Trump's Venezuelan Oil Gamble: A Global Climate Risk

Catherine Richards

Political

Commodity

Remarks of Officials

Economic

Energy

Summary:

Trump's plan to revive Venezuela's "dirty" oil faces climate warnings, challenging global decarbonization goals.

President Trump's administration is exploring a plan to revive Venezuela's dormant oil industry, a move that could unlock vast crude reserves but has triggered serious warnings from climate scientists and environmental experts. Following U.S. intervention in the South American nation in early January, the focus has shifted to exploiting its oil wealth, raising questions about the severe environmental consequences.

Venezuela sits on an estimated 300 billion barrels of oil, the largest proven reserves in the world. However, years of mismanagement and a lack of investment have crippled its production capabilities. Restoring the industry to its former strength would require billions of dollars and more than a decade of work.

The Carbon Cost of "Dirty" Venezuelan Crude

The primary environmental concern stems from the nature of Venezuelan oil itself. The country's crude is predominantly extra-heavy and sour, with a tar-like consistency and high sulfur content. This makes its extraction and refining processes incredibly carbon-intensive, earning it the label of the world's "dirtiest" oil—a stark contrast to the light, sweet crude from countries like Saudi Arabia.

A study by S&P Global Platts Analytics highlights the extreme carbon footprint of Venezuelan oil. It found that deposits in the Orinoco Belt have a carbon intensity roughly 1,000 times higher than crude produced from Norway's Johan Sverdrup field. Investing in the expansion of this production would directly undermine global decarbonization goals.

Draining the World's Carbon Budget

The potential climate impact is staggering. According to a new analysis from carbon accounting firm ClimatePartner, a U.S.-led expansion of Venezuelan oil production could consume more than 10% of the world's entire remaining carbon budget for limiting global warming to 1.5 degrees Celsius.

ClimatePartner's model was based on a projected output increase of 0.5 million barrels per day (bpd) by 2028, rising by 1.58 million bpd between 2035 and 2050. Even at these levels, production would remain below Venezuela's peak of 3.5 million bpd in the 1990s.

Trump's Push for a $100 Billion Oil Revival

President Trump has been actively encouraging U.S. oil companies to commit $100 billion to jump-start Venezuela's oil sector. "We're going to be extracting numbers in terms of oil like few people have seen," he stated, adding that he expects U.S. operations to be "up and running" within 18 months.

The administration's plan involves selling between 30 and 50 million barrels of Venezuelan oil on the global market. Officials have noted that the revenues would be held in U.S.-controlled accounts, benefiting both nations.

Reality Check: Venezuela's Crumbling Infrastructure

Despite the administration's ambitious timeline, energy experts are skeptical that a rapid production increase is feasible. The country's energy infrastructure is in a state of extreme disrepair.

Paasha Mahdavi, an associate professor at the University of California, Santa Barbara, described the dire situation: "You've got storage facilities literally sinking into the ground, broken wellheads and degraded infrastructure across the board."

This decay already poses significant environmental hazards. Energy-intensive processing plants, which need heat, chemicals, and vast amounts of water, threaten Venezuela's fragile river systems. Several waterways have suffered severe pollution in recent years, a problem that persists even with diminished oil output due to poorly maintained equipment.

Can US Investment Clean Up Venezuela's Oil Mess?

Venezuela's oil industry already has one of the worst environmental and safety records globally. The Venezuelan Political Ecology Observatory documented nearly 200 oil spills between 2016 and 2021, many of which were never reported by authorities.

Furthermore, a 2025 report from the International Energy Agency revealed that the industry's methane emissions intensity was alarmingly high. Upstream methane emissions were around six percent of the world's average, while gas flaring levels were approximately 10 times the global average.

In response to these concerns, the U.S. Department of Energy (DoE) issued a statement claiming that American firms investing in Venezuela would adhere to the "highest environmental standards." The DoE added, "As American investment in Venezuela increases, you can expect environmental conditions to improve."

However, these assurances are undermined by the Trump administration's own track record of disregarding environmental regulations, casting doubt on the likelihood of a clean-up. If the plan moves forward, it threatens not only Venezuela's local environment—its water, forests, and wildlife—but also represents a significant setback for the global fight against climate change.

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Economic

Political

A sudden reversal in the Baltic

The oil tanker Arcusat abruptly changed course after passing through Danish waters, despite earlier indications that it was heading toward the Gulf of Finland to load Russian crude. Instead, the vessel turned back toward Russia’s Arctic coastline, an unusual maneuver that immediately drew attention from maritime observers and energy traders.

German media reported that the reversal followed intervention by authorities, making this the first known case in the Baltic Sea of a tanker suspected to be part of Russia’s “shadow fleet” being forced to abandon its voyage and return. If confirmed, the incident could mark a significant escalation in efforts to enforce sanctions on Russian oil exports.

A tanker that “does not exist”

What makes the Arcusat case particularly striking is the vessel’s murky identity. Shipbrokers and oil traders attempting to trace the tanker found that it does not appear in Equasis, the main global database for maritime vessels. The International Maritime Organization also has no record of any ship matching the IMO number transmitted by Arcusat.

Confusion extends to the vessel’s flag as well. Some sources indicate it sails under the Tanzanian flag, while others list Cameroon. Such inconsistencies are characteristic of so-called “ghost tankers,” vessels that frequently change names, flags, and registrations to obscure ownership and evade sanctions.

Links to China and unanswered technical questions

According to some reports, Arcusat may have been built last year at a Chinese shipyard. Yet this claim raises further doubts. The Linhai Huajie shipyard in eastern China, cited as the builder, advertises a maximum construction capacity of 50,000 tons. By contrast, Aframax tankers, commonly used to transport Russian crude, typically have a deadweight of at least 80,000 tons.

Adding to the mystery, the ship briefly appeared in global registries in March last year under the name “Linhai Huajie LH202313” with a status of “on order,” supposedly destined for Sempre Shipping Ltd. Just one month later, all records vanished, as if the vessel had never been completed or delivered.

A broader tightening around Russian oil

The Arcusat episode comes amid a sharp increase in enforcement actions targeting tankers linked to sanctioned oil trade. In December 2025, the United States imposed a comprehensive blockade on sanctioned tankers entering Venezuelan ports. In early 2026, U.S. forces seized the Russian-flagged tanker Bella 1, followed days later by the interception of the tanker Olina in the Caribbean.

If incidents like Arcusat’s forced turnaround become more frequent, Russia’s ability to export crude via the Baltic Sea could be significantly impaired. The Baltic route remains one of Moscow’s most important outlets for maintaining oil flows under sanctions.

The Arcusat case suggests that the confrontation over Russian oil exports is entering a new phase. The focus is no longer solely on restricting buyers or financing, but increasingly on the physical vessels themselves. As enforcement tightens, tankers operating in legal gray zones may find it harder to move freely, raising costs, delays, and uncertainty for Russia’s oil trade and for the global energy market more broadly.

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Economic

Rising geopolitical risk in healthcare supply chains

Japanese policymakers and medical experts are increasingly alarmed that China may use pharmaceutical exports as a tool of economic pressure as bilateral tensions deepen. While global attention has focused on China’s controls over rare earths, specialists argue that restrictions on medicines and drug ingredients would pose a far more immediate and severe threat to Japan.

Professor Kazuhiro Tateda, president of the Japanese Association for Infectious Diseases and a former member of Japan’s Covid-19 advisory panel, has warned that Japan remains highly vulnerable. He notes that Japan relies heavily on China for active pharmaceutical ingredients, particularly antibiotics, meaning Beijing could exert significant pressure if it chose to do so.

Structural dependence built over decades

Before 2019, many Japanese pharmaceutical companies stopped producing common antibiotics such as penicillin and streptomycin, as well as key active ingredients, due to low profitability. Over time, China emerged as the dominant supplier, offering scale and cost advantages that domestic producers could not match.

This dependence was exposed dramatically in 2019, when China tightened environmental regulations and shut down a factory producing cefazolin, a critical antibiotic widely used in surgery. The disruption triggered a nationwide crisis in Japan’s hospital system, forcing surgery delays and the use of less effective substitutes. The so-called “cefazolin shock” became a turning point in Japan’s understanding of pharmaceutical supply chain risk.

Government response and its limits

In response, the Japanese government launched policies to encourage domestic drug manufacturing, including a 55 billion yen support package aimed at rebuilding pharmaceutical production capacity by 2024. These measures marked a strategic shift, recognizing pharmaceuticals as part of national security rather than purely commercial goods.

However, trade data show that Japan still imported medical ingredients worth about $122.5 million from China in 2024. This underscores the scale of the challenge: rebuilding a mature pharmaceutical ecosystem takes years, not policy announcements alone.

Tensions reignite old fears

Concerns intensified again after bilateral frictions escalated in November, when China’s Ministry of Commerce announced tighter export controls on so-called “dual-use” goods to Japan. Many analysts see this as a potential precursor to broader restrictions that could eventually include pharmaceuticals.

Medical experts stress that while rare earths dominate headlines, medicine shortages would have a more direct and destabilizing impact on society. A widely shared article in President magazine captured public anxiety, with readers arguing that dependence on foreign sources for drug ingredients is more dangerous than reliance on rare earths, given the immediate consequences for public health.

Strategic lessons and the road ahead

Some commentators have called on Japan to adopt tougher industrial policies, similar to those pursued by U.S. President Donald Trump, to pressure companies into reshoring production. Others emphasize diversification rather than full self-sufficiency, arguing that spreading supply across multiple countries could reduce vulnerability.

Professor Tateda acknowledges ongoing risks but believes Japan is better prepared than it was in 2019. Hospitals have learned to use alternative medicines, and the government has become more aware of supply chain fragility. Still, he stresses that these improvements are only a foundation, not a solution.

Ultimately, Japan’s situation highlights a broader global dilemma: efficiency-driven supply chains have created deep strategic dependencies. As geopolitical tensions rise, Japan’s experience suggests that rebuilding resilience in essential sectors like pharmaceuticals will be slow, costly, but unavoidable if the country is to reduce its exposure to external pressure.

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Frederick Miles

Political

Forex

Remarks of Officials

Economic

Traders' Opinions

Recent trade threats from President Donald Trump against Europe may have a limited impact on the euro, according to a Deutsche Bank AG strategist. The reason lies not in trade itself, but in the United States' deep reliance on European capital.

Europe's $8 Trillion Financial Leverage

George Saravelos, Deutsche Bank's global head of FX research, highlighted in a client report that Europe is effectively the largest lender to the US. European nations collectively own $8 trillion in US bonds and equities, a figure nearly double that of the rest of the world combined.

This financial interdependence creates a unique dynamic. "In an environment where the geoeconomic stability of the western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part," Saravelos noted.

The Growing Risk of a "Dollar Rebalancing"

The recent tensions could accelerate a strategic shift away from the US dollar. Saravelos suggests that the latest developments have the "potential to further encourage dollar rebalancing" among European investors and institutions.

He argues that the weaponization of capital flows would be far more disruptive to global markets than conflicts over trade. This is especially true given that the "US net international investment position is at record negative extremes," making the mutual dependence between European and US financial markets higher than ever.

A Catalyst for Political Unity?

Paradoxically, Trump's new tariff threats could also foster greater political cohesion within Europe. According to Saravelos, this increased unity could provide another layer of support for the euro, preventing any negative fallout against the dollar from being sustained.

What to Watch: The EU's Response

The immediate focus now shifts to Europe's reaction. "The key thing to watch over the next few days," Saravelos stated, is whether the European Union decides to activate its anti-coercion instrument.

According to a person familiar with the matter, French President Emmanuel Macron is expected to request that the EU deploy this tool in response to the US threats.

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Economic

A recovery trailing the European average

According to a report released on January 16 by the German Aviation Association (BDL), Germany’s aviation market is entering 2026 with a noticeably subdued recovery trajectory. In the first half of 2026, flights to, from, and within Germany are expected to offer around 122.7 million seats, representing just a 2% increase year on year and only 89% of 2019 capacity levels.

This stands in sharp contrast to the rest of Europe, where aviation capacity is forecast to grow by around 6% and already exceed pre-pandemic levels at approximately 114%. The divergence highlights not only a slower recovery in Germany, but a growing structural gap between Europe’s largest economy and its regional peers.

Domestic air travel remains the weakest link

The most pronounced weakness lies in Germany’s domestic aviation segment. BDL notes that domestic air traffic has shown almost no growth and currently stands at only about 50% of its 2019 level. This reflects a long-term decline in short-haul domestic routes, which face intense competition from high-speed rail while also bearing relatively high operating costs and government levies.

Short- and medium-haul European routes have also struggled to regain momentum, with capacity reaching only about 94% of pre-crisis levels. Notably, routes serving business and economic travel destinations are recovering more slowly than leisure-focused routes, suggesting that corporate travel demand in Germany remains subdued.

Long-haul routes, while still recovering, have also lost some of the strong post-pandemic momentum seen earlier, as households and companies adopt a more cautious approach amid weak economic growth across Europe.

Major hubs lag while low-cost regional airports gain ground

The uneven recovery is clearly visible across German airports. Frankfurt and Munich, the country’s two largest hubs, have reached roughly 90% and 84% of pre-pandemic traffic respectively. Other major airports such as Berlin, Stuttgart, Cologne/Bonn and Düsseldorf remain even further from a full recovery.

By contrast, several smaller regional airports with lower operating costs have recorded stronger growth. Airports such as Dortmund, Karlsruhe/Baden-Baden, Weeze and Memmingen have benefited from capacity expansions by low-cost carriers, underlining how cost structures are increasingly shaping airline network decisions in Germany.

This shift suggests a gradual rebalancing of traffic away from traditional hubs toward airports that offer cheaper and more flexible operating conditions.

Taxes and fees as a structural constraint

BDL argues that the core reason behind Germany’s slow aviation recovery is not merely weak demand, but the comparatively heavy burden of taxes and government fees. These costs push up ticket prices, weaken the competitiveness of German airports, and encourage passengers to depart from airports in neighboring countries.

The governing coalition of the CDU/CSU and SPD has announced plans to reduce air ticket taxes from July 1, 2026, which the industry views as a positive signal. However, aviation companies argue that the measures are insufficient, given the scale of the cost disadvantage Germany has accumulated over recent years.

Outlook and policy implications

Germany’s sluggish aviation recovery increasingly appears to be a structural rather than cyclical issue. Without broader reforms to taxation, fees, and regulatory costs, the country risks losing its position as a leading European aviation hub, as traffic continues to shift toward lower-cost airports elsewhere in the region.

At a time when aviation across Europe has largely moved beyond pre-pandemic levels, restoring the competitiveness of Germany’s aviation sector will be critical not only for tourism, but also for business connectivity and the broader logistics role of Europe’s largest economy in the years ahead.

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King Ten

Remarks of Officials

Middle East Situation

Political

U.S. President Donald Trump has explicitly called for an end to the rule of Iran's Supreme Leader, Ayatollah Ali Khamenei, marking a significant escalation in White House rhetoric even as widespread protests in the country appear to have subsided.

In a weekend interview with Politico, Trump stated, "It's time to look for new leadership in Iran." The statement represents his most direct call for a change in government since the crisis began.

Figure 1: Protests in Iran have featured calls for fundamental regime change, with demonstrators rejecting both past monarchical rule and the current clerical leadership.

Trump Escalates Rhetoric, Directly Targeting Khamenei

President Trump sharpened his personal criticism of the Iranian leader, describing him as a "sick man who should run his country properly and stop killing people." He added, "His country is the worst place to live anywhere in the world because of poor leadership."

This verbal attack follows an earlier decision to refrain from military action. Trump had indicated that he would hold off on strikes after Iranian leaders reportedly agreed not to execute protesters and the killings had stopped. Reports also suggested that the Pentagon could not guarantee a successful strike against Iran's top leadership, a factor that heavily influenced the President's decision.

Referencing the Ayatollah, Trump told Politico, "The best decision he ever made was not hanging more than 800 people two days ago." The origin of this 800 figure remains unclear, as it has not been referenced by Iranian officials or state media, which typically publicize executions as a public warning.

A War of Words: Khamenei Responds to US Pressure

Ayatollah Khamenei has pushed back against the accusations, blaming the U.S. and Israel for instigating the protests. He asserted that "thousands" were killed, including many police and security forces.

"We find the US President guilty due to the casualties, damages and slander he inflicted upon the Iranian nation," Khamenei stated.

Despite the strong words, some analysts believe Khamenei may be exercising a degree of restraint to avoid provoking a U.S. attack while Iran’s economy and currency are under severe strain.

Trump dismissed the Ayatollah's accusation, countering that Tehran's leadership relies on violence to govern. "What he is guilty of, as the leader of a country, is the complete destruction of the country and the use of violence at levels never seen before," Trump said. He argued that Iran's leadership should "focus on running his country properly... and not killing people by the thousands in order to keep control."

Military Posturing and Tentative Reopenings

While the diplomatic conflict intensifies, there are signs of a cautious return to normalcy within Iran. Recent reports indicate that internet access is slowly being restored after SMS messaging services resumed. However, authorities are expected to maintain a ban on certain Western-based applications and communication platforms.

Meanwhile, U.S. military assets are reportedly en route to the Middle East and the CENTCOM area of responsibility. A significant portion of the U.S. Navy's strike group had previously been in the Caribbean following the January 3rd operation related to Venezuela.

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Economic

High Anti-Dumping Tariffs Target Strategic Input

On January 16 in Brussels, the European Commission announced the imposition of anti-dumping duties ranging from 88.7% to 110.6% on fused corundum imported from China. Alongside these tariffs, the EU introduced a limited duty-free import quota, allowing a capped volume of Chinese fused corundum to enter the bloc without additional levies.

The decision follows an assessment that imports of the material were being sold at unfairly low prices, placing sustained pressure on European producers. By setting tariffs at such elevated levels, the Commission signaled an intention to materially alter trade incentives rather than merely adjust market behavior at the margin.

Why Fused Corundum Matters To Europe

Fused corundum, also known as fused alumina, is a critical industrial input used in steelmaking, glass production, ceramics, and advanced abrasives. Its importance extends beyond civilian manufacturing into defense-related applications, where material performance and supply reliability are essential.

The Commission emphasized that disruption or overconcentration in the supply of this material could generate systemic risks for Europe’s industrial ecosystem. In this context, trade measures are framed as a tool to stabilize downstream industries rather than a reaction to isolated pricing practices.

Industrial Independence And Supply Security

In its statement, the Commission stressed that the measures aim to counter injurious dumping while preventing structural vulnerabilities from forming across strategic value chains. European Commission President Ursula von der Leyen underlined that the policy is designed not only to protect domestic producers, but also to ensure secure access to inputs for downstream manufacturers.

The logic linking tariffs to industrial resilience is based on reducing exposure to single-country supply dominance. By raising the effective cost of Chinese imports while maintaining a limited duty-free quota, the EU seeks to rebalance sourcing patterns without triggering an abrupt supply shock.

A Shift In EU Trade Strategy

The decision reflects a wider evolution in EU trade policy, where strategic autonomy and supply chain security increasingly guide intervention. Rather than focusing solely on price competition, Brussels is treating certain raw materials as foundational assets for industrial and defense capacity.

This approach suggests a correlation between heightened geopolitical risk and the EU’s willingness to deploy aggressive trade instruments. As materials with dual-use or defense relevance gain prominence, similar measures could become more frequent, reshaping Europe’s trade relationship with key suppliers such as China over the medium term.

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