Comment by nbadg
4 days ago
Putting aside, for a moment, a lot of important questions around (gestures broadly at the political situation in the US), what are the economic implications of a conflict between the US and Venezuela?
Is this likely to increase inflation? And what does this mean for FX -- are we likely to see a further weakening of the dollar, particularly against ex EUR?
I don't think you can meaningfully answer this without knowing the military goals or the ultimate outcome.
The worst-case outcome for the US is that it gets pulled into another unpopular, long-term conflict that undermines its international standing and allows assorted rogues to advance their goals (Ukraine, Taiwan, who knows what else).
The best-case outcome is that this is a successful regime change operation which nets the US a resource-rich trading partner, undermines Russia, and scares Iran. How you assess the likelihood of these outcomes sort of depends on your priors.
I would say, however, that the recent history of US military interventions doesn't inspire a lot of confidence. Venezuela is nowhere near being the cluster---- that we've dealt in Afghanistan, Iraq, Syria, etc, but who knows.
> Afghanistan, Iraq, Syria
There are 2 differences that stand out.
Intelligence seems more capable nowadays compared to 2003, probably due to better cyber/SIGINT. It took 3 years for the coalition to find Saddam despite a large ground presence. I wouldn't give Maduro more than a month if the US was intent on taking him out, after the capabilities that we saw in Iran and South Lebanon the last two years that simply did not exist 2 decades ago. For the first time, war has been inverted, and it's the regime that dies first instead of the soldiers.
Second difference is the absence of political Islamism as a dominant ideology in the culture. This makes it more comparable to regime change wars against Japan and Germany in WW2 than recent wars in MENA.
> Intelligence seems more capable nowadays compared to 2003
And would you look at that, Maduro has already been captured after 3 hours. This is why it categorically not like Iraq 2003.
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What about radical communism as a binding ideology instead of radical Islamism? I swear that I've heard during at least 5 different wars in my lifetime that things would turn out differently. And I'm not old. Now I want consequences.
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What about the chance of a Colombian, Bolivian, Ecuadorian or Brazilian missile crisis?
> The best-case outcome is that this is a successful regime change operation which nets the US a resource-rich trading partner, undermines Russia, and scares Iran.
There is no need to scare Iran. The mullahs are already scared shitless and were utterly humiliated this summer. They could have easily been removed, but it was decided that it was not worth it, as the next regime could be even worse. A weak, scared Iran is the best outcome.
It won't help with oil. The Permian's breakeven prices have crept upwards and, because VZ crude grades are high-sulfur, the US refinery complex can't absorb it without retooling away from the plants specialised for the low-sulfur Permian output.
Possibly dragging supply down, with no net effect at best.
>90% of Venezuelan crude has been refined in China in recent years.
This is going to hurt China economically, and in a way that isn’t going to be seen as targeted at China or unfair by international community.
Russia’s production and refining capacity has been seeing attrition from Ukraine’s efforts. They’re producing less oil, selling it for less, and for rubles that each buy less.
I’ve said before on HN that I thought Venezuela was intended to soak up Russian resources - this is just the next step.
US moves on Venezuela, China moves on Taiwan. With no chips, all AI speculation goes to ..? We live in interesting times!
> China moves on Taiwan
What is the risk calculation one would perform before attempting to invade Taiwan while Trump is calling shots? Whatever else you think about Trump, for better or worse, he is not bound by establishment prerogatives: make the "wrong" move, as Trump exclusively defines it, and anything — literally any conceivable thing plus a distant horizon of things you are cognitively incapable of conceiving — might happen.
Maduro is in a cage somewhere pondering this right now. Iran's leaders are all thinking about the threats Trump made not 48 hours ago, possibly to the great benefit of rebels in the streets right now. Federal investigators are closing in on Walz and friends in Minnesota right now: he could find himself in a cell within earshot of Maduro at any time.
Don't forget to breathe!
Probably not much. If Maduro is kicked out, you still need time to establish a new government and ramp up oil production. That's bullish, but it's far from guaranteed; there could be coups, instability, etc. If Maduro isn't kicked out, things get murky. Will the US intervene with boots on the ground? Will they just keep sanctions in place? For how long? Will there be resistance?
Actually, thinking about it more, this makes little sense. There's very little upside (and it's far off), while there's plenty of short and long-term downside. Great geopolitical strategizing out there.
Doesn't move the needle at all. FX to be determined by what bond markets think about the supply/demand of treasury bonds.