Assessing the Geopolitical and Economic Fallout of the U.S.-Venezuela Conflict and Its Implications for Cuban Energy and Sovereign Risk

The U.S.-Venezuela conflict, now in its third year of escalating sanctions and military interventions, has reshaped energy markets and political alliances across the Caribbean and Latin America. As the Trump administration's 2025 National Security Strategy underscores the Western Hemisphere as a core strategic arena, the fallout from these actions has triggered a recalibration of energy dependencies, sovereign risk profiles, and regional power dynamics. For investors, understanding these shifts is critical to navigating the volatile interplay between geopolitics and economic resilience in the region.

Venezuela's Energy Sector: A Tale of Decline and Uncertain Recovery

U.S. sanctions targeting Venezuela's oil sector-ranging from financial restrictions to the blockade of sanctioned oil tankers-have crippled production, reducing output by over 1.5 million barrels per day since 2023. While China has emerged as the primary buyer of Venezuelan crude via shadow fleets, this arrangement highlights the fragility of the country's energy infrastructure. Analysts note that Venezuela's oil sector could attract renewed investment if the regime normalizes relations with the U.S., restructures its debt, and improves governance. However, such a scenario remains speculative, given the entrenched political and operational challenges under the Maduro administration.

The U.S. military operation in early 2026, which led to Maduro's capture, has further complicated the outlook. While the Trump administration frames this as a stabilization effort, critics argue it risks deepening instability by disrupting existing governance structures and fueling anti-American sentiment. For now, Venezuela's energy sector remains a geopolitical chess piece, with its future hinging on the balance between U.S. strategic interests and regional pushback.

Regional Realignments: U.S. Diplomacy and the Fracturing of Alliances

The U.S. has leveraged the Venezuela crisis to secure a series of security agreements with countries like Paraguay, Ecuador, Peru, and Trinidad and Tobago, ostensibly to combat drug trafficking but also to consolidate influence over regional energy resources. These agreements, as "gunboat diplomacy on steroids", reflect a broader strategy to reinforce U.S. dominance in the hemisphere.

This realignment has fractured traditional alliances. Leaders such as Brazil's Luiz Inácio Lula da Silva and Colombia's Gustavo Petro, who have faced U.S. pressures themselves, remain isolated from Maduro, signaling a shift toward U.S.-aligned policies on sovereignty and security. Meanwhile, the Community of Latin American and Caribbean States (CELAC) has failed to unify against U.S. actions, with countries like Argentina and Peru endorsing the Maduro capture as a step against "authoritarian rule." Such divisions underscore a broader ideological realignment, with many nations adopting right-of-center policies that align with U.S. priorities.

Cuba's Energy Vulnerability and Strategic Shifts

Cuba's energy sector, long reliant on subsidized Venezuelan oil, now faces acute vulnerability. The U.S. disruption of the Venezuela-Cuba oil partnership has left Havana scrambling for alternatives, with Mexico and Russia proving unreliable substitutes. To mitigate this, Cuba has turned to China, which is constructing 92 solar parks to add 2,000 MW of renewable capacity by 2026. This shift aligns with Cuba's goal to reach 24% renewable energy by 2030 but does little to offset its broader economic fragility.

Sovereign risk assessments paint a grim picture: Cuba's GDP is projected to grow by just 0.3% in 2025 and 0.6% in 2026, with public debt climbing and inflation persisting. U.S. sanctions, coupled with structural weaknesses in its economy, constrain the government's ability to address energy shortages and stabilize the national grid. For investors, Cuba's energy transition is a double-edged sword-while China's involvement offers short-term relief, the country's high sovereign risk remains a deterrent to long-term capital inflows.

Broader Implications for the Region: Stability or Escalation?

The U.S.-Venezuela conflict has catalyzed a reordering of regional alliances, with countries either aligning with U.S. security and energy priorities or resisting what they perceive as imperialism. The capture of Maduro has set a precedent that could embolden U.S. interventions elsewhere, particularly in Cuba, where the Trump administration has already signaled its intent to "open up" Venezuela's oil reserves for American firms.

However, this assertive strategy carries risks. Analysts warn that prolonged instability in Venezuela could fuel anti-American sentiment and insurgency, undermining U.S. objectives. Moreover, the realignment of regional powers-such as Brazil and Mexico's condemnation of U.S. actions-highlights the limits of American influence in a hemisphere increasingly wary of unilateralism.

Conclusion: Navigating a Shifting Landscape

For investors, the U.S.-Venezuela conflict underscores the importance of hedging against geopolitical volatility. While Venezuela's energy sector holds long-term potential, its recovery is contingent on political normalization and governance reforms-uncertainties that persist. In contrast, Cuba's pivot to China offers a glimpse of alternative energy partnerships but is constrained by its economic fragility.

The broader realignment of Latin American and Caribbean nations reflects a strategic rebalancing that prioritizes sovereignty and security over ideological alignment. As the region grapples with these shifts, investors must remain attuned to the interplay between U.S. policy, regional autonomy, and the evolving energy landscape.