Following the removal of Venezuelan President Maduro by US military action, the country's bond market has entered a window for revaluation.
According to reports, on January 3 local time, Venezuela's Constitutional Court issued a ruling ordering Executive Vice President Rodriguez to assume and exercise all the powers, duties, and authorities inherent to the office of the President of Venezuela in the capacity of "acting president," to guarantee the continuity of the national administration and the country's comprehensive defense.
This dramatic geopolitical turn has directly impacted financial markets. Analysis from J.P. Morgan's Katherine Marney team on the 4th suggested that Venezuelan bonds could open up 8-10 points on Monday, with subsequent gains depending on the stability of US-Venezuela bilateral relations. The country possesses over 300 billion barrels of oil reserves, and coupled with the Trump administration's clear statement about seeking investment returns from the intervention, market participant enthusiasm is expected to persist. Venezuela's current debt is approximately $150 billion, of which $102 billion are market bonds (including $43 billion in principal plus defaulted interest).
Although the market had partially priced in expectations of a regime change since US forces began gathering in the Caribbean last August, the Trump administration's strategy of choosing to cooperate with the existing Chavista government was unexpected; the durability of this framework will determine the further trajectory of Venezuelan assets.
An unexpected political path: Pragmatism dominates the transition period. J.P. Morgan indicated that the market had widely expected the regime change to be led by opposition leader Maria Corina Machado, who gained broad international recognition in the 2024 election. However, the Trump administration adopted a more pragmatic, transactional strategy. Trump publicly stated he had not contacted Machado and believed she lacked sufficient domestic respect and support. Instead, the US government chose to cooperate with the current administrative structure led by Rodriguez, with Secretary of State Rubio revealing that direct contact had been established and expecting to receive more "compliance and cooperation" than before.
This strategic shift marks a significant adjustment in US policy towards Venezuela. While Rubio emphasized that the current "cooperation" does not equate to immediately granting the new regime full legitimacy, and formal recognition might require a transition period and elections, this arrangement provides a basis for short-term stability. For bondholders, this "unorthodox" transition path may mean that future debt restructuring will be driven more by the US bilateral agenda than by the traditional International Monetary Fund framework, which will directly impact creditors' recovery expectations.
The oil industry: Engine of recovery and uncertainty. J.P. Morgan stated that the key to Venezuela's economic recovery lies in oil. The country's crude production hovers between 900,000 and 950,000 barrels per day in 2025. Estimates from J.P. Morgan's commodities team suggest that, under conditions of political stability, restored licenses, resumed diluent supply, and unrestricted Chevron operations, production could increase by 250,000 barrels per day in the short term compared to the 2025 average. Within two years, daily output could potentially climb to 1.3-1.4 million barrels, but this depends on subsequent large-scale investment materializing.
Trump stated that the quarantine on all "sanctioned" Venezuelan oil will continue, affecting approximately 400,000 barrels per day of crude and 100,000 barrels per day of refined product exports. The US currently imports about 120,000 barrels per day of crude from Venezuela, shipped by Chevron. The exact selling price of Venezuelan oil is opaque but is presumed to be significantly below market prices.
Venezuela possesses massive oil reserves exceeding 300 billion barrels. If crude production rebounds to the 1.1-1.2 million barrels per day range and is sold near market prices, the country's economic growth could rebound sharply from a very low base—benefiting from new investment in the oil sector, new dollar inflows, and a degree of political stability.
Severely shrunken economic scale. Assessing the macroeconomy is highly challenging as Venezuela has published almost no economic data since 2018. The IMF, in its latest World Economic Outlook, estimates the country's nominal GDP at $82 billion for 2025; converted at the current exchange rate, this figure is closer to $60 billion. Alternative estimation methods based on annual import values yield a similar range. This represents a significant decline from the $100-120 billion of 2023/24 and is less than half the economic size before the default and severe crisis at the end of the last century.
J.P. Morgan estimates that the economy may have slowed in recent months due to declining oil revenues and dollar inflows. Nevertheless, estimates for import growth, local retail activity, and oil production suggest the economy was on a relatively solid footing until the fourth quarter. Growth may be hampered in the short term due to political pressure, dollar shortages, and potential hits to oil production, especially if the quarantine persists and leads to exhausted storage capacity.
Oil revenue gains have likely been declining this year, partly due to lower global prices and partly due to changes in arrangements with Chevron and other oil sales. Dollar tightening has caused the gap between the official exchange rate and the parallel rate to widen. The US-imposed quarantine in early December intensified pressure, causing the gap to reach about 90%—the parallel rate rose 760% year-on-year, while the official rate rose 473% year-on-year. Given that exchange rate fluctuations quickly transmit to local prices, inflation could accelerate rapidly again.
From a fiscal perspective, after years of constrained financing, the fiscal accounts may be close to balance. Independent estimates show extra-budgetary resources are positive, while the monetary base has remained flat after adjusting for valuation changes.
Debt restructuring: Highly attractive risk-reward ratio. J.P. Morgan stated that, despite limited data transparency, the market generally estimates Venezuela's total external debt at around $150-170 billion, with bond debt amounting to approximately $102 billion. Notably, due to the default since 2017, Past Due Interest accounts for a considerable portion of total debt claims—about 46% of sovereign claims and 38% of PDVSA claims.
In the current environment of low yields for global emerging market high-yield bonds, Venezuelan bonds offer scarce deeply discounted assets. Since 2025, Venezuelan bond prices have doubled, but even after accounting for recent gains, their valuation remains attractive considering the country's vast resource base and the US government's strong willingness to intervene.
Analysis suggests that under the new bilateral relationship, future debt restructuring could include Value Recovery Instruments linked to oil proceeds. In the near term, the market is likely to continue assigning higher valuation premiums to sovereign bonds with weak Collective Action Clauses and to bonds where PDI is not yet fully priced in.
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