On March 25, 2023, the trade of Venezuelan oil to its largest buyer, China, came to a standstill following a surprising order from U.S. President Donald Trump. This order threatens to impose 25% tariffs on countries purchasing oil from Caracas, creating significant uncertainty in the global oil market. The announcement arrives shortly after the U.S. implemented sanctions targeting Chinese imports from Iran, adding to the complexities of international oil trading.
The recent directive from Trump, which allows the U.S. Secretary of State to impose tariffs at their discretion starting April 2, has left traders and refiners in China apprehensive. Many are holding off on purchases as they await further clarity on how these tariffs will be enforced and whether the Chinese government will instruct them to halt imports. A senior executive from a company regularly trading Venezuelan oil stated, "The worst thing in the oil market is uncertainty. We won't dare touch the oil for now," highlighting the cautious approach being adopted by traders.
Traders are expressing concern over the chaos that the U.S. tariff order has generated in the market. An independent refinery executive remarked, "It's a total mess," emphasizing that the situation complicates decisions for buyers based in Singapore as well. The ongoing tariff war between the U.S. and China further exacerbates the situation, leaving many in the industry in a state of indecision.
China is a crucial player in the Venezuelan oil market, importing approximately 503,000 barrels per day (bpd), which accounts for about 55% of Venezuela's total oil exports. Notably, much of this oil is rebranded as Malaysian crude post-transshipment. The heavy Merey grade oil from Venezuela is particularly favored by independent refiners, commonly referred to as "teapots," due to its affordability compared to oil from U.S.-sanctioned countries like Iran and Russia.
In light of the U.S. sanctions, China has reiterated its long-standing opposition to unilateral measures. Foreign Ministry spokesperson Guo Jiakun stated, "The United States has long abused illegal unilateral sanctions and so-called long-arm jurisdiction to grossly interfere in the internal affairs of other countries." This response reflects China's commitment to standing against what it perceives as violations of free trade.
While the uncertainty looms, analysts believe that unless the Chinese government specifically instructs refiners to cease purchasing Venezuelan oil—an outcome they consider unlikely—independent refiners will likely seek ways to continue their imports once the situation clarifies. An official from a refinery not engaged in buying Venezuelan oil noted that the impact of U.S. tariffs would be minimal, asserting that "it's up to China's stance." This sentiment underscores the resilience of Chinese refiners, who remain focused on acquiring affordable feedstock despite external pressures.
In addition to the teapot buyers, reports indicate that China has been securing direct shipments of about 42,000 bpd of Venezuelan oil through a trading arm of a state defense firm. This arrangement is part of a broader strategy to offset Venezuela's substantial debt to China, which continues to be a pivotal aspect of their trade relations. As the situation evolves, the interaction between U.S. sanctions and Chinese imports of Venezuelan oil will undoubtedly remain a critical focal point for traders and analysts alike.
