The Venezuelan Gambit: Why Saudi Arabia is Watching Every Move

In the high-stakes world of global energy and finance, seismic shifts often begin with a quiet tremor. Such a tremor was felt in late 2023 when the United States announced a significant, albeit temporary, easing of long-standing economic sanctions on Venezuela. On the surface, this was a diplomatic maneuver aimed at encouraging fair presidential elections. But beneath the headlines, the move sent ripples across the globe, and nowhere are they being watched more closely than in the royal courts and boardrooms of Saudi Arabia.

The original letter in the Financial Times by Afnan Wasif correctly identified this dynamic, noting that Riyadh has a profound interest in the outcome of this geopolitical gambit. But the implications run deeper than mere market competition. This is a complex chess match involving energy security, economic strategy, and the very balance of global power. For investors, finance professionals, and business leaders, understanding the “why” behind Saudi Arabia’s watchful eye is crucial for navigating the future of the global economy and energy markets.

The Fall and Potential Rise of an Oil Titan

To grasp the current situation, we must first understand Venezuela’s dramatic story. A founding member of OPEC, Venezuela sits atop the world’s largest proven oil reserves—an astonishing 303 billion barrels. For decades, this immense wealth powered its economy and made it a formidable player on the world stage. However, a combination of chronic mismanagement, deep-seated corruption, and the imposition of crippling U.S. sanctions beginning in 2017 sent its oil industry—and its entire economy—into a catastrophic tailspin.

Production plummeted from over 2.3 million barrels per day (bpd) in 2016 to a low of around 300,000 bpd in recent years. The country’s infrastructure crumbled, and its state-owned oil company, PDVSA, became a shell of its former self. The sanctions, designed to oust President Nicolás Maduro, effectively cut Venezuela off from the global banking system, paralyzing its ability to conduct international trade and finance critical repairs.

The recent deal, known as the Barbados Agreement, offered a six-month window of relief. The U.S. Treasury Department issued licenses authorizing transactions with Venezuela’s oil, gas, and gold sectors. In return, the Maduro regime agreed to a roadmap for the 2024 presidential election, including allowing opposition candidates to participate. This development, however fragile, cracked open the door for Venezuela’s return to the global oil market, a prospect that immediately put the world’s largest oil exporter on high alert.

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Why Riyadh Cares: The Calculus of a Swing Producer

Saudi Arabia’s position in the global energy market is unique. As the de facto leader of OPEC and the world’s most significant “swing producer,” it has the unique ability to increase or decrease its output relatively quickly to influence oil prices. This power is central to its economic stability and its global influence. The Kingdom meticulously manages this supply-demand balance, often in coordination with its OPEC+ allies (which includes Russia), to keep prices in a range that supports its national budget without crippling the global economy.

A sudden, uncontrolled influx of Venezuelan crude, even a partial one, threatens this delicate equilibrium. If Venezuela were to ramp up production to even 1 million bpd—a significant but plausible medium-term goal—it would introduce a new variable that Saudi Arabia and OPEC+ would have to account for. This could potentially exert downward pressure on prices, complicating the Kingdom’s economic planning. This is especially critical now, as Saudi Arabia is funding its ambitious Vision 2030 plan, a multi-trillion-dollar project to diversify its economy away from oil. The success of this monumental undertaking depends heavily on stable, predictable revenue from oil exports in the interim.

To better understand the stakes, a direct comparison of the two oil-producing nations is helpful.

The Geopolitical Chessboard: Beyond Barrels and Dollars

The Saudi interest extends far beyond simple market economics. The U.S.-Venezuela détente is a move on a much larger geopolitical chessboard, with implications for global alliances and the future of financial sanctions as a tool of foreign policy.

1. The OPEC+ Dynamic

The OPEC+ alliance, which includes Russia, was formed to counter the rise of U.S. shale oil. It represents a delicate balancing act between Saudi and Russian interests. If Venezuela, a historic Russian ally, begins to align more closely with U.S. interests to revive its oil sector, it could subtly shift the internal politics of the oil cartel. Riyadh will be watching to see if Washington uses its newfound leverage with Caracas to influence OPEC’s decisions, potentially undermining the cohesion of the Saudi-Russian axis that has dominated the market for years.

2. The Future of Sanctions and “Pariah” States

The U.S. has long used its dominance of the global financial and banking system to isolate adversarial regimes. If this rapprochement with Venezuela proves successful—leading to both a political compromise and increased oil flow—it could create a new playbook for how the U.S. engages with other sanctioned states like Iran. For Saudi Arabia, this is a critical development. A potential U.S.-Iran thaw that brings Iranian oil back to the market would be a far more significant disruption than anything Venezuela can currently manage. The Venezuelan situation is, in effect, a test case that Riyadh is studying for clues about the future of U.S. policy in its own backyard.

3. The Investment and Trading Landscape

For the world of finance, the situation is a masterclass in geopolitical risk. The potential for U.S. energy giant Chevron and other international companies to ramp up operations in Venezuela has already impacted the stock market, with energy stocks reacting to every rumor and policy shift. Oil trading has become more volatile, as algorithms and analysts try to price in the probability of Venezuelan barrels returning. This creates both risk and opportunity. The banking sector remains cautious, as the threat of “snapback” sanctions—where the U.S. could reimpose restrictions at any moment—makes long-term financing a perilous proposition. This uncertainty could even spur innovation in financial technology, as companies explore new fintech and perhaps even blockchain-based solutions to track assets and manage payment flows in such a high-risk environment.

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The Ripple Effect on the Global Economy

Ultimately, the events unfolding in Venezuela matter to everyone, from the institutional investor to the average consumer. The primary goal of the Biden administration, beyond promoting democracy, is to increase the global supply of oil to put downward pressure on gasoline prices—a key domestic political concern. A successful revival of Venezuelan production could contribute to lower energy costs globally, easing inflationary pressures.

However, the path is fraught with uncertainty. The Maduro regime’s commitment to free elections is questionable at best, and the U.S. has already signaled its willingness to reimpose sanctions if the agreement is violated. This political fragility means that any investment in Venezuela is a high-risk bet on a volatile political outcome.

For Saudi Arabia, the challenge is to navigate this new uncertainty without derailing its own long-term economic transformation. It will likely use its influence within OPEC+ to absorb any new supply, perhaps by adjusting its own production quotas or those of its allies, to maintain price stability. Its actions in the coming months will be a key indicator for anyone involved in the economics of energy.

The quiet diplomacy in the Caribbean has set in motion a chain of events with global consequences. As investors and business leaders, we are reminded that the flow of capital and the price of commodities are inextricably linked to the complex, ever-shifting landscape of international relations. And as the drama in Venezuela unfolds, one of the most powerful players is not at the main table, but watching intently from the sidelines, calculating its next move. That player is Saudi Arabia, and its response will shape energy markets for years to come.