Venezuela: where’s the shock?

21 January 2026

• Muted oil price response to recent drama down to market dynamics
• World economy and stock markets also far less oil-intensive
• Investors should be reassured that oil risk has structurally abated

Oil used to matter a lot. High oil prices could bring countries almost to a standstill, as occurred in the US during the 1973 Arab oil embargo and the 1979 Iranian revolution, and in the UK with the fuel strikes of 2000 and, to an extent, 2005 and 2007. Acting as a national tax, high prices can dampen economic growth and indeed contributed to the stagflation that characterised the US economy in the 1970s. Conversely, abundant cheap oil is widely accepted in economic literature as a major driver of economic prosperity. Academics such as Igor Bashmakov and Vaclav Smil have long argued that lower energy costs support economic development in part by lowering the costs of transportation and raw materials, while the opposite only suppresses growth.

But today the oil market is now behaving in a way that would have seemed unthinkable barely a decade ago. The sort of geopolitical headlines that once sent crude prices soaring – for example the drone strikes on Saudi Aramco’s facilities in 2019 – are now met with almost indifference. The question is: what should investors make of this?

Drama, then shrugs

The arrest of Venezuelan President Nicolás Maduro by US special forces in the New Year represents the most serious threat to the regime since the failed coup and general strike that nearly toppled his predecessor Hugo Chávez 23 years ago. At that time, oil prices surged nearly 40% within months* as mass firings of oil employees crippled production. Venezuela accounted for more than 3% of global supply*, and the rest of the world had no spare capacity to absorb the excess.

Today’s oil market backdrop has significantly evolved. Venezuelan output has dwindled to around 900,000 barrels a day*, while the world is now producing nearly 80 million barrels*. As at 12 January, crude oil futures are trading at less than USD 60* The Organization of Petroleum Exporting Countries (OPEC) cartel’s unwinding of self-inflicted production cuts contributed to the glut, with prices now falling for an unprecedented third year in a row. Furthermore, the US itself has become a major player through its fracking industry, which President Trump has sought to encourage even further with his “Drill, baby, drill” mantra. Shale producers respond less to entreaties from US presidents than to changes in price. If the oil price rises, shale producers can rapidly add rigs and production to take advantage, and vice versa. This has accelerated the responsiveness of the oil supply curve, which has a further smoothing effect on the oil price that would have been alien to investors in previous decades.

Shale the king – fracking responds almost instantaneously to oil price movements:

Chart 1: Shale producers’ activity rises swiftly with higher oil prices

31 January 1996 to 12 January 2026

Two systems, one big shift

The US administration has also been threatening Iran too, but, just as per Venezuela, it doesn’t seem to be any no longer the potential source of systemic shock that it once was. Some commentators have been quick to draw parallels between today’s unprecedented protests in Iran and the deposing of the Shah in the 1979 Islamic Revolution¹, when a collapse in Iranian oil production knocked out about 7% of global supply and sent prices up by more than double.² But today such a jump seems inconceivable, since both Venezuela and Iran go about their oil distribution in a completely different way to the ‘legitimate producers’, shaped by the exigencies of sanctions.

Today’s oil market is now effectively two parallel systems. The familiar version is transparent and feeds into the established market pricing structure. The second system operates on the fringes, in which production from Russia, Iran and Venezuela is moved using ‘shadow’ tankers with convoluted ownership structures and sold to arguably less questioning buyers such as China and India. It is the second system which has helped nullify the volatility in the main market that one would expect from dramatic geopolitical events.

In my view, whatever happens next in Venezuela or Iran, worries about production halting altogether in those economies seem less likely than the prospects for production legitimising and entering the normal trading system, which is already demonstrating a glut as described above. More legitimate oil would be a known quantity and very likely have a further direct downward effect on official Brent³ and WTI⁴ benchmarked prices.

For investors today, this environment can suggest that immediate portfolio adjustments may not be necessary. The old reflex of geopolitical instability translating into an oil shock, which in turn translates into a broader economic slump and then potentially an equity market correction, simply doesn’t seem to apply anymore. Just think of the Iraq relief rally in March 2003: when US forces attacked Baghdad after months of build-up, oil prices eased off and equities finally began their recovery from the Dot.com bust of 2000.

At three points, these old connecting mechanisms appear to have ceased to function. The first and most important is as described – events in specific oil producing countries are no longer threatening supply because of a well-established shadow system, along with the ability of legitimate marginal producers to quickly turn on the taps in response to price rises. The second disconnect is oil’s waning influence on the global economy amid technological change. Oil intensity has been falling as evidenced by the fact that oil consumption today still remains below the pre-2019 trend, driven by the use of alternative energy sources and increasing efficiency. And finally, oil just doesn’t feed into equity markets either directly or indirectly in the way that it used to. In 1980, energy firms represented nearly a third of the S&P 500 (think of the mighty Exxon) while today it’s around 3%*, the lowest share in modern history. And as for the economic throughput, today’s dominant technology sector is highly adept at creating new trends that don’t depend heavily on strong economic growth in the first place.

In an era of supposed economic stagnation, the Apple iPhone, social media and now artificial intelligence have all managed to flourish. Talk of an “AI Bubble” is revealing of a profound long-term trend – that the stock market is becoming increasingly service and technology-orientated.

Investors are perfectly entitled to look on at recent geopolitical events with unease, but I believe this unease does not necessarily need to translate into portfolios action.

Out of energy – evolution of equity sector market capitalisation (cap) tells the story:

Chart 2: S&P 500 sector market cap, USD trillions

31 January 1995 to 9 January 2026