Shock in Caracas—From regime risk to market risk

On January 3, in a stunning and fast-moving development, a US Delta Force team seized Venezuelan President Nicolás Maduro and his wife, Cilia Flores, in Caracas and transported them to New York to face narco-trafficking and terrorism charges. The mission, code-named Operation Absolute Resolve, marks the most direct US intervention on Latin American territory since the 1989 invasion of Panama, reigniting long-standing debates about the legitimacy of regime-removal actions. Maduro and Flores were arraigned in the US District Court for the Southern District of New York.

Initial political reaction and market moves

While many governments across Latin America and beyond had long regarded Maduro as an illegitimate ruler, the physical removal of a sitting head of state provoked sharp and polarized reactions along ideological and geopolitical lines. Left-leaning governments in Colombia, Brazil and Mexico framed the action as a violation of sovereignty and a revival of gunboat diplomacy. By contrast, governments where conservative or Trump-aligned coalitions have gained ground, such as Argentina, Honduras, Ecuador and Chile, expressed support for Maduro’s ouster. Outside the region, Russia denounced the action and is likely to use it to reinforce narratives about US unilateralism and regime-change politics, while China and Iran condemned the operation and are expected to watch closely for longer-term strategic consequences.

Looking at early market reaction, the biggest beneficiaries, unsurprisingly, are Venezuela’s sovereign bonds and those of its national oil company, PDVSA, which have rallied 7 to 8 points on expectations that regime change could accelerate the timeline for debt restructuring talks and improve potential recovery values. Technical factors are also supporting the rally, with Venezuela having returned to major emerging market (EM) indexes in 2024 after a seven-year absence, and many investors likely entering the episode underweight the credit.

While a debt restructuring is still not guaranteed, we believe it will depend heavily on the pace and credibility of normalization in relations between Venezuela and the US, which for now appears conditional. The prospect of continued US involvement, particularly through US oil majors, raises the probability of progress, since any meaningful normalization would almost certainly require addressing outstanding debts owed to US entities.

Positive spillover to other sovereign bonds across Latin America should be limited, although this development could further differentiate performance across the region, particularly in what is already an election-heavy year. The degree of impact will depend on each sovereign’s alignment with the US, the presence of organized crime and cartel activity, and sensitivity to oil prices and any potential increase in Venezuelan supply. Mexico and Colombia appear particularly vulnerable through this lens, with both currencies currently lagging the broader EM complex.

Large-cap energy stocks have been another notable beneficiary of the weekend’s developments, posting strong gains Monday morning following the Trump administration’s stated intention to revitalize Venezuela’s oil industry with investment from US oil companies. Consequently, crude oil prices opened lower as markets weighed the prospect of higher medium-term global supply against an already oversupplied backdrop.

Venezuela possesses the world’s largest estimated oil reserves at more than 300 billion barrels, modestly exceeding Saudi Arabia and representing nearly 20% of global reserves. However, its production baseline has fallen from roughly 3.5 million barrels per day (more than 5% of the global market) in 1998 to below 1 million barrels per day today (less than 1% of global supply), following years of mismanagement, sanctions and infrastructure deterioration.¹

Venezuela’s output could eventually rise if a stable post-Maduro political transition attracts substantial new investment, but visibility remains limited and near-term expectations should remain conservative. The cost of extracting and processing Venezuela’s heavy crude into commercially viable refined products would require significant capital over multiple years. Wood Mackenzie estimates that “the Orinoco Belt joint ventures between the national oil company PDVSA and international oil companies would need $15 billion to $20 billion of investment to ramp up over the next 10 years, to add another 500,000 barrels per day.” Any meaningful recovery would also likely be slow-moving, as US oil companies would need to navigate legal and political uncertainty around ownership, contracts and sanctions before committing capital at scale.

Chevron is currently the only US firm maintaining limited commercial exposure in Venezuela, operating under narrow sanctions waivers granted through a special license from the US Treasury, while ExxonMobil and ConocoPhillips previously exited the country. It remains unclear whether European oil companies such as Total (France), Eni (Italy) and Repsol (Spain) would be permitted to reestablish operations under a revised sanctions or political framework. Meanwhile, countries with deep strategic and financial ties to Venezuela, including China, Russia, Iran, Cuba and Turkey, are likely to reassess their economic and political positioning as they evaluate the security of existing projects, loan structures, and investment agreements.

Looking at markets more broadly, the US dollar and gold opened stronger Monday on safe-haven demand amid heightened geopolitical uncertainty while US Treasury prices remained relatively unchanged. In credit markets, energy-related refiners in the high-yield sector are up 1 to 2 points as of this writing.

Should resistance from the Chavista regime evolve into an on-the-ground insurgency against US forces, or if the situation broadens into additional interventions across Latin America or deeper engagement by governments or non-state actors aligned with the former regime, we expect risk sentiment to weaken and for risk assets and commodity prices to reprice accordingly.

Near-term implications for Venezuela

Maduro’s sudden removal has created an immediate and uncertain power vacuum, raising the central question of what happens next. In the immediate aftermath, some observers pointed to Nobel Peace Prize laureate María Corina Machado and exiled opposition figure Edmundo González—widely regarded by many international observers as the legitimate winner of the most recent presidential election—as potential frontrunners to lead a US-supported transitional authority. However, in a press conference following Maduro’s capture, President Trump dismissed the possibility of either figure assuming leadership, stating that the US would “run the country until such time as we can do a safe, proper and judicious transition.” This signals that Washington intends to work primarily through elements of the existing Venezuelan state, although the form, scope and duration of that engagement remain unclear.

At the moment, the US appears to be focused on coordinating a transition framework with Venezuela’s Vice President Delcy Rodríguez, who released a statement indicating that the country is prepared to cooperate with US authorities. While her message seemed aimed at preserving institutional continuity and preventing an uncontrolled collapse of state functions, the trajectory of the transition remains uncertain and outcomes are far from guaranteed.

On one hand, Rodríguez, along with loyalist elements of the ruling PSUV party and segments of the security apparatus, still retains formal institutional control. This extends across the Supreme Court and the regime-aligned National Assembly, senior military leadership within the Fuerza Armada Nacional Bolivariana, and internal security and intelligence bodies. At the same time, hardline figures within the former Maduro regime, including Minister of the Interior Diosdado Cabello and Minister of Defense Vladimir Padrino López, have called for armed resistance and also face legal indictments in the US, raising the risk that these factions could attempt to obstruct or violently resist a US-led transition process.

On the other hand, opposition networks and various armed groups, including pro-government colectivos and paramilitary factions operating in key urban and border regions, are likely to move quickly to secure leverage in the emerging power vacuum. It is also unclear how the broader population will respond to a prolonged transition process that does not immediately prioritize a return to a democratically elected government. Against this backdrop, the position and internal cohesion of the military will likely determine whether the country moves toward stabilization, negotiated transition or a period of prolonged instability.

Near-term implications for the US

Prior to the operation, US public opinion was broadly skeptical of deep involvement in Venezuela.² It now remains to be seen how that sentiment will shape the foreign policy debate in what is also a crucial midterm election year for the White House. By seizing Maduro and bringing him onto US soil, Washington has effectively assumed responsibility for whatever follows, evoking the familiar “Pottery Barn” rule that if you break it, you own it. Comparisons to Iraq, Afghanistan and Somalia have already surfaced, particularly around the question of whether the removal of a ruler produces meaningful political reform or instead accelerates state collapse and fragmentation.

The operation has also triggered constitutional and legal scrutiny in Washington and across media circles, as it was carried out under strict secrecy, with news reports confirming that Congress was not notified within the 48-hour reporting window required by the War Powers Resolution of 1973.³

The Venezuela incursion also reflects a broader doctrinal and strategic shift in Washington. In recent years, US officials have increasingly framed elements of the Venezuelan state as a criminal and drug-trafficking network, effectively positioning Maduro’s government outside the traditional protections typically afforded to political authorities. At the same time, the 2025 US National Security Strategy has articulated a hemispheric outlook that places renewed emphasis on denying rival great-power influence, securitizing migration and transnational crime and reasserting US primacy in the Western Hemisphere. Seen through that lens, the seizure of Maduro appears less like an isolated tactical operation and more like the first major test of a wider strategic doctrine.

It also raises broader questions about how far this logic may extend, particularly with respect to countries such as Mexico, Cuba, Nicaragua or Panama, where US policymakers have voiced concern over foreign (especially Chinese) investment, economic influence and control of critical infrastructure. Once coercive action is normalized in the name of hemispheric security, it may prove difficult to limit or contain its application.

In closing

Ultimately, the capture of Nicolás Maduro removes a single leader but does not resolve Venezuela’s structural political or economic crisis. Instead, it has thrust the country, the broader region, and the US into a deeply uncertain and fragile period in which the risks of miscalculation, institutional breakdown and long-term entanglement are substantial. In our view, whether this moment produces a negotiated transition, a contested power struggle or an extended period of instability will depend on the cohesion of Venezuela’s security elite, the credibility of any transitional framework that emerges and the degree of restraint or escalation exercised by external actors now drawn more deeply into the outcome.