ECB Freezes Rates, Citing US Fed as Primary Risk

Reviving Venezuela's oil production is a top priority for the White House in any post-Nicolás Maduro scenario. However, years of neglect have left the country's energy infrastructure in a state of decay, presenting a massive operational challenge. This is compounded by severe political and security risks, including potential power vacuums, military insurgency, and the influence of cartels.

With Maduro's Vice President, Delcy Rodriguez, currently serving as acting president, fears of instability remain high if opposition forces challenge the government in Caracas.

The High Stakes of Rebooting a Broken Industry

Venezuela sits on the world's largest proven oil reserves, but its ability to extract and refine that crude is crippled. The core problem is a derelict infrastructure that has been largely defunct for years.

To restart the sector, the administration is courting major oil companies. The key challenge is convincing these firms that they can operate safely and successfully not just for a few months, but for the long term. This unstable environment makes long-term investment a significant gamble.

A 'Boots-Off-the-Ground' Security Plan

To address these security concerns without deploying American troops, the Trump administration is reportedly considering a different approach: hiring private military contractors. President Trump is said to be wary of committing US soldiers to what could become another indefinite foreign occupation.

According to a CNN report, the administration is exploring the use of mercenaries to protect Venezuela's oil industry as American companies begin operations.

A Lucrative Opportunity for Security Firms

Discussions on securing oil assets are still in the early stages, but multiple private security companies are already maneuvering to get involved. The potential for a massive payday is driving this interest. For context, during the Iraq War, the US spent approximately $138 billion on private contractors for security, logistics, and reconstruction.

Signs of movement are already visible:

• The Department of Defense recently issued a Request for Information (RFI) to contractors about their capacity to support potential US military operations in Venezuela.

• Contractors have also reportedly contacted the State Department's overseas building operations office to express interest in providing security if the US embassy in Caracas reopens.

One military firm founder, Stern, described the dynamic bluntly: "Foreign investment comes back, and when it does, it brings a bunch of Navy SEAL dudes and Green Beret dudes and ninjas to keep them alive and safe. It'll look a lot like that in Venezuela."

The Controversial Legacy of Mercenaries

Relying on private contractors is almost certain to attract intense scrutiny. Over the last two decades, particularly during the peak of the Iraq War, the US depended heavily on these firms. However, their involvement was marred by controversy, including accusations of war profiteering and the killing of Iraqi civilians.

The optics of "liberating" a country only to have foreign mercenaries arrive and enforce order can be damaging. The presence of heavily armed contractors can quickly undermine any narrative of benevolent intervention.

The Road Ahead for US Oil Companies

For now, US oil majors face significant risks with few guarantees, especially given the billions in investment required to rebuild Venezuela's oil sector. At a minimum, any company that moves in will need to hire its own security force.

It remains to be seen whether the Trump administration will directly fund major contracts for large mercenary firms. In situations like this, figures like Erik Prince are often seen circling the Pentagon, ready to offer their services.

Yemen's Saudi-backed presidential leadership council has accepted the resignation of Prime Minister Salem bin Breik and appointed Foreign Minister Shaya Mohsen Zindani as the country's new prime minister, the state news agency Saba reported on Thursday.

Bin Breik formally submitted the resignation, which was approved by the council, before Zindani was named to form the next cabinet, Saba said.

Yemen has been a source of heightened tensions in recent months between Saudi Arabia and the United Arab Emirates.

A UAE-backed separatist group, the Southern Transitional Council, gained control of areas across southern and eastern Yemen in December, advancing to within reach of the Saudi border, which the kingdom considered a threat to its national security. Saudi-backed fighters have since largely retaken those areas.

Sharp differences over a range of other issues from geopolitics to oil output have also been a cause of friction between the two Gulf powers.

Saudi Arabia and the UAE had previously worked together in a coalition battling the Iran-backed Houthis in Yemen's civil war, which brought on one of the world's worst humanitarian crises.

Source: Reuters

Venezuelan interim president Delcy Rodriguez is urging lawmakers to overhaul the country's hydrocarbons law in a bid to attract fresh investment and boost struggling crude oil production.

Rodriguez stated that modifying the legislation would pave the way for new capital flows into undeveloped oil deposits that currently lack infrastructure.

US Pressure and Investor Hesitation

This legislative push comes just two weeks after US troops captured her predecessor, Nicolas Maduro, in Caracas. Following the raid, US President Donald Trump announced that the United States would now control Venezuela's oil sales.

The move has left some American oil companies cautious, indicating they require stronger assurances before committing to new investments in the nation.

Adding to this context, a former Venezuelan oil official suggested that opening new production areas is likely a condition set by the United States.

A History of Declining Oil Output

The current legal framework, established under former president Hugo Chavez in 2005, enforces significant state control over the oil industry.

Under this system, Venezuela's crude production has plummeted from approximately 2.5 million barrels per day (b/d) in 2005 to around 1 million b/d today, according to government and industry data. Production has roughly doubled since 2021, a recovery partially driven by US sanctions waivers that allowed Chevron to increase investment in its joint ventures with state-owned PdV.

Latest Production Figures Reveal Dip

Despite the long-term recovery, Rodriguez presented legislators with a chart confirming a recent dip in output. Production fell by about 21,000 b/d in December, dropping to 1.147 million b/d from 1.168 million b/d in November. This decline coincided with heightened US military pressure in the region and the seizure of tankers carrying sanctioned Venezuelan crude.

However, Venezuela's current crude output remains over 10% higher than it was a year ago. The figures presented by Rodriguez also differed slightly from a previous report by the oil ministry, which had cited a production level of 1.12 million b/d for December.

Oil prices have stabilized after their biggest single-day drop since June, prompted by signals that the United States is postponing an immediate military attack on Iran.

West Texas Intermediate (WTI) crude traded near $59 a barrel after falling 4.6% on Thursday. The international benchmark, Brent crude, was trading below $64 a barrel.

Geopolitical Tensions Ease, Reducing Supply Risk

The sharp reversal in prices followed a report from The New York Times indicating that Israeli Prime Minister Benjamin Netanyahu had asked U.S. President Donald Trump to hold off on plans for a military strike.

This development reduced market fears of an imminent U.S. response to recent unrest in Iran. Traders now see a lower probability of disruptions to either Iranian oil production or vital shipping lanes in the near term.

The Broader Market Context

Despite the recent drop, oil is on track to end the week with little overall change. Prices had previously surged from January 8 on rising concerns that the U.S. would take action against Iran, which is OPEC's fourth-largest producer.

The market has also seen support from other supply-side issues, including ongoing upheaval in Venezuela and disruptions to Kazakh exports from the Black Sea.

However, these bullish factors are set against a weaker long-term trend. Oil prices just logged their worst year since 2020, driven by persistent worries that global production gains are outpacing sluggish demand growth.

Source: Bloomberg

New Zealand's manufacturing sector expanded at its fastest pace in four years this December, providing strong evidence that the economy is heating up in response to lower interest rates.

The Performance of Manufacturing Index (PMI) climbed to 56.1, its highest reading since December 2021. The report, released by Business New Zealand and Bank of New Zealand, marks the sixth consecutive month the index has remained above the 50-point threshold that separates expansion from contraction.

Economic Momentum Gathers Steam

This surge in manufacturing suggests New Zealand's economy maintained its strong growth trajectory into the fourth quarter. The data follows a robust 1.1% increase in gross domestic product (GDP) during the three months ending in September.

Other recent reports reinforce this positive outlook. Filled jobs reached an eight-month high in November, while fourth-quarter business confidence soared to its highest level since 2014.

What's Driving the Manufacturing Surge?

The December PMI report revealed broad-based strength across all key components, which all rose to above-average levels. "The PMI is positive for fourth-quarter GDP calculations and points to good momentum heading into the new year," said Doug Steel, a Senior Economist at Bank of New Zealand (BNZ).

Key details from the report include:

• The new orders sub-index hit its highest point since July 2021.

• The production gauge reached a four-year peak.

• The measure for employment was the strongest recorded since April.

Steel noted that the sector's performance is being bolstered by solid fundamentals, including increased residential construction activity and strong primary sector exports. For context, the long-term average for the PMI is 52.5.

All Eyes on the Reserve Bank's Next Move

This string of positive economic data shifts the focus to the Reserve Bank and the future of monetary policy. The central bank has already cut its Official Cash Rate by 325 basis points since August 2024 and has signaled that its easing cycle may be complete.

The renewed strength in manufacturing and business confidence introduces the risk of an interest rate hike later this year to manage the expanding economy. According to swaps data, investors are now pricing in a 57% probability of a quarter-point rate increase by September.