What Happened in Caracas
On January 3, 2026, U.S. forces carried out a surprise raid in Caracas, captured Venezuelan President Nicolas Maduro and his wife, and transported them to a U.S. warship. President Trump announced the operation on social media and framed it as a law-enforcement mission similar to the 1989 Panama invasion, emphasizing that Venezuela's population had been "liberated."
Crucially, Congress has not declared war. A Senate resolution explicitly states that Congress has not authorized military action against Venezuela, and lawmakers from both parties have cautioned that the raid lacked congressional approval. Secretary of State Marco Rubio has stated he "anticipates no further action in Venezuela" after Maduro's capture.
This leaves the situation legally and politically ambiguous: U.S. troops have used force abroad without the formal declaration of war that would trigger a sustained conflict.
Historical Precedents: What Markets Tell Us
Panama Invasion (1989-1990)
The closest analogue is Operation Just Cause, when U.S. forces invaded Panama to arrest Manuel Noriega. About 26,000 U.S. troops swiftly overwhelmed the Panamanian Defence Forces, and Noriega surrendered on January 3, 1990. The operation ended within six weeks.
Market reaction: The S&P 500 fell only 2.2% and regained its losses in just 8 trading days. The Dow Jones dropped 1.9% during the invasion but was up 8% after six months. Investors clearly saw the operation as a limited action rather than the start of a major war.
Capture of Saddam Hussein (2003)
When U.S. forces captured Iraq's former dictator on December 13, 2003, global markets initially surged. Japan's Nikkei rose 3.2% and South Korea's Kospi climbed 2%. However, U.S. markets reversed: the Dow opened higher but closed down 19 points.
Key insight: Removing a strongman can produce a temporary relief rally but does not necessarily lead to a durable bull market. Saddam's capture did not resolve broader instability in Iraq.
Soleimani Strike (2020)
The U.S. drone strike that killed Iranian general Qassem Soleimani on January 3, 2020 triggered a classic risk-off reaction:
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Markets stabilized within weeks once it became clear that Iran's response was limited. The event did not lead to war, but it illustrates how strikes against foreign leaders cause short-term volatility, particularly in energy markets.
The Broader Pattern
An RBC Wealth Management study of 19 post-WWII conflicts found:
During the 1990-1991 Gulf War, the S&P 500 dropped about 10% when Iraq invaded Kuwait but rebounded 20% over the following year. Similar patterns occurred after the Iraq War in 2003.
The takeaway: Markets price in worst-case scenarios quickly and then refocus on economic fundamentals once immediate uncertainty recedes.
Does This Mean War?
Legal Constraints
Under U.S. law, Congress must declare or authorize war. Currently, there is no war authorization for Venezuela. A Senate joint resolution explicitly directs the president to terminate U.S. military involvement unless Congress approves. These constraints mirror the quick end of the Panama intervention and suggest Washington intends a limited operation.
Geopolitical Risks
Venezuela's allies—including Iran, Russia, and Cuba—have condemned the raid and could respond indirectly through cyberattacks or proxy conflicts. However, U.S. forces have not seized Venezuelan territory for occupation; they have removed a leader who was already widely sanctioned.
Historically, targeted operations such as the Panama invasion or Soleimani strike did not lead to general war. Unless Congress authorizes broader military action or Venezuela retaliates in a way that triggers collective defense treaties, the risk of a full-scale war remains low.
How Markets Are Likely to React
Equities: Short-Term Volatility, Then Recovery
Initial reaction: Expect a modest sell-off as traders digest the news. Based on historical patterns, any decline may last only a few weeks. RBC's analysis shows markets typically regain losses within one month.
- Sector effects:
- Outperformers: Defense stocks, gold, U.S. Treasuries, Japanese yen
- Underperformers: Broad indices initially, emerging market equities
Long-term investors may view any sell-off as a buying opportunity. Markets have been remarkably resilient during conflicts, often delivering positive returns over three to ten years.
Oil: Spike Then Drop
Oil traders tend to react sharply to geopolitical risks, but the fundamentals tell a different story:
Short-term: Expect a brief price spike on supply disruption fears.
Medium-term reality: Venezuela now exports roughly 500,000 barrels per day, and the global market has a surplus four times larger. The loss of Venezuelan supply would have minimal effect beyond the initial hours.
Longer-term: Once a new government stabilizes, Venezuelan production could return to pre-capture levels within months and potentially increase by another 500,000 barrels per day by year's end. This supply growth would be bearish for oil prices. OPEC+ members may need to reduce quotas to offset new Venezuelan barrels.
Other Assets
Emerging-market debt: Venezuela's defaulted bonds are unlikely to see immediate recovery given uncertainty. However, if investors believe the country will reopen, appetite for Venezuelan debt could grow—similar to Iraq's debt restructuring after Saddam's fall.
Regional equities: Latin American equities outside Venezuela may experience volatility due to fears of U.S. intervention in the region, but the effect should dissipate quickly.
Commodity competitors: Countries that compete with Venezuela in heavy-sour crude (Canada, Mexico, Saudi Arabia) may benefit from any short-term supply disruption.
What History Tells Investors
| Event | S&P 500 Decline | Recovery Time |
| Panama Invasion (1989) | -2.2% | 8 days |
| Gulf War (1990-91) | -10% | ~12 months |
| Iraq War (2003) | -6% | ~3 months |
| Soleimani Strike (2020) | -0.7% | ~2 weeks |
| Average (19 conflicts) | -6.3% | 29 days |
Bottom Line
History suggests that capturing a foreign leader does not necessarily mean war. The Panama invasion removed Noriega in weeks. The capture of Saddam Hussein did not trigger a new war. The Soleimani strike caused market jitters followed by rapid stabilization.
In the current situation, legal constraints and political statements from U.S. officials indicate a desire to avoid prolonged conflict. For investors, this means:
Unless the crisis escalates dramatically, the capture of Maduro is more likely to be a limited military operation with temporary market effects rather than the start of a major war. Stay defensive, but don't panic.
This analysis is for educational purposes and does not constitute investment advice. Geopolitical situations can evolve rapidly. Consider consulting with a qualified financial advisor before making portfolio changes.