Neighbourhood watch 👀

In the early morning of Saturday 3 January, an elite US army unit carried out an operation in Caracas that ended with Venezuelan president Nicolás Maduro and his wife, Cilia Flores, on their way to New York to face charges of narco-terrorism and drug trafficking. Kitted out in a Nike tracksuit and blackout specs, handcuffed and grasping a bottle of water, images of the deposed dictator were splashed across front pages and news sites worldwide. 

‍The US position is that it does not recognise Maduro as Venezuela’s legitimate leader. Whether you call it law enforcement or regime change, the daring raid and extraction looked like a sphere-of-influence move, in a way only America (and its military) could pull off. It was a demonstration that the world’s sole superpower is willing to use force in the western hemisphere – the Donroe Doctrine. This is Trump’s world, and we’re just living in it.

Oil around the world

On the first trading day after the raid, both Brent and US crude jumped around 1–2%. But that didn’t last. The bigger move came when the White House started talking supply. Brent fell to about $60 a barrel after Trump announced a deal for the US to import up to $2bn of Venezuelan crude. US producers heard the same signal. American energy firm EOG cited the prospect of higher Venezuela output as one factor weighing on prices for several quarters.

Venezuela’s defaulted debt jumped on the news of the Maduro extraction, with sovereign bonds moving to the low-40s cents on the dollar and PDVSA (Venezuela’s state oil company) bonds due 2035 rose from 26 to 33 cents. Venezuela’s external debt and unpaid interest are in the region of $150bn against an economy closer to $80bn.

The knock-on effects of all this are already visible in trade flows. Enforcement actions at sea and a new US purchase deal have the potential to redirect Venezuelan barrels away from Asia, which matters less for global supply than for who gets access to discounted crude.

Backyard politics

The idea of spheres of influence is nothing new. In the 19th century, Europe’s great powers tried to run stability through the Concert of Europe, a loose understanding that they had the right to intervene to preserve the status quo and maintain peace after the Napoleonic Wars. In the same era, the US announced its own version, the Monroe Doctrine, named for President James Monroe, which told Europeans to keep their beak out of the western hemisphere.

Today, China wants its sphere respected (Taiwan and the South China Sea), Russia wants its sphere respected (Ukraine), and the US wants its sphere respected (the Americas). If everyone stays in their lane, the theory goes, you get a more stable world order. In 2019, Fiona Hill told Congress that Russia had been “signalling very strongly” that it wanted a “swap arrangement” between Venezuela and Ukraine. You have your backyard, we have ours.

Permission slips

Venezuela has spent years on the wrong side of global plumbing. In January 2019, the US Treasury sanctioned PDVSA explicitly targeting the oil sector as a primary source of income and hard currency for the Maduro government. The US didn’t need to seize Venezuela’s reserves, it just made dealing with the state oil company legally radioactive for most of the global financial system.

Sanctions are instructions to banks, insurers, shippers, auditors, and boards. And they don’t operate like a light switch. The same US Treasury has issued general licences that allow specific activity under defined conditions, including the 2022 licence that authorised certain Chevron-related operations in Venezuela. And licences can be tightened again.

Venezuela holds the world’s largest proven oil reserves, reportedly at about 303 billion barrels, roughly 17% of global reserves. But production has collapsed over decades of underinvestment, mismanagement, and sanctions. While output has hit around ~1.1m barrels a day recently, it’s a fraction of past levels and roughly 1% of global output. 

China has reportedly been taking roughly 400,000 barrels a day from Venezuela, making the country one small but meaningful piece of Beijing’s energy supply picture. China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its oil imports.

Sphere factor

If the US is asserting dominance in the Americas the question is what China and Russia ask for in return. Beijing would happily trade influence in Venezuela for freer rein over Taiwan. As we’ve seen, Moscow would do the same over Ukraine.

Taiwan is central to the global semiconductor supply chain. Shipping lanes in the South China Sea are substantial trade arteries. So even if spheres sound stabilising they collide quickly with the fact that major powers have global interests not just local ones. Spheres can create friction as easily as stability.

After the 2022 invasion of Ukraine and Western sanctions Russia’s trade settlement yuanised rapidly. Payments for goods shipped between China and Russia are mostly made in yuan, reflecting how sanctions pressure pushes settlement towards non-dollar channels. MERICS tracks the same trend and notes that the yuan’s share in Russia’s trade jumped sharply after 2022, reaching close to 40% in early 2024.

Petroyuan

China’s approach has been different. Build the toolkit early then try to normalise it. The obvious example in energy is China’s renminbi-denominated crude oil futures contract on the Shanghai International Energy Exchange, listed on 26 March 2018 and open to overseas investors. It’s an attempt to create a yuan-based pricing reference alongside Brent and WTI, a light, sweet crude oil that is produced in the United States. But progress in actual yuan-based oil trade has been limited because habit, liquidity, hedging infrastructure and capital controls still matter.

Projects like mBridge – a multi-central-bank platform for cross-border payments and settlement using wholesale CBDCs – exist to test whether you can settle across borders with fewer dollar choke points. mBridge reached its minimum viable product stage in mid-2024 and Saudi Arabia’s central bank (SAMA) joined as an MVP platform participant in 2024, explicitly framing it as work on cross-border payments infrastructure.

None of this means the petrodollar ends in a neat headline moment. If great powers are thinking in spheres they will try to make those spheres function financially not just militarily. And the way you make a sphere function is by ensuring trade can settle, finance can clear, and sanctions can be bypassed – at least sometimes and at least for some counterparties.

Denomination domination

The Venezuela move has revived talk of the petrodollar system and America’s interest in keeping oil trade tied closely to the dollar. But there is no single global treaty that forces oil to be sold only in dollars. Even sceptics of the petrodollar demise narrative point out the more salient issue is where exporters keep their reserves and recycle surpluses. The dollar still dominates because the system around it is deep and liquid and enforceable.

The Venezuela operation is a test case for how spheres of influence are asserted and how quickly markets translate that assertion into price. If the US is going to “run” Venezuela, as Trump suggested after the operation, investors will immediately start asking what “run” means in practice.

Monroe 2.0

Monroe’s original doctrine was, in part, a promise not to interfere. The US would stay out of Europe and Europe would stay out of the Americas. In practice it was a statement the US could not always enforce on its own, leaning at times on Britain’s navy and benefitting from the fact that squabbling European powers often had other priorities.

Today’s Donroe Doctrine fits a broader pattern of Trumpian policy. Tariffs, export controls, and friend-shoring are all versions of the same instinct – to bring industry closer, keep rivals out, and use policy to steer growth at home. Call it the end of globalisation or just a change in how it works. Either way, investors are being pushed to think less in terms of one open market and more in terms of competing systems, each with its own rules, costs, and chokepoints.