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- [00:00]
A
Foreign. Well, 2026 has certainly started with a bang. Happy New Year, everyone. We seem to have a new world order. Donald Trump has plucked the President out of Venezuela, dropped bombs on Caracas and declared that he's in charge. If you think he's joking about taking control of Greenland next, then I hope you're sitting down because I'm here to tell you he's absolutely serious. Most likely gre Greenland, of course, is a protectorate of Denmark, a NATO member. So good luck. NATO through it all. What are markets up to? Well, kinda nothing. To be fair, we did predict this kind of shrug at Venezuela on this very podcast just before Christmas. And for once, we were right. Today on the show we're going to ask whether that makes sense, but also to take a bit of a dive into Venezuela's oil. Trump clearly wants it, but is it really the point here and is it worth the effort? This is Unhedged, the Markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, which has had a very light dusting of snow today. Joining me down the line from New York City, I have not one, but two co pilots. Mr. Rob Armstrong, off of the Unhedged newsletter, of course.
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B
Hi, Katie.
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A
But also we have an oil pointy head in the form of the very excellent Jamie Smith.
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C
Hi, Katie.
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A
Hey, Jamie. Thanks so much for coming along today. We know you are a busy man. Listeners, there will be two male voices here. If you're confused. Jamie is the one who knows what he's talking about. Chaps, Happy New Year. We should get straight to it because time waits for no podcast in 2026. Rob, as the token American on the pod, what is your glorious leader up to?
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B
Please, I forego all psychoanalyzing of the President this move in Venezuela, by which I mean the fact that he's engaging in what looks like regime change. He says we're gonna run the place temporarily. This was not on my bingo card at all. Was sort of outside of the realm of what I thought he would get up to. So I have turned in my presidential analysis union card and given up the game.
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A
But the facts on the ground are what? He's taken Nicholas Maduro out of the country.
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B
Yes. We were briefly neighbors in Brooklyn, Maduro and I. They had him. They had him in lockup in Brooklyn. I didn't drop by to bring him a care package. He's appeared in Manhattan in court on charges of narco terrorism and pled not guilty. And now we have this tremendous open question or two tremendous open questions, only one of which I think we're going to address on the show. Open question number one is what does the President mean when he says he's going to, quote, run Venezuela until something else happens? And two, is this resource imperialism? In other words, is this all about the oil? And that question I think we can address on the show today.
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A
We can, which is why we have the very lovely Jamie Smith. Now, Jamie, tell me, I thought Venezuela, yes, it's got lots and lots of oil, but I thought it was like crappy oil that no one wanted. What's going on here?
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B
Is that the technical term, Jamie? Crappy oil? Is that what we call it?
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C
Not really. It's called heavy oil. And this is. Yeah, it's very different to the type of oil that is pumped out of the Permian, like the biggest U.S. oil field. That's light, sweet crude. The heavy oil is actually very thick. It's very difficult to get out of the ground, and it costs a lot of money to get it out of the ground. And it means that the average cost of production per barrel in certain parts of Venezuela is as high as $80.
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B
And remind us what the global price of crude oil is today.
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C
Global prices hovering around $60. So if you're producing at $80, you know you're losing money at the minute.
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B
Yeah. I don't know a lot about business, but when you make something for $80 and sell it for 60, my feeling is you're behind there.
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C
Exactly.
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A
That's not supposed to be how it works. Yeah, yeah.
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B
This leaves a very big question to answer for those who frame the American adventure in Venezuela as an effort to take control of or steal the country's oil. Because people don't generally steal things that have a negative value. You don't just go around taking on liabilities voluntarily. Is there a way of making sense of the case for the US wanting this oil, given that it's unprofitable right now?
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C
It was certainly surprising, especially to the US oil companies, when Donald Trump put oil at the very center of the toppling of Maduro. You know, that raises concerns for them. The last thing they want to be connected to is some sort of imperialist venture. It doesn't help them when they go to other parts of the world and try and do deals with governments. Now, is there a benefit to Venezuelan oil? I mean, there is a hell of a lot of it. You know, you've got 300 billion barrels reserves. It's the most in the world by far. 17% of the world's resource. So, you know, in the long term there certainly is a benefit there. You know, if a company like Chevron, which is already operating in Venezuela, if it can invest more in a measured way, slowly build up its production, it could, you know, really create a profitable enterprise. One of the issues with Venezuelan oil is it is actually very useful for the refiners in the United States. So the United States refineries along that Gulf coast, they're all calibrated to actually process this heavy oil. And they've been getting it from Mexico and they've been getting it from Canada and a small amount from Venezuela. But actually the Mexicans are beginning to use more of that oil themselves, so there's a bit less of it. And the US doesn't want to be totally reliant on Canada, which it seems to have a tricky trading relationship with at the minute. So there is a benefit, particularly for these refiners down on the Gulf coast, to getting more access to the heavy oil.
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B
Now is that why we saw the stock prices of Chevron and Exxon rise on the first trading day after the extraction of Maduro? Is that a reflection of refinery profits rather than oil sale profits? Or is that just kind of a meaningless market spasm we should ignore?
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C
I mean, I think what was even more interesting was the refiners share prices bumped up even more. You know, they were, Valero was up, I think 7 or 8, 9%. So the refiners definitely, certainly got a bounce from this. Chevron also did quite well because it is the only US company with an operation in Venezuela. It's really in pole position. So it can expand there. And if it can extract different terms and conditions from the Venezuelan government, if it's the Venezuelan government that are deciding that, or the US government, yes, you know, then it could bolster the position of Chevron, could benefit and bring the.
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B
Effective production costs down, basically.
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A
But can I, can I just sort of circle back a little bit? Right, because in theory, if this extraction of Maduro and this regime change in Venezuela means that suddenly we're going to have a lot more Venezuelan oil in the system, in the global energy system, then all things equal, you would imagine that the price of oil would drop pretty sharply on this news from Venezuela, it hasn't done that. And is that the market's way of saying, look, we just don't think this is going to happen? Because you know, you've got a situation where the US has effectively annexed a country for oil when oil is trading at five year lows. If it did work. The ramp up in Venezuelan oil production or refinery would mean that the price dropped. If you're an oil major in the US that's going into Venezuela, then you're looking at spending hundreds of billions of dollars and having a massive security headache to actually make this happen. So is the oil market effectively saying, this ain't going to happen, lads, this is just a fantasy?
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C
Yeah. I mean, it's been very subdued, the oil market, and not surprisingly, because this is going to take years, decades to actually achieve anything significant. You know, the infrastructure in Venezuela is very degraded after 20 years of corruption and mismanagement and these sanctions. So nothing can happen really quickly. In fact, in the very short term, what you're going to see is Venezuelan production drop because you've got this oil embargo around the country at the minute. They can't ship their oil out to markets. Only the tankers that are coming to the US will continue to operate at the minute unless that embargo lifts. So we've already seen the state oil company shutting in some of its production. So they think that there could be up to 300,000 barrels of, of oil shut in, you know, and the production was only about 900,000 last year. So in the short term, actually, there's going to be potentially less Venezuelan oil.
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B
Jamie, let me ask you, I want to hit that topic of investment again. We've all seen estimates flying around of how much capital expenditure would be required to, as it were, modernize the creaking oil infrastructure of Venezuela. I'm seeing numbers like $100 billion over 10 years or something like that. I don't know if I'm in the ballpark or not.
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C
That's right. About $100 billion over 10 years to double the production, get it to about 2 million barrels of oil per day.
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B
You're like going from 1% to 2% of the world's daily production in return for that price, which is significant. That's an increment that probably matters. But part of the pitch we have from the administration is, is that US Oil companies are going to go flying into this country, invest a lot and make a lot of money. My question for you is this. When they put you in charge of a global oil company, Jamie, which I know they're lining up to do, if only you have an incremental dollar to spend it on investment in the world as we know it now, are you putting that incremental dollar to work in Venezuela or somewhere else? Kazakhstan, Guyana, I don't know where.
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C
Yeah, I mean, it's not surprising that the whole oil industry has been extraordinarily quiet since Saturday. You know, I mean, you haven't heard a word from them. So. No, the big challenge for these companies are they have other great opportunities around the world. Chevron in particular, they have just bought Hess. You know, they just completed that deal for over $50 billion. And Hess has this 30% stake in the Guyana oil fields. Guyana, the break even price is under $30 a barrel and there's a lot of oil there and they need to invest a lot of money to get it out. So they have already set their capital expenditure budgets, you know, for the year and they've got an outlook going out various years and you know, a Venezuelan expedition, you know, where they're expected to invest, you know, tens of billions over the next five years is not something I think that investors would like to see.
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B
Yeah, I would think investors would rebel.
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C
Absolutely at this point. I mean, you know, the political risk is absolutely huge. You know, then you've got the investment risk, you've got this creaking oil infrastructure. And President Trump apparently might have only three years left in office. So who's going to be in charge when these companies are operating?
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A
You? Jamie, we've already been through this. You're in charge next. This is the whole deal. But so speaking of investors, right, markets, as I said right at the top of this podcast, have gone kind of meh, whatever. Oil hasn't really done very much. A few oil related stocks, particularly in the States, have done very well. What does that tell us about markets more broadly? And what does it tell us about what he's got in mind for the Federal Reserve over the course of this year? Right. So it occurs to me that people are spending a lot of time saying, oh, I wonder who the next chair of the Fed will be. The central bank's going to get a new chair in May, but what's to stop him doing a total do over of the Fed just like he's done a total do over of Venezuela. And just saying these are the facts. Now go and deal with it. Like, maybe we should worry slightly more broadly about what he's up to here. Rob, do you think I'm just being miserable as usual?
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B
I think you are being miserable as usual. And I think you raise an incredibly difficult question, which I grappled with unsuccessfully in my newsletter just the other day, which is, to use slight psychobabble here, is risk appetite domain specific. So the Trump administration is feeling its oats, as it were, geopolitically, will that translate to a kind of new level of risk tolerance domestically or economically? Are they going to get the sense that the field is open for more aggressive moves on the tariff playground or on the monetary policy playground? And I just don't know. I mean, as I said at the top of the show, I don't know how to read this kind of thing, but I think you're raising the right question. I'm just not sure how to go about answering it.
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A
I mean, if markets don't care about what's happened in Venezuela and they appear broadly not to care. He's also talked about Colombia. Right. He said, well, they've got a lot of oil in Colombia. Maybe we need to sort that out. He's spoken about Mexico, he's spoken in the past about Canada. He's talking about these designs that he has on Greenland, saying that he, quote, unquote, needs it. The fact that the market hasn't freaked out at what's happened in Venezuela, I guess, kind of emboldens him. Just like every time the market has given him a pass on tariffs or on the Fed or whatever it is, it nourishes him. It makes him feel stronger and more powerful and able to do more. More stuff.
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B
I'm very conscious here that, you know, I'm a kind of finance person and Jamie is an oil person and you're a finance person, too. We're bordering on the geopolitical here. But look, would it be a market event if Trump said, we're simply taking Greenland, which everybody agrees it is within the power of the United States to do, and that Europe, through Denmark, would not be able to say peep in response, which would, as our colleague Ed Loos pointed out in his column today, simply be the end of the NATO alliance with obvious implications for Russia if that happens. Right. Would that be a market event? I would think it would have to be. Don't you think?
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A
Surely.
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B
Right. Because you know what, what did matter to markets? And this, Jamie, brings you back in the conversation is we saw oil markets move a lot when Russia invaded Ukraine. Right. So what is kind of, maybe that's a way to frame it. What is the difference between the two cases? Why did we get conniptions in energy markets back then, but now the world shrugs.
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C
I mean, Russia was just such a massive supplier of oil and gas to Europe and the world. So the volume is so much more compared to Venezuela. Venezuela is, as you say, 900,000 barrels a day. You know, it's very small.
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B
It's the difference between having a lot of reserves and having a lot of production. Those are two really different things. And they had such an iron grip on the European market in particular. It was like there was an infrastructure.
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C
Side to that, too, and a much bigger geopolitical element. You know, I mean, actually, I think Greenland actually would be a much bigger issue because of the NATO alliance.
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B
Yes.
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C
The fact that the US relationship with Europe would be really, really put under huge stress at that stage, those are huge issues. Whereas Venezuela, it's in Latin America, it's a small amount of oil, comparatively. So the markets probably are more at ease with that.
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A
So just redirecting this oil tanker back around to markets. Jamie, what's your bet? What's the next move in the oil price? Is it higher or does it tank? Because the market starts taking it seriously that this Venezuelan production could start really.
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B
Coming on stream, putting them on the spot?
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C
I think it has very little to do with Venezuela, to be quite honest. I think it has much more to do with Russia, Russia, Ukraine, peace and that geopolitical sort of bonfight that's going on at the minute. I think that actually is quite important. But most people would suggest that the world is awash with oil right now. We have a supply glut and that the price could be heading below $60 again. I think I'd be more sort of bearish in that respect because I think, you know, the Russia, Ukraine idea of a peace deal is looking tricky right now, you know, but if we did get a peace deal, that could affect prices.
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A
Yeah. Jamie, you're a good man. We know you're very busy, so thanks for joining us. We're going to be back in just one second with long short. Okie dokie. We are back for the first long short of 2026. This is the part of the show where we go long a thing we love or we go short a thing we hate. Jamie, busy man. What you got?
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C
Well, I've been sort of obsessed over the last six weeks with the Ashes, which is this biannual cricket tournament played between England and Australia. It's happening in Australia right now and the Aussies have been smashing the English. So I'm long Australia and short England.
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A
We have not been having a good run. It's embarrassing.
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B
Rob, I'm going to give you a pair trade. I'm long US stocks against the rest of the developed world, specifically Japan and Europe. Japan and Europe had a great year last year. It's not going to repeat. The valuation gap is closed. GDP growth is much stronger in the US than it is in Japan or Europe and profit growth is better. US stocks are back in 26, baby.
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A
I'll take the other side of that. I am long London. There are entire swathes of the Internet that are dedicated to spreading the lie that it's a lawless hellhole on the brink of civil war. It's nonsense.
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B
It's a lawful hellhole, as we all know.
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A
And Jamie's been sledging the Brits over the cricket. It's really very unfair. Boys and girls, that's all we have time for for today. We are going to be back in your ears on Thursday, so listen up then. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. Topher ForHees is the FT's acting co head of Audio. Special thanks to Laura Clarke, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30 day free trial is available to everyone else. Just go to ft.com unhedgedoffer I'm Katie Martin. Thanks for listening.