Notes on Venezuela

Executive summary

The removal of Venezuelan President Nicolás Maduro under “Operation Absolute Resolve” has materially improved the country’s outlook by breaking a long-standing political and economic impasse that had prevented reform, external engagement and debt resolution. Vice President Delcy Rodríguez has been installed as interim president and signaled a period of intense US oversight rather than immediate regime change. The operation reshaped Venezuela’s political and economic outlook by opening the door to renewed US involvement in the energy sector, raising expectations of legitimate future elections, and materially improving prospects for eventual debt restructuring. Markets reacted sharply, with Venezuelan bonds rallying on the increased likelihood of debt negotiations, while longer-term outcomes remain contingent on security, oil-sector rehabilitation, and sustained US political commitment amid broader regional and geopolitical implications.

Operation absolute resolve

After months of military buildup in the Caribbean and increasingly assertive US engagement toward Venezuela, in the early hours of Saturday, January 3, 2025, US special forces launched Operation Absolute Resolve, which successfully achieved its mission of capturing and removing President Nicolás Maduro and his wife Cilia Flores from the country. Various factions of the US military provided support, targeting strategic military installations and communication infrastructure within Venezuela. The mission was executed with near-perfect precision, which has raised speculation about likely support from within the Venezuelan security forces. President Maduro and his wife were initially moved to a US Navy amphibious craft before being flown to New York, where on Monday he and his wife faced charges concerning drug and weapons trafficking.

US President Donald Trump and senior officials within his administration held a press conference on Saturday from his Mar-a-Lago residence in Florida, where Trump announced the United States would “run” Venezuela until such a time when a “safe, proper and judicious transition” can take place. He also disclosed that a telephone conversation between Venezuelan Vice President Delcy Rodríguez and US Secretary of State Marco Rubio had taken place in which the former pledged to do “whatever the US considers necessary.” At the same time, Trump sidelined the main political opposition figures in Venezuela, represented by Nobel Peace Prize winner María Corina Machado and the internationally recognized winner of the 2024 election, Edmundo Gonzalez (who, according to Trump, did not have sufficient “respect within the country”). Another theme of the press conference was Venezuela’s role in reconstruction of the energy sector and the pivotal role that US oil companies would play, potentially investing billions to rebuild infrastructure and increase production back to the previous peak levels. This investment would be recouped from profits derived from the Venezuelan oil sector and would also be used to compensate for previously “stolen oil and land.”

The effect of these actions is a paralyzing of the existing Venezuelan administration but without regime change. Delcy Rodríguez has been sworn in as interim president for a period of 90 days (which can be renewed for an additional 90 days by the National Assembly) and therefore will be tasked with getting members of the existing regime to start to work cooperatively with the US in terms of ending the flow of drugs and violent gangs from Venezuela to the United States and also opening up of the energy sector to US companies. The United States appears hopeful that the very credible threat of secondary military intervention, similar to that conducted on Saturday, will be sufficient persuasion to meet these goals and prevent the need for a more significant move such as US military “boots on the ground”—although Trump raised this as a possibility. The current sanctions regime and large US military presence in the Caribbean will remain in place for the foreseeable future as a further means of pressuring compliance from the remnants of the regime in Venezuela.

The short-term outlook: reasons for optimism

The short-term outlook is the most critical for the country given the shock and surprise of such an abrupt end to Maduro’s reign—which he inherited after the death of former President Hugo Chávez in 2013. Delcy Rodríguez will have to walk a tightrope between meeting Washington’s demands and retaining control of the various parts of the regime, which includes the paramilitary colectivos and the formal military, neither of which she has been able to exert any control over until now. Hardline members of the Chavismo movement such as Diosdado Cabello, who is similarly included in the Maduro indictment and therefore most at risk of secondary action, will also need to be watched carefully in terms of a risk to Vice President Rodríguez. US interests are also focused on the removal of foreign influence from within Venezuela, including Cuba, Iran (in the form of Hezbollah) and Russia.

Although the task faced by newly installed interim President Delcy Rodríguez is immense and with numerous hardline factions facing bleak futures under this new path, and therefore heavily incentivized to disrupt her relationship with Washington, if the next days and weeks can be successfully navigated then we believe there is reason for optimism about the chances of this government being able to set conditions for elections to be held—likely no sooner than 12 months from now, but not later than two years. That optimism is based mainly on the alternatives now being a lot worse given the proven threat of US military intervention and the fact that Trump and Rubio have committed themselves so strongly to this cause. With mid-term elections on the horizon, that commitment will need to last at least the course of this year. Progress will likely be slow and will include periodic setbacks given the dire starting point of all institutions in the country. The first priority is expected to be the rehabilitation of the energy sector by allowing US companies greater access to the Orinoco Belt to increase domestic production from just below one million barrels per day (mb/d) eventually back to previous peak production of more than three mb/d. Current analysis suggests that small production gains of 300,000 barrels per day (kb/d) are feasible within the first six to 12 months with limited investment or technical requirements. However, further ramp-ups will require significant cost given the state of the current infrastructure and also the nature of the Orinoco Belt’s reserves, which require complex production methods. President Rodríguez’s experience as the head of state-owned energy company Petróleos de Venezuela (PDVSA) and as an interlocutor with US oil companies previously are reasons for optimism about achieving at least the near-term goals. Aside from the energy sector, tackling the security situation and purging this of foreign actors will be another key deliverable and one that will require significantly more effort from the new president given her lack of experience and representation within this area. Further support from the United States may well be required here, albeit in a more covert nature compared to the weekend’s actions.

Market reaction has been extremely positive

Venezuelan bond prices have reacted extremely positively to the removal of President Maduro, with the JP Morgan Emerging Markets Bond Index Global (EMBIG) Venezuela country index gaining just shy of 30% on Monday, January 5.¹ This comes on the back of the country being the strongest performer in the EMBIG universe in 2025, returning 99%. Venezuela defaulted on its sovereign debt in 2017 following a period of low oil prices which derailed the country’s unorthodox economic policy. Subsequent US sanctions and lack of US recognition of the Maduro regime have prevented any possibility for debt restructuring talks to commence, leaving the sovereign with a large and growing defaulted stock of bonded debt which is estimated at US$57 billion (US$31 billion of principal + US$26 billion of past due interest).² PDVSA’s US $43 billion bonded debt³ is increasingly likely to receive the same treatment as the sovereign’s bonds. In total, estimates of the country’s total public external debt are in the region of US$150 billion and additionally includes bilateral debt with China and Russia, commercial claims in the form of arbitration awards and also commercial arrears at PDVSA.⁴ This is compared to the International Monetary Fund’s (IMF’s) estimate of 2025 gross domestic product (GDP) of US$83 billion, in its latest World Economic Outlook dataset.

The start of debt restructuring discussions are a much more realistic prospect

The strong reaction of bonds on January 5 was mainly tied to signaling that the start of debt restructuring discussions are now a much more realistic prospect given the US intervention. Given the unknown status of large parts of the external debt, this process will take time. Therefore, we think it is unlikely discussions will start now and may well not commence until after elections occur and a new government which the United States recognizes allows for this to happen. In terms of recovery values, the average price of bonds on January 5 implied around a 37-cent recovery (of par). This level has not changed significantly as a consequence of the weekend’s actions and therefore it is more the acceleration of a potential restructuring that has caused the rise in prices. The explicit support from the United States adds some additional credibility to the rehabilitation of the oil sector but given the constraints on increasing oil production in the short term, the public sector oil-based revenues which will be used to service the reprofiled debt stock won’t be materially different under this new path. Prior to the default and sanctions, expectations were that Venezuela primarily required liquidity relief rather than solvency—but a more thorough assessment of debt sustainability is needed to make an updated determination. Whether the IMF will be involved in a debt restructuring also remains an unknown, and it will likely have an impact on the overall assessment of sustainable external debt.

Given the potential upside that the Venezuelan economy has in the form of future oil production it is highly likely that any debt restructuring will include a warrant linked to oil revenues or some form of variable recovery instrument as a means of bridging the gap between providing sufficient debt relief to allow the country’s external debt to be sustainable and which bondholders will view as an acceptable deal. Venezuela is one of the few countries that has issued such an instrument previously (the Oil-Indexed-Payment-Obligation [OIPO]) which was included in the Brady Bond restructuring deal offered to private creditors in the early 1990s. This instrument has similarly been in default since the first of five semi-annual payments of US$3 per OIPO due was not paid in April 2018. Different to the bonds, there may be an additional step required to prove that the missed payments were indeed triggered—a function of Venezuelan export oil prices—but these instruments should be included in the overall debt restructuring when that occurs given they are a liability of the sovereign. The likely inclusion of a similar instrument in this restructuring will also be helpful in asserting the warrant’s claim.

Broader regional and global consequences

Outside of the direct impact on Venezuela there are broader regional and global consequences as well as the potential for impact on oil markets.

Regionally, the significance of alignment with the current US administration now becomes an even greater factor given the potential consequences of non-alignment that have been so clearly demonstrated. Colombia’s government was mentioned directly in the Mar-a-Lago press conference as one under White House scrutiny. The proximity of upcoming elections in May presumably limits more severe action for now but will also likely amplify the political debate around those elections later in the year. More positively, a reversal of the very costly impact of migration on Colombia and the potential for benefiting from Venezuela’s economic growth are also considerations. Brazil is another country facing elections this year, with an incumbent president prone to disagreements with Trump. However, its economy and significant buffers appear sufficient to avoid anything too serious, in our view. Mexico has also previously been singled out for its part in the flow of drugs and violence into the United States. So far, Mexican officials have delivered sufficient actions to maintain constructive relations with its most significant economic partner but whether the initial success of the military intervention will see the US demand more from Mexico to support its goals will need to be monitored closely.

For oil markets, increasing production in Venezuela will be a long process and therefore short-term movements are unlikely to be significant. However, if the United States is able to bring its companies back into the country to provide the necessary technology to unlock Venezuela’s significant reserves, then downward pressure on futures curves should be expected which has consequences for the global economy.

Finally, on geopolitics, the US action in Venezuela can be interpreted as reinforcing the view that the post-World War II liberal, rules-based international order is under strain, with the global system evolving toward a more fragmented and multipolar landscape. Recent developments have been framed by commentators as a reinvocation of the Monroe Doctrine, signaling a more explicit US assertion of its sphere of influence in the Western Hemisphere. Against this backdrop, geopolitical risk becomes more diffuse and less predictable. Investors must assess escalation and policy risk not only emanating from the United States, but also from other major and regional powers operating under similar assumptions of strategic entitlement. As a result, geopolitical risk premia are likely to remain elevated and episodic policy shocks more frequent across regions and asset classes. The subsequent chatter about Greenland—including from Trump—is likely to be the next key test as we enter 2026. A hostile annexation of a fellow North Atlantic Treaty Organization (NATO) member’s territory is currently being described as an existential problem for the alliance. The US’s new National Security Strategy has shown the limits to which it is willing to go and therefore a situation where it puts its interests singularly above others means such a scenario is now a lot more conceivable. This prompts significant questions about the direction of geopolitical power for years to come.

In conclusion, despite the events of the past weekend raising significant questions about future geopolitical and macroeconomic direction and which require careful consideration, Trump’s strong commitment to promoting a Venezuela that prospers and partners with the United States is overwhelmingly positive for the country’s assets, in our view, including sovereign debt instruments. We expect further progress to be positive, although not in a straight line.

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Endnotes

¹Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

²Source: Reuters: Explainer-Venezuela’s billions in distress debt. As of January 4, 2026.

³Source: Bloomberg. As of January 8, 2026.

⁴Source: Reuters: Explainer-Venezuela’s billions in distress debt. As of January 4, 2026.

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