The Trump effect: why investing in Venezuela means investing in something other than Venezuela

In October, Alexey Golubovich, analyst of Arbat Capital Advisory Services Limited (UK) and Alexander Orlov, managing director of Arbat Capital gave their forecast of Venezuela's prospects for investors. The qualitative analysis does not cause any complaints, due to the use of valuation methods and forecasts that have proven themselves positively in other markets. However, the "Trump factor" and the history of economic development of Latin American countries gives grounds for counter-forecasts that are not so rosy for potential investors.

Since the nineteenth century, U.S. policy toward Latin America has been characterized by a popular allegory: the region is seen as Washington's backyard. And there are rational reasons for this. The US is the largest economy for the Americas. It is also the most active investor in the macro-region's economy and politics.

Despite the unity of assumptions, each new White House host has built a different dialog with the countries of the region. There are few similarities between attempts to develop Cuba before the Barbados Revolution, support for Noriega in Ma, the Reagan administration's anti-drug war, and Trump's current agenda. One can treat this as trial-and-error politics, where each new round of U.S. strategy for the region differs in approach and tools. Then it is important to look at the actual approaches of the current administration in Washington to analyze.

In 2025, Trump is building a policy of short- and medium-range control and response. First a demand or thesis is made, followed by a set of ad hoc negotiations. Sometimes this decides the fate of control over the Panama Canal, sometimes it leads to the collapse of the original intent, when a system of prohibitive import duties turns not into a strong weapon against China, but into a fight against France's winemakers. On Venezuela, for example, Trump revoked Chevron's right to produce and buy its oil in February 2025. What matters to investors is not one-off successes or defeats, but the horizon of such policies. So far, there is nothing to indicate that Trump has a vision for it.

On the contrary, it would be appropriate to say that on the external contour, US policy has come to resemble a series of business projects. Not in essence, but in form. Trump wants "big and beautiful" deals, without in any way defining the final performance of each one. It's too much like real estate development projects in New York City. Only after buying an old house, the rights to the air around it, studying the restrictions on building in a particular neighborhood and getting the go-ahead from the authorities to demolish it, can investors finally calculate the exact economics of the new construction.

In life, the significant difference is that a building pit and a country in crisis are not comparable in terms of risks and required set of actions and expertise.

In political science, Latin America is a favorite case study of how things can go wrong. A region in which one country can implement economic reforms and get ahead (Chile), but pay for this leap with the lives of its citizens under a de facto autocracy. Another country can take the path of total self-reliance and become an example of a nation in perpetual economic crisis (Argentina). A third country can prove that democracy can be both market and sustainable, which does not cancel neither corruption scandals nor all the disadvantages of populist domestic policy from poverty to internal turmoil (Brazil).

In relation to Venezuela, about which Golubovich and Orlov write, many of the above models will be true. In the economy, we need to start with resuscitation: in 2025, according to IMF estimates, inflation will be at 548%, and in 2026 it is projected to be 629%. Politically, even if the US war against drug traffickers escalates into a direct military confrontation, there is no guarantee that once it is over, pro-US democratic forces will put Caracas back on the map of places attractive to investors. Especially if we recall that Trump has not come out as a supporter of supporting Venezuela's democratic forces in exile.

Against the background of such macroeconomic and political constraints, the peculiarities of local oil production - hard-to-recover reserves of raw materials and shortage of specialists - are circumstances that can be neglected. It is enough to recognize that, as in the pre-Hugo Chavez era, this will be the business of the largest oil companies, which can be invested in the US and EU exchanges, without any connection to Latin America. It is very likely that the same will happen in the sectors of communications, transportation and even tourism. Companies will come that do this in different regions of the world, which is called without noise and IPO.

Does all of the above mean that there is no point in thinking about investing in Venezuela if a window of opportunity appears there? No. But we will have to act as in the famous saying about heroes who always go around. Investments in Venezuela, if they start, will hardly look like a return of capital to Caracas.

Latin America is a region with well-developed domestic infrastructure and industry companies - they are likely to win contracts to rebuild Venezuela's infrastructure, telecom and oilfield services. There are major players in the region in all areas: from the leaders in communications - América Móvil and Millicom/Tigo - to major carriers like LATAM Airlines Group and Aeroméxico. They are also likely to be among those willing to share Venezuela's risks in exchange for clear profits. Fund managers around the world are likely to be invested in them. In addition, there are always major economies in the macro-region that play the role of locomotive and economic donor. For Venezuela, this would be Brazil, Mexico and Uruguay rather than the US.

The second field for investment, again through professional intermediaries, is minerals. The whole of Latin America is a supplier of raw materials of varying degrees of processing and foodstuffs. Political changes affect the markets where they are represented. And working with funds that are interested in coffee or ore is less risky (with all possible price fluctuations) than direct investments in renovated Caracas offices or oil contracts.

This article was AI-translated and verified by a human editor