As financial markets entered the first trading week of 2026, market attention was highly focused on the US attack on Venezuela. Investors will assess its short-term, medium-term, and long-term impacts, as well as the effects on broader regional and international relations.
The initial market reaction to the events in Venezuela on the 3rd was a mild 'risk-off' move: gold and the Swiss franc were sought after, while the US dollar also gained some support. Equity index futures did not appear to overreact to the current situation, while the crude oil market was volatile as it continued to assess the event's short-term and medium-to-long-term effects on Venezuela's oil production.
Given the uncertainty surrounding the situation's development in the coming days, investors may show a greater preference for the liquidity of the US dollar. Latin American currencies could come under pressure, particularly the Colombian Peso, with the Mexican Peso also potentially affected.
The event will introduce more uncertainty into oil market supply. The short-term impact largely depends on the nature of the power transition in Venezuela. If the transition is prolonged and chaotic, the risk of supply disruptions in the short term will increase. If a smooth transition occurs and a new government is more willing to cooperate with the US, the market could face greater downward pressure.
Warren Patterson, Head of Commodities Strategy at ING, believes the muted reaction in the oil market is due to Venezuela's relatively small supply volume, approximately 500,000 barrels per day in late December, as a result of sanctions.
In the medium to long term, the market impact depends on the extent to which Venezuela's oil production can be increased. Restoring the country's production to levels of 2.5 to 3 million barrels per day could take 5 to 10 years.
The EUR/USD exchange rate briefly rose above 1.18 in late December 2025 but is now under pressure again. How the situation in Venezuela develops in the coming days will determine whether the euro weakens further.
Geopolitical factors cannot be ignored either. US President Trump has not ruled out the possibility of sending ground troops to Venezuela. If the US becomes entangled in a complex situation involving military operations in multiple Latin American countries, investors may adopt a more pessimistic view of US fiscal health and the dollar's prospects. A more confrontational and overtly interventionist US foreign policy could prompt relevant nations to reconsider selling US assets.
Comments