Our Analysis
In the past several weeks, China has brokered Saudi Arabian peace talks with Yemen and Iran, reaffirmed its ties with Russia, hosted the French President for discussions, and encircled Taiwan in a massive three-day military exercise.
While these actions shouldn't be dismissed, media and the creators were quick to talk about how this signaled the end of the dollar as the global reserve currency and sparked a 'de-dollarization' frenzy across the internet. While it might make for exciting content, the idea that the dollar will be replaced by the Chinese Yuan or an commodity-backed BRICS equivalent currency anytime soon is ambitious, to say the least.
After all, it's important to remember that the Yuan is still circulated less than the Swiss Franc globally on a daily basis, despite the Franc being issued by a country that is home to just 8 million people. Furthermore, until just a week ago, the most used currency in Russia was the dollar; more than a year after, they invaded Ukraine and gained the title of the most sanctioned country on Earth.
To cut to the point: Yes, de-dollarization is trending up, but it doesn't look like the dollar will get replaced anytime soon, without something substantial happening, like a default (Which is looking increasingly likely).
And while China is making the majority of the headlines, the United States has also been busy. After all, the US isn't just going to sit back and let its empire get chipped away at. In recent weeks, the US has established several new military bases in the Philippines, made multiple high-profile visits to Taiwan, and expanded trade ties in Africa.
However one specific policy change arguably has the most potential. This was when in November of last year, the Treasury Department quietly allowed five oil companies to resume operations in Venezuela on a small scale: Chevron (CVX), Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BKR), and Weatherford (WFRD).
While this mainly flew under the radar at the time, the reason this is a big deal is because Venezuela has the most proven oil reserves of any country on Earth. Despite this, it's barely produced any since 2017 due to sanctions placed on the country.
However, with elevated oil prices, China clawing more into the middle-east every day, and the dollar under more pressure than ever, there are many reasons why the US would want to reopen trade tied with a country like Venezuela.
Contingent that the president of Venezuela, Maduro, doesn't commit any further “human rights abuses”, more sanctions are set to be lifted in the coming months. Over time not only could this shift global oil production firmly into the Americas, and reaffirm the dollar as the global reserve currency, but it would be a massive opportunity for the five companies permitted to produce and export oil out of the country.
Chevron, in particular, has made the most progress in the country, exporting on average over 100,000 barrels of Venezuelan Crude every day in February alone. While this still only represents a fraction of Chevron's total production, which stands at about 1.7 million barrels a day, this number could increase substantially over time.
Given the very speculative nature of the circumstances, we've identified three primary datasets that we cover on Quiver Quant that we'll be watching closely for activity from the five companies:
1: Corporate jet flight activity to Venezuela by company executives.
2:Corporate Lobbying activity by these companies that mention words such as “trade", “sanctions", and "Venezuela".
3: Stock purchases of these companies by politicians, specifically those who sit on energy or trade committees, because let's face it: If anyone knows about a new energy or trade policy regarding Venezuela, it will be them.
While the idea that Venezuela will be able to get oil production to it's historic highs is ambitious to say the least, when you consider that Venezuela has 299 billion barrels of proven oil reserves, valued in excess of $20 trillion at today's prices, it's hard to ignore the potential opportunity that the five companies working in the region might be sitting on. As to if this is nothing more than a pipe dream or not, time will tell.
Disclosure: The content is for informational purposes only; you should not construe any such information as investment, financial, or other advice. I/We have no business relationship with any company whose stock is mentioned in this article.