Implications of US intervention in Venezuela

Summary

Events in Venezuela are top of mind for market participants, and while developments are associated with an elevated degree of uncertainty, we are not making any changes to our markets or economic forecasts as a result of the deposition of Nicolás Maduro. The geopolitics may prove to be the most interesting aspect of U.S. intervention in Venezuela as fragmentation may be exacerbated and countries may shift strategic alignments to demonstrate support or opposition to the U.S. operation. We also believe Latin America's shift toward conservative political platforms will remain intact as Venezuela is unique in many ways; however, similar deposition-style actions in select countries could reverse the recent trend of softening regional political risk.

We do not believe the U.S. deposition of Nicolás Maduro will act as a catalyst to disrupt global or Latin American financial markets nor oil prices. Events in Venezuela this past weekend are top of mind for market participants, especially those with exposure to Latin America and oil. While the situation is very much riddled with uncertainty—particularly in regard to what the political regime in Venezuela will look like near term and who ultimately shapes the longer-term Venezuelan government (i.e., democratically held free and fair election, extended U.S. occupation, U.S. installed administration etc.)—we struggle to see how, as the situation currently stands, financial markets and oil prices are materially affected in the immediate term.

Venezuelan sovereign and PDVSA debt, both of which are currently in default, have been some of the best performing assets since the Trump administration took office in January 2025, essentially doubling in value over the past 12 months. Just about all EM assets rallied last year, but the degree of Venezuelan asset outperformance, in our view, stems from market participants pricing a rising degree of confidence in a Venezuela regime change scenario. This confidence seemingly grew as U.S. military activity in the region picked up pace late last year. The significant outperformance in Venezuela asset prices suggest market participants were unlikely to be caught off guard that a regime change scenario is now in motion, even if this scenario is in infant stages and the future remains far from certain.

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