Why do expectations of regime change from Venezuela to Iran turn into a bearish factor for oil prices?

Geopolitical turmoil has historically been the most reliable catalyst for soaring oil prices, but this old logic is being completely rewritten by new market realities. The U.S. shale oil revolution has fundamentally reshaped the global energy supply landscape, and the normalization of the "shadow market" for sanctioned oil has led to a fundamental reversal of the traditional geopolitical risk premium logic. According to reports from Xinhua News Agency and CCTV News, on January 3rd local time (January 4th Beijing time), U.S. President Trump and Defense Secretary Esper held a press conference at Mar-a-Lago in Florida regarding military action against Venezuela, aiming to control and extradite Venezuelan President Maduro. According to Global Times citing Iranian media on January 1, riots in two provinces of Iran have resulted in at least 3 deaths and 13 injuries. In an analysis published on the 5th by Wall Street Journal author Spencer Jakab, it was noted that in the past, similar events—such as the failed coup against former Venezuelan President Chavez 23 years ago or the Iranian Islamic Revolution in 1979—led to oil prices soaring nearly 40% and 150% respectively within months. However, in light of the current situation, the crude oil market has reacted tepidly. Oil prices have just experienced an unprecedented three consecutive years of decline, and with OPEC gradually exiting voluntary production cuts, the market remains in a severe state of oversupply. Venezuela's current oil production accounts for less than 1% of the global total, approximately 900,000 barrels per day, a far cry from its previous market share of over 3%. Although Venezuela and Iran are founding members of OPEC, their influence on the market has significantly weakened More critically, changes in market structure mean that "regime change" no longer simply implies supply disruption. On the contrary, investors are beginning to anticipate that if sanctions are relaxed, trade will return to rationality and may even further increase market supply. For energy investors, this new normal may mean that the current downturn cycle will be exacerbated. Fundamental Shift in Supply Dynamics and the "Shadow Market" Jakab analyzes that the current oil market has effectively split into two parallel worlds: one is a transparent public market, and the other is a "don't ask, don't tell" market composed of sanctioned countries like Iran and Venezuela. These sanctioned oils flow to Turkey and India at discounted prices through complex routes and shadow tanker networks. The existence of this structure buffers geopolitical shocks. While the authorities in Venezuela and Iran are currently struggling to maintain control, unless the situation evolves into extreme violent conflict, regime change may normalize crude oil trade, which would be bearish for oil prices. The rise of U.S. refinery and oilfield service stocks in early trading on Monday confirmed this logic. The U.S. refining system is primarily designed to process heavy crude oil produced in Venezuela, rather than light crude oil produced from domestic shale formations. Currently, millions of barrels of crude oil are forced to be transported over long distances, raising the production costs of diesel and gasoline. If sanctions are lifted, trade routes will become more rationalized, which is favorable for refiners, but for pure crude oil producers, the expectation of increased supply may struggle to support stock price increases. Obstacles to Resumption and Real Challenges Jakab states that another aspect of the expectation of regime change is the possibility of sanction relief, which will lead to a restructuring of global oil trade flows. Currently, the U.S. is both a massive crude oil exporter and importer, a unique position stemming from its refineries being designed to process heavy crude oil like that produced in Venezuela, rather than light crude oil from domestic shale formations. If changes in Venezuela lead to a relaxation of sanctions, U.S. refiners will be able to more easily obtain the heavy crude oil they need, thereby lowering costs. Currently, millions of barrels of crude oil are forced to undergo long-distance transportation to evade sanctions or find matching refineries, increasing the costs of converting crude oil into diesel and gasoline. If trade returns to rationality, this inefficient logistics cost will be eliminated. This is precisely why the market pushed up refinery sector stock prices after the event occurred. However, for pure oil producers, smoother trade flows mean more intense competition, which is not a positive signal. Shale Oil Revolution: Enhanced Geopolitical Immunity Jakab analyzes that the biggest transformation in the oil market since 1979 and 2003 has occurred in the U.S. The prosperity brought by hydraulic fracturing has made the U.S. the largest oil producer in the world and fundamentally changed the supply side's response mechanism to price. Unlike past crises, current producers can adjust production more quickly in response to price fluctuations. Jakab stated that this flexibility has changed Washington's political considerations. Whether it is the military action to arrest Maduro or the bombing of Iran's nuclear facilities last June, these geopolitical events have minimal impact on gas prices at American gas stations and can be considered negligible in terms of their overall effect on the U.S. economy. However, Helima Croft, global head of commodity strategy at RBC Capital Markets, pointed out that even with the confidence of the U.S. government, there are still significant challenges to restoring production in Venezuela. High costs, unresolved legal disputes, and the local security situation all make the restoration of abandoned oil wells in this unstable country appear unattractive in terms of risk-reward ratio. This further confirms that the current oil industry is no longer the market that could easily be swayed by a single geopolitical event