Shares of major Indian oil and gas companies have experienced significant turbulence this week, reacting to geopolitical upheaval in Venezuela that threatens to disrupt global crude supplies while also presenting long-term opportunities.
Market Reacts to Geopolitical Shock
The trigger for the volatility was a military intervention by the United States over the past weekend, which led to the removal of Venezuela's president. This event initially sent shockwaves through the market, with investors fearing prolonged uncertainty and potential disruption to oil supply chains. State-run oil marketing companies (OMCs) like Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp Ltd (HPCL), and Bharat Petroleum Corp Ltd (BPCL) saw their shares rise by up to 2.2% on Monday, 5th January 2026. However, the sentiment reversed sharply on Tuesday, with these stocks falling between 3% and 5% intra-day.
The market is currently grappling with two opposing narratives. On one hand, the immediate crisis raises the specter of a spike in crude oil prices. On the other, the establishment of a pro-US government and the anticipated lifting of long-standing US sanctions could eventually flood the market with new supply from Venezuela, which holds the world's largest proven oil reserves.
Venezuela's Oil Potential and Challenges
Despite its vast reserves, Venezuela's oil production has collapsed from nearly 3 million barrels per day (mbpd) in 2015 to below 1 mbpd currently, crippled by US sanctions and chronic domestic issues. A report from PL Capital dated 5th January cited a lack of expertise, under-investment, political interference, and corruption as factors paralyzing the sector.
US President Donald Trump's administration now plans to push for substantial investment to revive Venezuela's oil infrastructure. Analysts at Jefferies India noted in a 4th January report that US majors are expected to undertake massive investments to boost Venezuelan production in the medium term. This surge in supply could weigh on global crude oil prices by 2027-28, unless OPEC+ intervenes to balance the market. Brent crude is currently trading around $60 per barrel, a steep fall from its September 2023 peak of $93.
Implications for Indian Oil Companies
The evolving situation presents a mixed bag for Indian firms. Upstream giant Oil & Natural Gas Corp. Ltd (ONGC) holds stakes in two Venezuelan oilfields, San Cristobal and Carabobo-1, acquired through its overseas arm ONGC Videsh Ltd. Oil India Ltd and IOC also have a minor stake in Carabobo-1. Greater political stability could help improve output from these fields, which have been hampered by equipment shortages.
For refiners, the lifting of sanctions would reopen access to cheaper, heavy-grade Venezuelan crude. Reliance Industries Ltd historically sourced about 20% of its daily needs from Venezuela. The Jefferies report estimates that resumed supplies could give Reliance a cost advantage of $5 to $8 per barrel.
Falling oil prices would also benefit the margins of oil marketing companies (OMCs). Brokerages project that OMCs will post strong year-on-year EBITDA growth of up to 73% in the December quarter (Q3 FY26) due to lower input costs. In contrast, ONGC's EBITDA may decline by up to 14% due to lower realizations. Currently, OMC shares trade at an enterprise value of 6.2-6.4 times estimated FY27 EBITDA, while ONGC trades at a multiple of 4.5.
Investors remain watchful, as President Trump has also issued warnings of potential military action in Iran, which could further amplify market uncertainty and volatility in the sensitive energy sector.
