Why Big Oil May Pass on Venezuela's Vast Reserves

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Source: Reuters

South Korea’s foreign exchange (FX) reserves fell in December at the sharpest rate in 28 years, a direct result of the government’s aggressive intervention to support the Korean won against the U.S. dollar.

While the measures successfully stabilized the currency, analysts question the long-term effectiveness of such interventions, particularly if market volatility intensifies.

Experts also warn that reserves could face additional pressure as financial institutions withdraw foreign currency deposited with the central bank to meet year-end regulatory requirements. However, hopes remain that government intervention might ease, allowing reserves to stabilize.

A Closer Look at the Numbers

According to data from the Bank of Korea, the country's FX reserves stood at $428.05 billion at the end of December, down $2.6 billion from November. This was the second-sharpest December decline on record.

The largest drop occurred in December 1997, when reserves plunged by $4 billion during the Asian financial crisis. While last year also saw significant monthly declines of $5 billion in April and $4.5 billion in January, the recent drop is notable because reserves typically rise in December.

Figure 1: South Korea's foreign exchange reserves declined to $428.05 billion in December 2025 after peaking at $430.7 billion in November, reflecting recent market interventions.

The Strategy Behind the Intervention

The December decline bucks a historical trend. Usually, financial institutions deposit foreign currency with the central bank to meet the Bank for International Settlements' capital ratio requirements, leading to a temporary inflow of dollars.

Standard Chartered Bank Korea strategist Hong Dong-hee explained that the fall was driven by government action. "The monthly fall was explained in large part by intensified Korean currency trajectory against the U.S. dollar right around the fourth week of December, when authorities issued strong verbal warnings and followed up with direct market intervention," he said.

Hong noted that aggressive FX swap arrangements with the National Pension Service helped strengthen the won from nearly 1,490 to around 1,430 per dollar in just four trading days. He added, "The authorities are expected to face a tall task to strike a balance between defending the currency and preserving reserves."

Analyzing the Trade-Offs and Outlook

The defense of the won came at a price. Mun Jung-hui, a strategist at KB Securities, stated that the FX reserve was "visibly eroded" by measures designed to limit volatility.

He also pointed out that a broadly weaker U.S. dollar in December should have increased the value of reserves held in euros, pounds, and yen. However, this effect failed to offset the volume of dollars sold during the intervention.

Looking ahead, authorities are attempting to limit further drains on reserves. While financial institutions are expected to withdraw some funds, these withdrawals are likely to be limited because the central bank is now paying interest on extra foreign currency deposits. This, combined with the potential for reduced government intervention, could help stabilize the nation's FX reserves.

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Source: Reuters

The ouster of Nicolás Maduro in Venezuela is a major political event, but it is not expected to trigger significant disruptions in global financial markets or oil prices. While uncertainty clouds Venezuela's future, the more profound consequences are likely geopolitical, potentially accelerating global fragmentation and forcing a realignment of strategic alliances, particularly across Latin America.

Why Financial Markets Remain Stable

Despite the unfolding drama in Venezuela, we are not adjusting our economic or market forecasts. The situation, while fluid, is unlikely to materially affect financial assets or oil prices in the immediate term for one key reason: markets appear to have already priced in a regime change.

Venezuelan sovereign and PDVSA bonds, both currently in default, have been standout performers since the Trump administration began in January 2025. Over the past 12 months, their value has essentially doubled. While emerging market assets rallied broadly last year, the dramatic outperformance of Venezuelan debt suggests investors were growing increasingly confident that a political transition was imminent, a sentiment that grew as U.S. military activity in the region increased late last year.

Figure 1: Venezuelan bonds surged in value over the past year, far outpacing the broader EM Sovereign Bond Index and signaling that markets anticipated a potential regime change.

Because markets were not caught off guard, the risk of a lasting, widespread financial shock from Venezuela is low. This stability extends to macro assets across emerging markets, Latin America, and the global oil market.

The Real Shockwave: A New Geopolitical Game

The most significant impact of Maduro's deposition will be on the geopolitical stage. In an era already defined by global fragmentation and heightened U.S.-China competition, this U.S.-led action is set to deepen existing divides.

Nations are already fracturing into distinct geopolitical and economic blocs, one led by the U.S. and another by China. The initial reactions to Maduro's forced exit show a clear split, with countries expressing either strong support for or opposition to the U.S. operation.

Figure 2: The world is increasingly divided into U.S.-aligned (blue) and China-aligned (red) blocs, with the U.S. bloc currently accounting for roughly 70% of global GDP.

This event will likely force nations in Latin America to solidify their strategic allegiances. More interestingly, it could cause some countries to switch camps:

• Potential Flips to China: Colombia and Brazil, which have recently experienced tensions with the U.S., have seen their leaders strongly condemn the intervention. This could push them closer to China.

• Potential Flip to the U.S.: Chile currently aligns with China, but its president-elect, Kast, has voiced strong support for deposing Maduro. Over time, this could shift Chile into the U.S. bloc.

Regardless of how individual countries align, the overarching trend of global fragmentation is expected to have negative economic consequences, leading to slower aggregate GDP growth.

Latin America's Conservative Trend Remains Intact

Over the past 12 to 18 months, a "Conservative Wave" has swept across Latin America, with elections in countries like Ecuador, Bolivia, Argentina, Chile, and Honduras bringing right-leaning platforms to power. This political shift has been associated with a decline in regional political risk.

The events in Venezuela are viewed as idiosyncratic and are not expected to derail this broader trend. Venezuela's situation is unique, and even a prolonged domestic power struggle or U.S. occupation is unlikely to reverse the overall improvement in the region's political risk environment.

Figure 3: A political map of Latin America highlights the recent shift toward right-leaning governments (blue), a trend that is expected to continue despite the instability in Venezuela.

The True Risk: What Comes Next?

While the direct fallout from Venezuela appears contained, a greater risk to regional stability exists. The key concern is whether the U.S. will pursue similar "deposition-style" actions against other unaligned countries, such as Cuba and Nicaragua, or engage in aggressive counter-narcotics or oil-related activities in systemically important nations like Colombia and Mexico.

Venezuela stands apart due to a unique combination of factors: an anti-U.S. political philosophy, deep ties to China, suspected involvement in narcotics trafficking, and possession of the world's largest proven oil reserves. It is difficult to find an exact parallel in the region.

For now, the trajectory of improving political risk in Latin America seems set to continue, but this newfound stability is not without its own set of risks.

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Strategic Opportunity, But No Fast Track

Source: Reuters

Saudi Arabia successfully raised $11.5 billion in its first dollar bond sale of the year, signaling strong investor appetite as the kingdom continues to fund its ambitious economic diversification plans. The issuance attracted overwhelming demand, underscoring global confidence in the nation's financial strategy.

Anatomy of the $11.5 Billion Deal

The bond sale was structured across four distinct tranches, catering to a range of investor timelines:

• 3-Year Bond: $2.5 billion

• 5-Year Bond: $2.75 billion

• 10-Year Bond: $2.75 billion

• 30-Year Bond: $3.5 billion

This multi-part structure allows the kingdom to manage its debt maturity profile effectively while tapping into different segments of the international capital market.

Overwhelming Demand Signals Investor Confidence

The offering was met with robust interest from the global investment community. According to the National Debt Management Centre (NDMC), the total order book surged to approximately $31 billion, resulting in an oversubscription of 2.7 times the amount offered.

The NDMC stated that this high bid-to-cover ratio is a clear indicator of strong demand for Saudi Arabia's debt and reflects investor confidence in the strength of its economy and future investment opportunities.

Part of a $58 Billion Annual Borrowing Plan

This bond issuance is a key component of Saudi Arabia's annual borrowing plan for 2026, which outlines total financing needs of $58 billion for the year. This figure is allocated to cover two primary areas: an anticipated deficit of $44 billion and principal repayments on existing debt totaling $14 billion.

The Ministry of Finance has emphasized its goal of maintaining debt sustainability while diversifying its funding sources. The strategy involves a mix of domestic and international channels, utilizing bonds, sukuk, and loans to secure financing at a fair cost.

A Cautious Shift in International Debt Strategy

While a significant move, this sale is part of a carefully calibrated approach. International bond sales are projected to constitute about 25% to 30% of the kingdom's total borrowing this year, amounting to between $14 billion and $18 billion.

According to economists at Emirates NBD, if Saudi Arabia adheres to this plan, it would mark a slowdown in the rapid expansion of international debt issuance observed in recent years.

The kingdom was one of the most active debt issuers in the Middle East and North Africa last year. In 2025, the government initially planned to borrow 139 billion riyals ($37 billion) but ultimately raised over 400 billion riyals. Of that amount, 61 billion riyals were designated as "pre-funding" to meet 2026 needs.

Fueling Vision 2030 Amid Fiscal Caution

These borrowing activities are essential for funding Saudi Arabia's Vision 2030 program, a comprehensive plan to reduce the country's reliance on oil revenue. The kingdom is channeling significant investment into developing non-oil sectors such as infrastructure, real estate, tourism, mining, and technology.

However, the current fiscal environment, shaped by lower oil prices, has prompted a more cautious approach to spending. As Emirates NBD noted, these budget constraints are influencing the scale and pace of the kingdom's financial operations.