Heavy Crude, Heavy Consequences: Why Venezuela’s shock tests Canada’s oil economy

Markets like to believe that numbers, data, and forecasts run the world. But every once in a while, politics walks in and flips the table.

That is exactly how 2026 began.

Just days into the new year, global energy markets were jolted awake by an unexpected geopolitical shock. In a dramatic escalation, U.S. forces carried out a surprise operation in Caracas, detaining Venezuelan President Nicolás Maduro and transferring him to New York to face long-standing federal drug-trafficking charges. Soon after, U.S. President Donald Trump announced plans for Washington to assume administrative control over Venezuela’s oil assets.

Almost overnight, a country written off by markets for years was back in the global oil conversation.

And while oil prices barely flinched, the real tremors are being felt elsewhere — especially in Canada’s oil sector and its currency.

Why Venezuela’s Oil Suddenly Matters Again

Venezuela’s importance is not just about how much oil it has — it’s about what kind of oil it produces.

The country sits on vast reserves of heavy, sour crude, a difficult grade that needs specialised technology and complex refining. This is very different from U.S. shale oil, which is mostly light and sweet — great for gasoline, but less ideal for diesel, asphalt, and industrial fuels.

That distinction matters today because global diesel supplies are already tight. Years of sanctions on Venezuelan oil removed a key source of heavy crude from the market, leaving refineries scrambling for alternatives.

Many U.S. refineries, especially along the Gulf Coast, were originally built to run on heavy oil. Venezuelan crude used to be a perfect fit — cheap, nearby, and technically compatible.

That door now looks like it could reopen.

Big Reserves, Slow Reality: Why Oil Prices Aren’t Moving

On paper, Venezuela should be an oil superpower.

It holds 303 billion barrels of proven crude reserves — nearly one-fifth of the world’s total, even more than Saudi Arabia. But the reality is far less impressive.

Years of sanctions, economic collapse, and underinvestment have hollowed out the industry. Current production is around 1 million barrels per day, barely 0.8% of global supply and a shadow of what the country produced a decade ago.

PDVSA estimates it would take more than $60 billion and several years to restore production anywhere close to peak levels.

That gap between potential and reality explains why oil prices have barely reacted. Global markets are already dealing with oversupply concerns, as OPEC has raised output while demand growth remains weak due to inflation and affordability pressures.

For now, Venezuela is more headline than supply shock — a geopolitical story, not a price-moving one.

Where the Real Pressure Shows Up: Canada’s Oil Exposure

While global oil prices may stay calm, the reshuffling of heavy crude flows could quietly hurt one country more than most: Canada.

1. Canada’s One-Market Problem

Canada’s oil exports have a simple but risky structure.

• In 2024, Canada exported 4.0–4.2 million barrels per day of crude oil.
• About 97% of that went to the United States.
• Canadian oil makes up nearly 60% of total U.S. crude imports.

In other words, Canada is heavily dependent on a single buyer — and that buyer suddenly has another option.

2. Venezuela’s Potential Return to the U.S. Market

If sanctions are lifted and operations restart:

• U.S. Gulf Coast refineries could absorb up to 1 million barrels per day of Venezuelan crude.
• Historically, Venezuela was one of the largest suppliers of heavy oil to the U.S.
• The refinery infrastructure is already suited for these grades.

This makes Venezuelan oil a natural replacement — not an addition.

3. A Direct Collision: Venezuela vs Canada

Here is where the problem starts.

• Venezuelan crude directly competes with Canadian heavy oil.
• Refineries cannot instantly increase how much oil they process. So, if Venezuelan oil comes back into the market, it will have to replace oil from somewhere else.
• That “somewhere” is likely Canada.

If U.S. refiners take 1 million barrels per day from Venezuela, Canadian exports to the U.S. could fall by up to 25%.

Even if volumes hold up, pricing pressure will increase. Fewer buyers mean bigger discounts, thinner margins, and weaker revenues for Canadian producers.

From Oil to Currency: Why the Canadian Dollar Feels the Heat

Oil is not just an export for Canada — it is a pillar of the economy.

When oil revenues fall:

• Export earnings decline
• The trade balance worsens
• Investor confidence weakens

All of this usually shows up in the Canadian dollar.

Markets have already started reacting. The CAD has softened amid uncertainty around Venezuelan supply, showing that energy risks are now spilling into currency sentiment.

The Bigger Risk: A Long-Term Shift

The real danger is not today — it’s what comes next.

If U.S. control brings capital, technology, and stability back to Venezuela:

• Exports could eventually rise to 2.5–3.0 million barrels per day
• Heavy crude competition would become permanent
• Canadian heavy crude discounts could remain wider for longer

This would not just hurt volumes — it would cap Canada’s pricing power and increase revenue volatility. Over time, geopolitics would play a bigger role in driving the CAD’s oil sensitivity.

Outlook for CAD

All of this leaves the Canadian dollar on the defensive.

Rising competition from Venezuelan heavy crude threatens Canada’s export pricing power and weakens its terms of trade.

Technically, USD/CAD is holding a strong base in the 1.34–1.35 zone. As long as
this support holds, the broader bias remains higher, with the pair eventually targeting 1.45–1.46. A sustained break above 1.46 would open the door for an even stronger upside extension.

At the same time, India’s relatively stronger growth outlook and steady RBI intervention continue to support the rupee.

The result: ongoing pressure on CAD against INR.

From a technical perspective, the 65.8–66.3 zone stands out as a strong resistance area, marking the August 2013 peak. On the downside, 64.30–64.15 acts as a critical support band; a sustained break below this range could open the door to a deeper decline in the CAD/INR pair.

Amit Pabari is a managing director at CR Forex Pvt Ltd. The views expressed in this article are his personal views.

Source: https://shorturl.at/V0LHP