JP Morgan private banking Chen Weiheng: The Venezuela incident has limited impact on global oil supply risks, optimistic about gold

JP Morgan's private bank global investment strategist Chen Weiheng stated that on January 3rd, the United States carried out military strikes against Venezuela and arrested President Nicolas Maduro and his wife. The Maduro couple is expected to face drug and weapon-related charges in U.S. courts. U.S. President Trump indicated that this action is a targeted measure against drug trafficking and security issues, and made it clear that the U.S. will be involved in related matters during the transition of the Venezuelan government. This military action is not surprising given the escalation of tensions in the previous months and the gradual strengthening of U.S. law enforcement. The market had previously predicted a 50% to 60% probability of military conflict between the U.S. and Venezuela.

The bank assesses the impact of geopolitical events on the macroeconomy and markets, focusing mainly on their transmission to the global economy through channels such as commodity production. The bank believes that the impact of this event is limited. Venezuela has the largest proven oil reserves in the world (accounting for about one-fifth of the global total, approximately 300 billion barrels), but due to the quality of crude oil and high breakeven costs, its current production accounts for less than 1% of global supply; Venezuelan crude is extra heavy and requires specialized refining facilities. The attack did not affect Venezuela's production and export facilities. Trump stated that the U.S. may "very strongly participate" in the Venezuelan oil industry and hinted that U.S. companies are expected to expand their business locally in the future. Venezuela's influence in other global commodity markets is minimal. The bank believes that the risks facing the global supply landscape are limited. Although the impact on production is limited, geopolitical tensions may still increase investors' attention to safe-haven assets like gold, which remains a highly favored diversification opportunity in the bank's equity and bond portfolio