Wall Street Welcomes the Prospect of Conflict in Venezuela and Greenland
Oil prices (as measured by ) dropped almost 2% overnight as traders processed news of the U.S. invasion of Venezuela and the arrest of its dictator, Nicolás Maduro. In a counterintuitive twist, they concluded this would have minimal impact on oil prices—at least in the short term.
Shares of U.S. oil companies surged sharply in overnight trading: rose 7.82% in premarket activity, climbed 8.45%, advanced 7.54%, and increased 3.95%.
This was again somewhat surprising, given that potential additional supply from Venezuela—assuming President Donald Trump secures the cooperation he wants from Maduro’s successor—would likely tend to push U.S. oil prices down rather than up.
The reality is that while Venezuela holds vast oil reserves—around 17% of the world’s total oil lies beneath its soil—its production is weak. Output fell by 75% between 2013 and 2020, , after successive Chavismo regimes nationalized local oil firms, expelled foreign drilling expertise, and triggered an exodus of its own drilling specialists. It now contributes to daily global oil supply.
To unlock Venezuela’s full oil potential, U.S. companies would need ironclad guarantees: that their assets there won’t be renationalized; that they can commercialize any resources they find; and that they have full freedom to explore for wells in Venezuela’s Orinoco oil belt. The would require billions in investment and years of development work to complete.
Against this backdrop, traders were clearly in a risk-on mood this morning. S&P 500 futures rose 0.29%, following strong gains in Asian and European markets. The STOXX Europe 600 climbed 0.45% in early trading; Japan’s Nikkei 225 advanced 2.97%, and South Korea’s KOSPI gained 3.43%. Even Bitcoin had a positive day—it hit $92,700 this morning after lingering in the $80,000 range for much of the Christmas period.
Similarly, after President Trump’s renewed threat to invade Greenland, investors flocked to defense stocks worldwide. A German arms manufacturer rose 7.4% before lunch in Europe; Sweden’s Saab AB (the aircraft company, not the car brand!) gained 5.75%; and Japan’s Heavy Industries jumped 8.39%.
The private sector is already taking action: One former Chevron executive while Charles Myers, chairman of Signum Global Advisors, stated he intends to .
The U.S. dollar enjoyed a rare strong day as well. “Today’s initial reaction has been to send the dollar higher,” ING analyst Chris Turner told clients this morning. “The initial market reaction to Saturday’s extraordinary events in Venezuela has been a modest flight to quality, where gold and the Swiss franc are bid, and the dollar has found some support, too.” The ICE U.S. Dollar Index (which compares the USD to a basket of major foreign currencies) rose by 0.32%—even though it has fallen 9% over the past 12 months. Since oil contracts are settled in dollars, periods of high market activity or volatility boost demand for the greenback, strengthening it against other currencies.
Below is a snapshot of market conditions ahead of the New York opening bell this morning:
- S&P 500 futures were 0.29% higher this morning, following a 0.19% gain in the previous session’s close.
- STOXX Europe 600 climbed 0.45% in early trading.
- The U.K.’s FTSE 100 rose 0.2% in early trading.
- Japan’s Nikkei 225 advanced 2.97%.
- China’s CSI 300 was 0.9% higher.
- South Korea’s KOSPI gained 3.43%.
- India’s NIFTY 50 fell by 0.3%
- Bitcoin increased to $92,700.