Why Oil Prices Won't Drop: The Shifting U.S. Energy Strategy

Crude oil climbed higher on Friday despite Washington’s de-escalation rhetoric toward Iran, with WTI futures for February delivery gaining $0.40 (0.68%) to settle at $59.59 per barrel. The upward pressure reflects deeper market concerns about geopolitical supply disruptions rather than immediate military threats—a distinction that matters significantly for long-term energy prices.

America’s Aggressive Pivot on Venezuela Changes the Oil Calculus

The Trump administration’s energy strategy has undergone a dramatic shift following the arrest of Venezuelan President Nicolas Maduro. Rather than pursuing confrontational approaches, Washington is now focusing on controlling Venezuela’s entire petroleum value chain—production, refining, and distribution.

Senior officials met with major oil company executives from the U.S. and Europe, pitching a roughly $100 billion investment opportunity to rehabilitate Venezuela’s deteriorated energy infrastructure. The interim government has already agreed to supply 30-50 million barrels to the United States, with the first batch (approximately $500 million worth) already reaching American markets. U.S. naval forces have intensified operations in the Caribbean, capturing six vessels flagged as “sanctioned ships,” including the tanker Veronica seized yesterday.

This aggressive consolidation of Venezuela’s oil reserves reveals Washington’s preference for direct control over reliable supply sources—and implicitly, its strategy to bypass other problematic suppliers. The scale of investment and enforcement suggests a long-term commitment, with energy analysts expecting U.S. influence over Venezuelan production to persist “indefinitely.”

Iran Remains the Unresolved Risk Premium

In contrast to Venezuela’s rapid integration into U.S. energy markets, Iran presents a fundamentally different challenge. The nation has been roiled by pro-democracy protests since December 2025, beginning in Tehran and expanding nationwide. Reports transmitted via Starlink documented mass arrests in the hundreds and death sentences handed down against demonstrators.

Trump initially threatened military intervention to support civilian uprisings, prompting Iran to warn neighboring states against hosting U.S. military bases. Oil prices surged as traders priced in geopolitical premium. However, the administration abruptly reversed course, citing intelligence reports that “killings have stopped,” though reserving the right to intervene if conditions deteriorate.

Yet tensions remain simmering: Fox News reported yesterday that at least one U.S. aircraft carrier is repositioning toward the Persian Gulf region. This positioning matters because Iran controls the Strait of Hormuz, the chokepoint through which approximately 20 million barrels per day (one-fifth of global crude supply) transits. Iran itself produces roughly 3.2 million barrels daily (4% of world output). Any military escalation could trigger immediate supply disruptions.

The current market reality reflects this asymmetry: America is securing Venezuelan barrels through direct control, while Iran remains a geopolitical wildcard. This strategic divergence explains why oil prices carry lingering risk premium despite Trump’s recent de-escalation messaging.

Economic Headwinds Limit Oil’s Upside

Domestically, U.S. labor markets showed mixed signals. Initial jobless claims fell by 9,000 to 198,000 for the week ending January 10, while continuing claims declined to 1,884,000 as of January 3. The four-week moving average dropped to 205,000 from 211,500 week-over-week.

Manufacturing output surprised to the upside, expanding 0.2% month-on-month in December—beating expectations for contraction—and growing 2% annually following an upwardly revised 2.2% November gain. These stronger-than-expected figures have pushed back speculation about Federal Reserve rate cuts at month-end, keeping the dollar elevated.

The U.S. dollar index climbed 0.10% to 99.42, which capped crude’s rally. A stronger dollar typically weighs on oil prices since crude trades in dollars, reducing demand from international buyers.

The Broader Energy Picture

The Ukraine conflict compounds supply concerns. Russia has intensified attacks on Ukraine’s power grid, leaving thousands without electricity amid winter months. While Trump stated Russia is willing to accept the U.S.-proposed peace framework (a claim Zelenskyy disputes), resolution remains distant.

Together, Venezuela’s accelerated integration into U.S. supply chains, Iran’s unresolved tensions, and dollar strength create a complex market backdrop. Oil prices reflect not an imminent crisis but rather persistent uncertainty about whether supply disruptions from geopolitical sources will outweigh strong dollar headwinds and moderating growth concerns.