One of the historical headwinds for Chevron (CVX +2.90%) has been its exposure to Venezuela. The country's energy sector has been in decline for years, and the U.S. government has placed sanctions on the nation. When President Trump authorized the arrest of Nicolas Maduro, the geopolitical picture changed for Venezuela, the oil industry, and for Chevron. Here's what you need to consider.
Is this good news or bad news?
Trump has said that the United States will "run" Venezuela, but that's not likely in the literal sense. The real play is probably going to be to assert control through economic means, noting that a number of oil carriers linked to Venezuela have been seized. If Venezuela wants to sell oil, it appears the U.S. government will have to approve the buyer.
Image source: Getty Images.
That said, Venezuela has large oil reserves, but its oil industry is very weak. It's no longer as important on the world stage as it once was. So the impact on the energy industry as a whole, at least at this stage, is likely to be modest. Trump is hoping to bring energy industry giants into Venezuela to resuscitate its energy sector. That could take years, noting that ExxonMobil (XOM +1.29%) has suggested it doesn't want to be involved just yet.
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Key Data Points
Chevron, however, is already operating in the country. It isn't the most important part of the business and probably shouldn't be your primary focus as an investor. But Chevron does have an incentive to help and an opportunity to be an early beneficiary if things go well for the country's energy industry.
Notably, Chevron believes that it could increase its production in the country by as much as 50% over the next two years. If you're interested in the opportunity Chevron has in Venezuela, that's the most obvious yardstick to monitor.
Don't lose sight of the big picture
In all, the political developments in Venezuela are exciting but not the most important thing on Chevron's plate. The company is much larger and more diverse than its operations in just one country. Still, Chevron is a good option if you want to get in early on the potential rebirth of Venezuela's oil industry.
However, Venezuela probably shouldn't be the only reason you buy any oil company. For example, even a rebounding energy sector in Venezuela wouldn't be enough to outweigh the impact of often volatile oil prices.
