Venezuela eyes oil windfall, domestic production upsets as Iran tensions fuel market uncertainty

As US sanctions bite again, Venezuela is vulnerable

WHAT Venezuela could see an oil income rise if global prices increase

WHY Middle East tensions are likely to continue

WHAT NEXT But Venezuela also needs Iranian help for its faltering oil sector

As fears mount over a potential closure of the Strait of Hormuz following US strikes on Iranian nuclear facilities, Venezuela is positioning itself to capitalise on possible oil price surges. Prices had risen then fallen somewhat after an Israel-Iran ceasefire was announced. 

A price surge might seem beneficial for Venezuela, but sanctions, falling output, and limited access to global markets could mean it would struggle to capitalise.

With more than 20% of global oil flows passing through the strategic waterway, any disruption could send shockwaves through global energy markets. 

Venezuelan economist Aldo Contreras, speaking to Invezz recently, said a prolonged crisis could lift oil prices above $100 per barrel, offering short-term gains for producers like Venezuela.

Despite operating largely outside conventional markets, Venezuela’s current production – hovering above 1mn barrels per day (bpd) – could deliver a temporary revenue boost if prices spike. 

However, due to sweeping US sanctions, much of the country’s oil moves through opaque channels, limiting its ability to fully capture market gains. 

Contreras noted that Venezuela’s access to the Pacific via the Panama Canal and multiple maritime outlets offers some logistical insulation from Hormuz-related disruptions.

But the deepening crisis also threatens to disrupt Venezuela’s domestic fuel production in the country’s already fragile oil industry.

Imperialist war

The geopolitical backdrop complicates matters. Venezuelan President Nicolás Maduro's open support for Iran in the current conflict as part of the "Axis of Resistance" and its repeated condemnation of US sanctions further deepen his alignment with "rogue states." 

Venezuelan Defence Minister Vladimir Padrino López has called the Middle East conflict an “imperialist war”, suggesting Venezuela could emerge as an alternative energy supplier to Western markets if the crisis escalates.

While Caracas has sought closer ties with the BRICS bloc as a counterbalance to Western pressure, its 2024 membership bid was blocked by Brazil over concerns about the July 2024 election, which gave Maduro a third six-year term in office amid widespread allegations of fraud. 

Venezuela, which hosts the world's largest proven oil reserves, views the BRICS+ grouping as a potential gateway to new financial channels and as part of a longer-term strategy to reduce dependence on the US dollar. 

In fact, bringing Venezuela into BRICS would concentrate 70% of global oil reserves within the bloc, but at the cost of increased US antagonism and internal friction.

Iran ties

Contreras warned that Venezuela’s close ties with Iran and its growing reliance on non-traditional trade mechanisms could expose it to further diplomatic isolation if tensions between the US, Europe, Israel and Tehran worsen. 

Yet, in a fragmented global energy landscape, higher prices could offset some of that risk in the short term.

As of June 25, the Strait of Hormuz remained open and a fragile ceasefire between Israel and Iran appeared to hold, but Contreras cautioned that developments over the next few weeks could determine both the trajectory of oil prices and Venezuela’s ability to manoeuvre within an increasingly divided global energy system.

Complicating the matter, Venezuela has relied on Iran for crude processing, marketing and the supply of diluents critical for domestic fuel production, Efecto Cocuyo reported.

The risks have heightened since the Trump administration recently scrapped licences that had allowed some multinational firms such as Chevron to operate in Venezuela.

While some in Maduro’s circle, including Defence Minister Vladimir Padrino López, see rising oil prices as an opportunity for Venezuela to position itself as a regional supplier, analysts warn the fallout could be severe. 

The recent US strikes on Iranian nuclear sites have further strained relations, and Maduro’s public support for Tehran risks alienating Washington at a time when negotiations over oil sanctions remain sensitive.

International observers say the Middle East conflict could push Venezuela’s domestic crisis off the global agenda, undermining efforts by opposition leader María Corina Machado to sustain US pressure for political change. 

Analyst Luis Peche Arteaga noted that Iran’s limited bandwidth, given its internal challenges, may also reduce its capacity to assist Caracas. Meanwhile, the US State Department has urged Latin American nations to clarify their stance, questioning whether they will back what it describes as a state sponsor of terrorism.

Entrenched

While Caracas is unlikely to offer military support to Iran, its political alignment could further complicate relations with the West, according to internationalist Iván Rojas. Despite the growing tensions, Venezuela’s ties with Iran remain entrenched. 

Under Hugo Chávez, Venezuela aligned with Middle Eastern powers opposed to US influence, notably supporting Iraq's Saddam Hussein, Palestine and later, Libya’s Muammar Gaddafi. 

Maduro has adopted a more cautious strategy, balancing rhetorical support for allies like Russia and Iran with pragmatic overtures to the West. 

During the Ukraine conflict, he avoided recognising separatist republics and engaged in back-channel talks with Washington, helping unlock limited oil licences for Chevron.

Maduro is expected to strike a similar balance with Iran and Israel clashing – likely backing Tehran rhetorically while avoiding deeper involvement.

The opposition, meanwhile, champions closer ties with the US and Israel. Edmundo González Urrutia recently met with Israel’s foreign minister, and María Corina Machado maintains ties with Benjamin Netanyahu’s Likud party, underscoring Venezuela’s deep foreign policy divide.

What next?

With Tehran edging closer to a strategic alignment with Russia and North Korea, Venezuela may see opportunities – but also risks – in tying itself more tightly to an axis of sanctioned states. 

At the same time, divisions within US foreign policy circles regarding Venezuela – between neo-conservatives pushing for harsher sanctions and Trump-era pragmatists favouring limited engagement – may shape Washington’s next moves toward Caracas.

Venezuela and Iran held their tenth High-Level Joint Commission in November 2024, launching the Venezuelan-Iranian Chamber of Economic Integration and reviewing dozens of bilateral agreements, including one on artificial intelligence. 

Just days before the latest escalation, Foreign Minister Yván Gil met with Iran’s ambassador in Caracas to discuss ongoing cooperation, underscoring the depth of the relationship.

Venezuela, along with Chile, Colombia and Brazil, have condemned the recent US strikes, citing violations of international law. As expected Argentina, with its right-wing populist leader Javier Milei, sided with Washington.