For the first time since 2016, we could witness a war in the Western Hemisphere.
Venezuela is reportedly beating the war drums over a possible invasion of Guyana, a small colonial nation that most people couldn’t pick out on a map.
The reasons?
Oil and incompetence.
Today, I want to discuss why this event matters and the company that the decisions of Venezuela’s government could most impact.
Venezuela to Invade Guyana?
President Nicolas Maduro will win reelection in Venezuela in 2024. That’s because he’s a dictator who has suppressed votes and arrested political rivals. He remains deeply unpopular across the country and is looking for a way to rally citizens.
The easiest way to do so? Create a distraction. In this case, Maduro is tapping into a long-standing fight with its neighbor over a disputed border region called Essequibo. The debate is over 100 years old, and most Venezuelans were taught that their map should include this region that has more than 200,000 Guyana citizens living in it.
Tensions boiled again in 2015 after Exxon Mobil Corp. (NYSE: XOM) discovered the Stabroek block, a massive oil reserve that contains more than 11 billion barrels of recoverable crude. Immediately, this made Guyana one of the top potential oil producers in the world, outpacing Kuwait and even Venezuela on a per-capita level.
Maduro wants the oil. He’s beating the drums, saying that recent offshore licensing by the neighboring government is little more than “colonialism.” Last weekend, 95% of voters approved a resolution that would authorize Venezuela to explore annexation of this oil-rich nation. Even though Venezuela can barely produce its oil due to incompetence and socialism, they want their neighbor’s crude oil.
This creates a lot of uncertainty for one major oil producer with a lot to lose.
Chevron Under Pressure
For the last few years, Chevron Corp. (NYSE: CVX) has spent a lot of money lobbying the United States government over Venezuela. The multinational oil giant has a lot of exposure in socialist nations and wants to return to boost regional output. In 2022, the U.S. government eased sanctions against the Maduro government in exchange for more accessible elections and more transparency in their government — don’t make me laugh.
It’s been seven years since Colombia’s government reached an agreement to end its war with FARC nationalists. If Venezuela goes into Guyana, it would immediately create problems for Chevron as it attempts to boost its production. But it’s not just Chevron’s exposure to Venezuela… The company has a lot of exposure in Guyana as well.
In October, Chevron announced it would purchase Hess Corp. (NYSE: HES) for $53 billion. The company shunned opportunities to boost its production in Texas. Instead, it chose a company in Hess with significant interest in the offshore Stabroek block.
Any effort by Venezuela to stop that production would naturally impact Hess’ production’s future cash flow expectations.
Is War Likely?
Most analysts state that the likelihood of armed conflict is relatively low. However, reports from the Wall Street Journal suggest that the U.S. military is already consulting with the Guyana government. In addition, Brazil’s military is on alert, as is Guyana’s forces.
In a war-weary world, however, there aren’t many countries that stand to hold Venezuela accountable. China remains an investor in Guyana, and Cuba’s strategic interests in the Caribbean require it to align with Guyana at the United Nations. That said, it’s hard to generate much interest in the region while bigger hotspots exist in Gaza, Ukraine and Taiwan.
This is a very important event in the West, and investors should closely monitor these developments. Venezuela’s economic instability is making Maduro desperate, and the annexation of energy-rich regions from its neighbor could impact major energy players like Exxon Mobil and Chevron when the Energy sector is under severe pressure.
Looking ahead, investors are better off keeping their focus on the Permian Basin and other U.S.-based energy regions. That emphasizes names like Occidental Petroleum Corp. (NYSE: OXY), Diamondback Energy Inc. (Nasdaq: FANG) and Permian Resources Corp. (NYSE: PR), among others.
We’ll revisit the energy patch this week. Over at Tactical Wealth Investor, I’m also digging into a midstream energy play that will provide investors with a significant upside in the space.
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
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