A sudden escalation in long-burning tensions between the United States and Venezuela could have far-reaching ramifications in the oil market, where the Bolivarian Republic remains a significant player despite its plunging output.
On Wednesday, the Trump administration announced it would back Venezuelan National Assembly leader Juan Guaido, who declared himself the country's interim president earlier in the day. Shortly after President Donald Trump recognized Guaido, Venezuelan President Nicolas Maduro severed relations with the United States and gave U.S. diplomatic personnel 72 hours to leave the country.
The latest development raises the prospect that the United States will expand sanctions to U.S.-Venezuelan energy trade, a move that would be potentially devastating to Venezuela. The nation has seen its oil production crater in recent years, depriving the socialist republic of its lifeblood energy revenue and exacerbating a devastating economic crisis.
But the consequences could also ripple throughout the broader oil market and complicate OPEC's relationship with the United States.
RBC Capital Markets is already forecasting an additional drop of 300,000 to 500,00 barrels a day from Venezuela in 2019. If the Trump administration pulls the trigger on energy sanctions, those declines could balloon to several hundred thousand more barrels, says Helima Croft, global head of commodity strategy at RBC.