China to Venezuela since 2007, with proceeds from oil as collateral.

Media reports have suggested that Chinese companies are now consulting with Beijing to clarify what their options are in Venezuela.

Analysts at Barclays described the removal of Maduro from power as a trigger for a "political and oil sector reset."

Citing sources close to the White House, CNBC reported that American sanctions against Venezuela will be selectively removed to allow for the transportation and sale of oil around the world -- although the funds derived from the sales will eventually go to U.S.-controlled accounts and given back to Venezuela only at Washington’s behest.

Writing in a note, the Barclays analysts including Alejandro Arreaza and Jason Keene argued that if the U.S. incursion lead to a potential easing in its sanctions policy and access to multilateral financing, "this could aid an economic recovery" in Venezuela.

"A relatively low base could lead to double-digit GDP growth, and low-hanging fruit lead to a potential increase of oil production of 200,000-300,000 barrels per day through 2026," from its current level of roughly 1 million b/d," they added.

"[H]owever, the sustainability of that recovery will depend on the final shape of the political transition."

At the moment, despite Maduro’s ouster, members of his socialist regime remain, with former Vice President Delcy Rodriguez now serving as Venezuela’s leader. Rodriguez has reportedly been placed under pressure to meet Trump’s demands, as the White House looks to keep the peace in Venezuela rather than immediately pursue a democratic transition.

"This closes a chapter in Venezuelan history and opens a path towards a political transition that would likely be welcomed by markets, as it could pave the way for an economic recovery and debt restructuring," the Barclays analysts said.

"Nonetheless, this should be seen only as the beginning of a process that is still fragile and likely to be complex."

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