Venezuela, War and Wall Street
War is an economy. Anybody who tells you otherwise is selling something. – Efraim Diveroli, War Dogs.
The U.S. capture of Venezuelan President Nicolás Maduro this month is a major geopolitical event with real market implications. In an unexpected operation, U.S. forces captured Maduro and his wife in Caracas and brought them to New York on long-standing federal charges tied to drug trafficking and corruption. In the immediate aftermath, President Trump said the United States will “run” Venezuela and push to boost its oil production and exports under U.S. oversight.
For most people, the first priority is the humanitarian and political fallout in Venezuela and across Latin America. That is appropriate. Investors, however, are also asking practical questions about risk, opportunity, and portfolio impact. Will this alter the U.S. role in the region? Could it open the door to democratic elections? Will oil production rise meaningfully? How will narcotics flows and strategic relationships with Iran and China shift?
History matters here. Geopolitical flashpoints often trigger short-term market volatility, but they rarely alter the long-term economic path unless they meaningfully change supply, demand, policy, or credit conditions. Conflicts in Ukraine and the Middle East carried headline risk, yet broader forces like central bank policy, growth trends, and corporate earnings ultimately dictated market direction. That pattern still holds. This event feels politically seismic, but its lasting market impact depends on deeper economic forces.
How War Impacts Markets
With fresh headlines around the Iran conflict, the ongoing Russia – Ukraine war, and rising speculation about expanded U.S. military involvement in Venezuela or elsewhere, the distance between global events and Wall Street feels narrow. Investors are right to ask how conflict translates into portfolio risk.
Markets tend to react quickly when war breaks out or appears imminent. Stocks often sell off first. Capital rotates toward perceived safe havens like gold, U.S. Treasuries, and more defensive or buffered equity strategies. This response reflects uncertainty, not panic.
History, however, is clear. While wars create real human and geopolitical consequences, markets have shown a consistent ability to absorb shocks and recover. Initial sell-offs are often sharp but brief. As facts replace speculation and the scope of conflict becomes clearer, markets stabilize and refocus on fundamentals.
This does not minimize the seriousness of war. It reinforces a core investing truth. Geopolitical events create volatility. They rarely redefine long-term market direction. Economic growth, interest rates, inflation, earnings, and policy matter more over time.
Data helps cut through emotion. Research from LPL Financial (below) reviewed 21 major geopolitical events going back to Pearl Harbor in 1941. The average market drawdown was roughly 5%. The average recovery took about 47 days. In most cases, markets were meaningfully higher one year later.
Jon here. The takeaway is not complacency. It is discipline. Investors who react to headlines often lock in losses. Investors who stay aligned with long-term goals tend to be rewarded. Our focus remains unchanged. Prepare for volatility. Manage risk intentionally. Stay grounded in what actually drives returns.
White House to World Events: Markets Still Follow Cycles.
The government needs weapons, and they need them cheap. That’s where guys like us come in. – War Dogs.
Market narratives often credit or blame the sitting U.S. president for the economy and stock market performance when the timing is largely coincidental.
President Clinton is frequently praised for the late-1990s bull market, while President George W. Bush is often associated with the early-2000s bear market. In reality, the tech bubble was already inflating and then collapsing independent of either administration’s policy agenda.
Some events do reshape the global order. September 11th is the clearest modern example. Even then, the market damage that followed was driven primarily by the dot-com collapse already underway, not by war and not by the incumbent president. Equity markets were breaking before geopolitics took center stage.
That same lesson runs through the 20th century. Stocks delivered strong long-term returns despite World War II, the Vietnam War, repeated conflicts in the Middle East, and the Cold War spanning decades. Investors who allowed geopolitics or politics to dictate portfolio decisions paid a price. History does not support that approach, including during presidential election years.
Today’s conflicts and geopolitical risks will remain front and center. They deserve attention. They do not deserve control over portfolios. Markets respond to earnings, growth, liquidity, and policy over time. Business cycles matter over years and decades. Headlines matter over days and weeks. Investors who keep that distinction clear tend to make better decisions.
Business of War
There are over 550,000 people in America with a Class A license to deal arms. That’s one for every 600 people. The odds are better than getting into Harvard. – War Dogs.
The movie War Dogs highlights a side of war that rarely gets airtime. Conflict is also an industry. A very large one. Defense contractors, logistics firms, security providers, and reconstruction companies all benefit when governments mobilize at scale. War spending channels billions into specific sectors, lifts production, and creates jobs tied directly to military and security needs.
The Iraq War is a clear example. Following the 2003 invasion, private companies received massive contracts covering construction, transportation, security, communications, and infrastructure. At the height of the occupation, the U.S. had roughly 170,000 service members spread across more than 500 bases throughout Iraq. Supporting an operation of that size requires constant spending. Uniforms. Weapons. Food. Housing. Medical care. Fuel. Power generation. The cost runs into the billions.
That spending can boost economic activity in narrow segments of the economy. It can also create second-order effects investors cannot ignore. Large increases in government defense spending raise demand for labor, materials, and capital. That pressure can feed inflation, especially when the economy is already operating near capacity.
War also disrupts global supply chains. When conflicts involve energy-producing regions or critical shipping routes, inflation risks rise further. Oil remains the most obvious pressure point. As outlined in our past newsletter, “Crude Realities: Oil Prices and War,” a direct Israeli strike or aggressive action by Iran could push crude well above $100 per barrel. That would flow quickly into gasoline prices and broader inflation, levels not seen since the 1970s.
The takeaway is simple. War can stimulate growth in select industries while raising costs across the broader economy. Investors need to understand both sides of that equation when assessing risk, inflation, and portfolio positioning.
Venezuela: A Historical Perspective
Concerns about U.S. involvement in Venezuela sit within a long history of American engagement in Latin America. That history traces back to the Monroe Doctrine of 1823, which warned foreign powers against interference in the Western Hemisphere and framed the region as a core U.S. strategic interest. President Trump has revived this idea rhetorically, referring to his approach as the “Don-roe Doctrine.”
This is not the first time the U.S. has acted forcefully in the region. In 1990 under then President George W. Bush, U.S. forces captured Panama’s Manuel Noriega on drug trafficking charges. The situation in Venezuela has been building for years. Nicolás Maduro has been under U.S. indictment since 2020 on charges tied to narco-terrorism. Sanctions remained in place under the Biden administration, which also authorized a bounty later increased by President Trump.
As with most U.S. military and law-enforcement actions, multiple objectives overlap. The stated goal centers on narcotics trafficking. That objective is reinforced by the fact that many countries consider Maduro’s rule illegitimate following Venezuela’s 2024 election. Before the Chávez and Maduro era, Venezuela was a functioning democracy and one of the wealthiest nations in the region.
For long-term investors, the takeaway is simpler than the politics. Geopolitical risk is a constant feature of markets. The details change. The pattern does not. These events feel unsettling because they sit outside normal earnings and economic data. History shows that markets usually absorb them quickly, often recovering within weeks or months if they react at all. Business cycles, not headlines, remain the primary driver of long-term returns.
Oil Connects Geopolitics to Markets
Everyone’s fighting over the same pie and ignoring the crumbs. I live on crumbs. Like a rat. – War Dogs.
For investors, oil remains the most consequential transmission mechanism. Geopolitical events tend to move markets through commodities, and oil still sits at the center of the global economy. Venezuela matters because it holds the world’s largest proven oil reserves at roughly 304 billion barrels, exceeding Saudi Arabia’s estimated 267 billion.
Despite that scale, Venezuela produces very little oil today. Years of mismanagement, underinvestment, and sanctions pushed output below 1 million barrels per day, a fraction of U.S. production near 14 million. Even if production rises, it will take years of capital and infrastructure rebuilding to add meaningful global supply. That limits near-term market impact.
Longer term, U.S. energy companies may gain access to those reserves. Still, increased supply could pressure oil prices, offsetting some upside for producers. For consumers and the broader economy, that tradeoff could be favorable. More supply tends to ease inflation pressures. This contrasts with Russia’s invasion of Ukraine in 2022, which removed supply and sent oil near $130 per barrel, pushing U.S. gasoline prices above $5 per gallon.
Today’s setup looks different. Oil prices remain well below prior peaks, with WTI crude under $60 (see chart)and Brent near that level. OPEC+ has held production steady, signaling caution. The U.S. position as the world’s largest oil and gas producer further dampens domestic risk.
Energy prices remain difficult to forecast. The Ukraine war offers a reminder. Many expected oil and gas prices to stay elevated for years. Markets adjusted faster than anticipated. Oil is global, fluid, and influenced by more variables than headlines alone.
Venezuela Plays a Minimal Role in Global Markets
Another important point for investors is that Venezuela has little direct relevance to global financial markets. Its stock market is small, illiquid, and largely closed to foreign investors. Venezuela is not included in major emerging market indices, and years of economic collapse have effectively removed it from institutional portfolios.
The bond market tells a similar story. Venezuela has been in default since 2017. Its sovereign bonds trade at deeply distressed levels, reflecting expectations of significant losses and prolonged restructuring. Most diversified investors already have little to no direct exposure.
Going forward, headlines will continue. The indirect effects, mainly through oil prices and broader uncertainty, matter far more than Venezuela’s local equity or debt markets. Trying to predict each political turn adds little value. Portfolio alignment matters more.
The bottom line is straightforward. The arrest of Venezuela’s president is a meaningful geopolitical event with serious humanitarian and regional consequences.
For investors, history remains the guide regarding Venezuela, War and Wall Street. Well-constructed portfolios anchored to long-term goals have consistently navigated geopolitical shocks. This episode is unlikely to be different.
References
- https://www.eia.gov/outlooks/steo/tables/pdf/3dtab.pdf
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an independent advisory firm based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
