In the early morning hours on January 3, 2026, the United States launched a military operation in Venezuela, striking strategic targets and capturing President Nicolás Maduro and his wife. They were flown back to the US where they have been charged with narco-terrorism conspiracy among other charges.
President Trump said the U.S. will administer Venezuela temporarily until they are able to stabilize the country and until a process is run to find its next leader. This means that Washington will control its governance and vast resources for the foreseeable future.
The lead up to this event, its occurrence, and the subsequent implications are a prime example of structural realism in practice, and the basis for this analysis.
Structural Realism holds that:
- The international system is anarchic. There is no overarching authority that sits above sovereign states that governs the system. In this power vacuum, states must act in their best interest to ensure their survival.
- Great powers seek regional hegemony to ensure their security.
- States are driven by relative power, not ideology or morality. As much as they may preach about freedom and ideals, they are purely driven by power and ensuring they protect their state interests above all.
The Western Hemisphere is the sphere of influence of the U.S. No outside power should seek to intervene or control the Americas. The U.S. acts to prevent other rival powers from gaining any footholds near its borders, especially when strategically vital. This can be seen during the Cuban missile crisis, its long term war on drugs in the region, and its seizure of power in Venezuela.
As China and Russia increasingly deepened their economic and diplomatic ties with Venezuela in recent years, U.S.-Venezuelan tensions have escalated. Just before the strikes, Chinese officials arrived in Caracas to have discussions with the Maduro regime. This is precisely the type of encroachment that a great power resists in its sphere of influence.
Why Venezuela?
Venezuela holds some of the world’s largest proven oil reserves, at over 300 billion barrels of oil. From the U.S. perspective, the country’s oil resources and infrastructure have been misused for years due to political instability. The Maduro regime’s increasing tilt toward China and Russia threatens U.S. economic interests and geopolitical stability on its periphery. As such, bringing Venezuela’s oil sector back under U.S. control bolsters U.S. security and secures its economic growth. Moreover, many U.S. companies stand to benefit greatly. Trump has said that U.S. companies may be involved in rebuilding the country’s oil infrastructure and the U.S. will sell the oil it extracts from the de facto satellite state. The U.S. also gains control of a key energy producer as it is in the midst of a massive AI infrastructure build out that will be extremely energy intensive. By controlling the region’s energy, the U.S. has ensured the viability of its technology sector which is absolutely integral to its long term economic strength.
Geopolitical Implications
Beijing’s investments throughout Latin America have been increasingly encroaching on U.S. control over the region. In a world defined by relative power, such moves can be interpreted as threats to U.S. security. U.S. action in Venezuela emphasizes that Washington will not hesitate to act militarily to resist any substantial rival presence in its hemisphere.
One major outcome of concern from this event is what it might mean for China’s own actions in its sphere of influence, the South China Sea, and what it means for Taiwan.
This military action legitimizes unilateral military intervention by great powers and sets precedents for powerful states to justify force in their backyards.
China could use this, along with Russia’s war in Ukraine (which I previously outlined was directly tied to creeping NATO expansion in Russia’s sphere of influence), to argue that great powers must assert control within their spheres of influence, and invoke this to justify military action to take control of Taiwan. This is can already be seen as China has conducted large-scale military drills around Taiwan after it secured an $11 billion arms deal with the U.S.
In reality, the U.S. will have a significant challenge projecting enough force to combat any serious military conflict between China and Taiwan, and its likely that it would largely stand idle while watching the situation closely. Japan should be concerned however, given the recent escalation in tensions between Tokyo and Beijing. The significant U.S. military presence in Japan means that its protection is guaranteed and non-negotiable. Nonetheless, Japan should make efforts to reduce its dependence on U.S. protection by bolstering its military capabilities – something it is actively pursuing with a recent approval of a $58 billion defense budget in 2026.
Moscow’s alliances in the Middle East and its war in Ukraine have been part of its strategy to challenge U.S. global hegemony. This strike demonstrates Washington’s willingness to confront any direct challenge militarily, even without congressional authorization.
This is likely to strengthen Washington’s position in the Russia-Ukraine peace negotiations. There have been discussions over a U.S. security guarantee over Ukraine to protect against any future invasions. This clause looks much stronger in light of the U.S. military action and Russia is likely to be more careful going forward. Should the U.S. have an official military presence in Ukraine, it becomes impossible for Moscow to make any further incursions. For Ukraine, securing this guarantee is crucial for its survival.
Market Implications
In equities, I expect that U.S. energy stocks will benefit from the possibility of being able to tap in to Venezuelan oil production under U.S. control and a reduction in geopolitical risk once stability returns. Defense and security stocks will gain as investors price in sustained military readiness around the world amidst increased geopolitical risk and higher defense budgets as great power competition escalates. I expect to see the VIX spike as investors brace for geopolitical developments in 2026.
Longer term, the securing of a large source of energy should be seen as bullish for technology and AI stocks. However, this is largely dependent on whether this AI build out is actually monetizable and how stable the Venezuelan situation proves to be. Furthermore, any spillover of conflict globally would see risk assets sell off, with tech being especially hard hit if there is any conflict between China and Taiwan.
In commodities, oil will see short-term volatility as geopolitical risk increases. How it progresses will depend on how well the U.S. is able to control the situation and mitigate any longer-term instability or spillover conflicts. Precious metals are likely to gain as investors seek safe haven assets.
In currencies, I’d expect to see the dollar strengthen as investors look to safety. Emerging market equities and currencies could weaken.
While this event happened just a few hours ago, its implications are significant and widespread across geopolitics and financial markets. Time will tell how well the U.S. can control the situation in Caracas, and what it will mean for the global order.