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The US’s move to re-impose sanctions on Venezuela, if it fails to hold free and fair elections by April 18, 2024, again threatens to disrupt the crude oil trade with India.
India, which resumed importing Venezuelan crude oil in December 2023 after a hiatus of over three years, emerged as the largest buyer in January 2024 for the South American nation that has the world’s largest proven oil reserves.
Also read: India-US energy ties: ‘Civil nuclear partnership a piece of unfinished business’
However, the spectre of impending sanctions against the Nicolas Maduro government threatens to not just disrupt imports, but also attempts by PSU refiners to utilise stuck dividends by procuring barrels and investing in oil projects.
As per energy intelligence firm Kpler, India imported more than 2,54,000 barrels per day (b/d) last month and over 1,91,000 b/d in December 2023 from Venezuela. Until 2019, India was Venezuela’s third largest purchaser, after the US and China, importing roughly 3,00,000 b/d on an average.
Re-imposing sanctions
Earlier this month, ONGC Videsh (OVL) MD Rajarshi Gupta, on the sidelines of the India Energy Week, said the company is awaiting cargoes from Venezuela in lieu of stuck dividends. It is also in talks to operate two oil and gas projects.
OVL owns 40 per cent stake in Venezuela’s San Cristobal project—a producing asset—and 11 per cent in the under development Carabobo project.
However, a top government source said since the US threatened actions against Venezuela, India is studying the situation. “Let’s wait for now. But, there are no issues (importing crude) till April and investment decisions factor in such scenarios. Also, both sides are in constant touch,” he added.
In May 2022, the US’s Office of Foreign Assets Control (OFAC) allowed Eni and Repsol to resume oil-for-loan exchanges, which also accelerated negotiations between state oil company Petroleos de Venezuela (PDVSA) and its foreign JV partners, including ONGC.
In August 2023, Venezuela’s Vice President Delcy Rodriguez met Oil Minister H S Puri, deliberating on ways to enhance the crude oil trade. After the US lifted sanctions in October 2023, as part of the six month deal with Maduro, oil cargoes of the heavy sour grade Merey flowed into India in December 2023.
On January 30, 2024, the US warned that if there is no progress between Maduro and Unitary Platform, particularly on allowing all presidential candidates to compete in the election, it will not renew the license that expires on April 18.
Venezuela responded that it is prepared to counter a return of sanctions, trade sources said, adding that the message has done little to calm buyers, including India, who have plans to lift more cargoes. This also skews talks to invest in energy projects.
Viktor Katona, Kpler’s Lead Crude Analyst told businessline, “I think the threat is real because President Maduro has been benefitting greatly from lifting of sanctions, all the while changing very little in the way Venezuela operates. That said, the White House doesn’t want to have a snapback in April because that would have an inevitable impact on oil prices that would start to creep higher again, exactly what the US incumbent president doesn’t want to happen several months before the presidential election. So I’d say the Biden administration would extend the sanction waiver for another six months and once the election is over, sanctions will be reinstated relatively swiftly.”
Vortexa’s Head of APAC Analysis, Serena Huang said that India would likely halt imports of Venezuelan crude if sanctions come back, but would not have “much impact” on refiners.
Trade dynamics
Katona said buying Venezuela crude was more profitable when PDVSA volumes were under sanctions. Chinese refiners were buying Merey cargoes in first half of 2023. The delivered price was at a discount of around $20 per barrel to Brent, making it the cheapest heavy crude available.
“After sanctions were lifted, Merey has been trading around a $7-8 per barrel discount to Dated, so it is roughly $15 more expensive than it used to be before. One can still make some good profits out of it, especially if we’re talking about a super sophisticated refinery setup such as Reliance’s Jamnagar refinery, but the margin would be less than what the Chinese had in the sanction days,” he pointed out.
Reliance Industries (RIL) refineries in Jamnagar and Indian Oil Corporation’s (IOC) Paradip refinery are best suited to handle such heavy sour grades. RIL had also signed a 15-year contract with PDVSA for supply of 3,00,000-4,00,000 b/d in October 2012.
Also read: Minutes of Fed meeting points to rate cuts, boosts crude oil prices
OPEC’s monthly oil market report for February 2024 put Venezuela’s crude production at 8,01,000 b/d, 8,02,000 b/d and 8,41,000 b/d in November 2023, December 2023 and January 2024, respectively.
The US EIA estimates Venezuela’s output can increase to around 9,00,000 b/d by end-2024. It exported 2,63,000 b/d in 2021, 4,42,000 b/d in 2022 and an estimated 6,21,000 b/d in 2023. China accounted for 68 per cent, while the US (23 per cent) of the total last year.
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