From Caracas To Wall Street: Weighing The Real Risks And Rewards

We weigh the lure of Venezuelan oil against hard realities: weak legal protections, heavy crude economics, and tangled geopolitics with Cuba, Russia, and China. The takeaway is prudence—favor diversified proxies over direct country risk and let facts, not headlines, drive allocation.

• investment case framed around rule of law and contract security
• heavy oil cost structure versus current WTI and breakevens
• prospects for subsidies or military support and why they’re unlikely
• historical parallels on expropriation and reform cycles
• geopolitical constraints from Russia, China, and Cuba ties
• time horizon mismatch for real reform and infrastructure rebuild
• proxy exposure via diversified majors like Chevron over direct bets
• portfolio discipline and checklist for country risk readiness

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Straight Talk for All - Nonsense for None

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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.

Chapters

• 0:00 Setting The Stakes In Venezuela
• 1:55 Framing The Investment Question
• 3:41 Big Oil’s Posture And Costs
• 8:00 Politics, Subsidies, And Policy Risk
• 12:29 Time Horizons And Private Capital Appetite
• 16:09 Distraction Theory And U.S. Politics
• 18:49 Troops, Security, And Operating Reality
• 20:44 Historical Parallels And Cycles

Transcript

Clem Miller: 0:26

Hello, everybody, and welcome to Skeptic's Guide to Investing. I'm Clem Miller. I'm here with Steve Davenport. And this is our second of two episodes on the question of Venezuela and what happened over the weekend with regard to the U.S. intervention and and the abduction, so to speak, of of the president of Venezuela, Nicolas Maduro and his wife. Uh this second episode, we're gonna talk about whether there are any investment opportunities that come out of this invasion. What are the things , or let's say intervention, because it's not really an invasion, so to speak. Um, you know, what are the investment opportunities that might be coming out of this event? Uh what should we be looking for? What are sort of the the milestones that we should be looking at, if any. Um so let me, Steve, let me turn to you first. What um, you know, what do you think are the possible investment opportunities arising from this?

Steve Davenport: 1:38

I've been looking long and hard since Saturday to try to understand this in terms of investing, because I look at Exxon because it's a position we hold in our portfolios, and it's the largest oil company in the you know, second largest after Aramco. But I consider it to be, you know, a capitalist, you know, position that a lot of people associate with big oil. And I look at their response so far has been we're not interested in operating in Venezuela. And I think about that and I say, maybe they're just you know putting their cards close to their vest and saying to America, unless you make this deal a lot sweeter, we have no interest. And I think about it and I say, if it was for my money, would I put it in, you know, Venezuelan capital? And my answer would be absolutely not, because I have no guarantees that the government is going to have respect for law, respect for the legal process, and respect for the assets that are owned by a foreign company. They've nationalized before, they can nationalize again. So, in terms of how does it become different so that it does become investable, that's the path I've gone down. And I've tried to look and say, well, I would love to have a more democratic and law-based government that has more of a capitalistic underpinning. Is that going to happen? Well, now that this um woman, the vice president, has taken over as the president and she's left every part of the Maduro government in place, I think that that type of a deal for energy is not on the horizon. So if something doesn't look good on the horizon, you've got to see something materially change in order for you to say, hey, this went from un-investable to now it's not just investable, but it's a great investment. Because look, we have some great companies here that are doing things with energy and the space with small nuclear and other things. I don't think that you know you have to really have a stable government. One, in order to get good investment. Two, is the oil easily processed and and um and captured? No. So it takes extra work, extra cost. So, you know, when we look at what the price per barrel must be, right now Exxon has a price, and you know, and again, this is based on drilling wells over the last two, 10, 20 years. And those the cost is about 40 a barrel. So when we look at the worldwide price of 58 for WTI, um, I look at that and say, okay, the the oil might be a different viscosity, it might be more like the Canadian oil sands, and therefore say, I don't want more Canadian oil sands that has a higher cost. So if I'm gonna have to get this, I'm gonna have to get it with some type of subsidy. Um, is the U.S. government gonna try to subsidize this oil so that it holds up this government and it makes it um something that we all feel good about? I think it would be, you know, against everything that Trump has said he wanted, which is he wants to focus on the U.S. Well, if he wants to focus on the US, why is he sending troops to Venezuela? So it lacks some of the legs that I think a good investment has. If we had a president who said, I'm gonna build a network of strong countries that are gonna be supporting us and helping us to operate to our best and maximum. That's not really what he's saying. And so I look at things and say, it may improve the drug, you know, presence of cocaine or distribution of drugs in the United States. It may eventually, you know, get its oil reserves and oil resources well capitalized so that it can produce them more efficiently. And it may take corruption out of the government with the appointment of a Machado in a democratically run government. But these are all two to five-year horizon items. These aren't in the next three months. I I've heard of people who are scheduling a trip for down there to three months to bring investors together and private equity people, and everybody's gonna come there with checkbooks and start writing checks. I I think that that's about as optimistic and unrealistic as I've ever heard. I don't think anybody, given the opportunity to invest in AI and resource centers and servers in the United States or investing, recapitalizing a socialist government in Venezuela to produce heavy oil, , I think there's going to be some problems selling that to private equity investors. I think there's some problem selling anything regarding carbon to private equity investors. So if I, you know, if I could tell anybody anything, it is don't buy anything based on a Venezuela story. Because the story hasn't even been explained, never mind documented, understood, and a future pathway identified. So therefore, don't put your money ahead of, you know, where your um knowledge is and say, wait for the, you know, wait for the clippings, wait for the things to come together that we think need to be there for a good investment. This looks like a distraction. When you're having problems at home, you you move the discussion somewhere else. There's problems with the two vetoes Trump just issued. The the Republican Congress has set up a vote to override those vetoes. Why would the Republican Congress do that? Because midterms are coming. Midterms are coming, and therefore, if you want to separate yourself from Trump because his popularity is waning, therefore, you would do something like override his veto on some of these issues that he just is doing out of spite. He doesn't like one of the congressmen from Colorado, so he vetoed her bill. Okay, but he can he can be overridden on a veto. So I look at Trump's status with Epstein and the Congress and the Supreme Court regarding tariffs, and I say he's got some problems. When people have problems, you either address the problems or you distract. He's decided to distract. So distracting is wonderful, but you know, too much of a distraction into things that don't make sense will lead you to weakening numbers and a weakening support in the U.S. And one thing the United States does not want is more troops on the ground. And in my mind, this is different than in Klama. I think they're gonna be troops in the ground if there is gonna be an investment in U.S. oil companies. I don't think they go, I don't think U.S. oil companies go there without some type of support. And that support would be, you know, a military presence that would allow the new government to get up and again running, and for the taking of their capital by taking over the government again with a socialist, you know, not to happen. So I think those things have to change in order for this investment opportunity to get better. Clem, do you see an investment opportunity there that I'm missing?

Clem Miller: 9:36

No, I don't see. I think I agree with about 90% of what you just said. Uh but let me just, yeah, I think it's worth focusing on a few things, sort of a few historical parallels which might be relevant. First of all, let's say, regardless of government in Venezuela, whether it's the a Machado government, which I think is unlikely actually, or this Dulce Rodriguez government, if it becomes slightly more amenable to Trump oil policies, , I think that or a Machado government. No, I mean Delcy Rodriguez government, right? Um there's three choices. What are the three choices? There are two choices. If you count Maduro as a choice, Maduro, I think Maduro is not a choice anymore. All right. So I think it's Delcy. Well, Delcy Rodriguez is essentially the same as Maduro, but under Trump pressure. Okay. Okay. It's more likely that Dulce Rodriguez will remain in power, which means basically that the exact same government is in power, but maybe more amenable to to Trump to some extent. And I think to the extent Dulce Rodriguez starts to talk a good game, , there may be some in the energy industry who might be persuaded that there are opportunities here. Um certainly I've seen in the past, you know, when I was at the Export Import Bank, I've seen circumstances where oil companies and others get sort of taken in by quote reformist governments. Uh you know, they talk a good game about economic reform and about openness to foreign investment and so on. And then you know the money rushes in, and after a while the government's, you know, maybe the same government, or maybe there's a change in government, or coup d'etat, a revolution, and , and then there's an expropriation of the money that that rushed in. These things tend to go in cycles. And I think people in the oil industry who have seen that cycle, who've been around long enough, , are going to be very reluctant about getting involved in Venezuela. Uh although you might have some who say, well, you know, now this time is different, right? You know, this time is different, doesn't apply necessarily to technology. It can also apply to oil and resources and expropriation as well. So I think I think you know there's that question. But you know, if you look around, you know, people I remember back when Saddam Hussein, they talked about Saddam Hussein being an economic reformer, right? Hard to believe, but people were saying we should invest in rock. Uh probably a more one idea I have let me just say one thing. Steve, Steve, Steve, hold that point, hold that point. I just I just wanted to mention one other analog that comes to mind, , which is Angola, believe it or not. Um, Angola, you know, country in Africa, Portuguese speaking, had a revolution in 1975. Uh, so there was a socialist government there supported by the Cubans. Uh, it has an oil province called Cabinda, and you had Western oil companies, , European and others, , involved in in drilling oil out of Kabinda and shipping it out of there. And that operation was guarded by Cuban troops. So you can have some weird, you know, weird situations where oil companies align themselves with socialist governments and accept you know protection from Cuban forces against revolutionary groups. So things can look doesn't necessarily need US troops on the ground. And I don't believe that Trump wants U.S. troops on the ground in any kind of a permanent way.

Steve Davenport: 14:01

Um but no troops are ever put there as a permanent solution club. So that's gonna mention those two words in the same sentence.

Clem Miller: 14:11

It I mean, I I wouldn't be surprised if Delcy Rodriguez, in the name of of reform, quote unquote, invites US companies to come in and develop the develop oil and guards those installations with Cuban troops. I wouldn't I I guess the But Steve, Steve, one more thing before I I know I'm interrupting you. You know, Delcy Rodriguez is a friend of the Russians and the Chinese. That was my next point. So she and the Russians and the Chinese are taking Venezuelan oil right now.

unknown: 14:51

Correct.

Clem Miller: 14:52

They're drilling oil, they're taking the oil, but taking, not meaning seizing the oil, but they're you know, they're buying the oil from Venezuela. And so she's gonna have to balance, you know, is she now going to break up those contracts and go with the US? You know, what is she gonna do?

unknown: 15:09

Steve?

Steve Davenport: 15:10

Well, that's what I think this I think this has more meanings and subtext to this than almost any international situation you could imagine. I mean, there's a Cuban aspect to it, there's a Colombian aspect to it, there's a, you know, there's a China and Russian aspect to it. And I think Trump, thinking about dominoes and what he can do to upset the world order and to show dominance, he looked at those two things and said, look, Russia and China are here. I'm gonna affect Russia and China's impact in this area by by creating and going and removing the government. And the first person I think he, you know, is waiting for that phone call from is Z. And Z is going to say, you should be out of, you know, and he's saying, No, I shouldn't be out of there. You should be out of there. And I think that's one of the things that makes this a horrible investment, because I think there are many different aspects of this problem that aren't going to be solved by the press conference today at three o'clock. I think there is a whole range of issues that haven't been thought about, so I don't think they're going to get solved. And the question I'd have for you as an investor is hey, you can buy the biggest oil company in the world, Aramco, or you can invest in Venezuela. What should you do? And I think about oil, and I say, you could buy Exxon and have all of these different countries that it's in, instead of one investment in an unstable government in an area of Venezuela. What do you want to do? I think you could go down the list, and you have to go way down the list before you see something that somebody says, Oh, I put Venezuela ahead of that. And I look at it as large matters. That's what we're seeing in technology. And I look at this and say, Aramco, Exxon, Chevron, BP, you go Narc, you know, go for it. Those are all companies that in my mind have great operations and great locations for resources. Venezuela is not one of those. You're frozen. All right, we lost Clint. We'll have to see if he comes back. Um, I don't know if I'm going to admit him when he does come back, but we'll see how quickly he comes back. Um as listeners to this podcast, I think it may have been obvious to not invest in Venezuela. I think it's obvious that you know you would want to pick a proxy investment, meaning Chevron was up $5 yesterday, 3%. And you say, hey, Chevron is already in there, they got a first in advantage. They're already working in the country, therefore they're the one who's going to benefit the most from doing more activity with a government that's more receptive. So, yes, Chevron would be the investment if you wanted to have a proxy into that. But if you look at Venezuela even as a percentage of overall Chevron, um, I don't think it's that large and significant enough to justify. Chevron's a great company, and if this causes you to buy it versus not own it, then I think you could argue that that's not a bad decision because it's such a small component, and if it does contribute a big deal, then um you you get the optionality for free. So I guess I would say that um Clem and I have have been talking about this now for over an hour, and um I think we might um just shut it down here. Um we'd love to get people to give us more ideas on things they want to talk about. Please text us or please email us and let us know what you're thinking and what you'd like to talk about. We want 26 to be a successful year for everyone with their investments and with their lives. So um we've got some great guests lined up, and I think that , you know, there's Glen on the phone. Hold on. Hey, I'm still on. Yeah, do you want me to? I'm gonna get off in a minute. All right. Bye. So I think that this year could be a great year for us, and , I think we got some good investor investor ideas. We got some good investment in you ideas. We want to try to focus a little more on you, the person, so that you can achieve the results you want with your investments. And we hope um to make 26 a great year. So um Venezuela came out of nowhere, and we've tried to give you a little bit of a summary of what we think the issues are, but um you know it it's gonna continue to. unfold as we unfold this year. I think there's a lot of things happening um and we'll be on top of them for you. So thanks for listening everybody and we appreciate you and we hope you have a good um start to your year. Thanks.