Trump targets Venezuela to pressure China, reshaping heavy crude flows

Just days after tightening sanctions on the Iranian oil trading network, President Trump announced the US will impose a 25% tariff on any country importing Venezuelan crude. While the direct market impact may be limited, the move signals a clear shift: the White House is prepared to forgo low oil prices in pursuit of broader strategic goals—isolating Iran and Venezuela and intensifying pressure on China.

Market & Trading Calls

• Bullish Latin American and Canadian heavy sour differentials, with 235 kbd of Venezuelan heavy crude at risk of disappearing from the USGC slate, expect tightening in grades like Colombian Castilla, Mexican Maya, and Ecuadorian Napo. Traders should watch for spreads to firm vs WTI in the coming weeks.
• Neutral-to-bearish Venezuelan crude export flows as PDVSA faces a 40–50 kbd downside after Chevron’s future exit and diluent shortages. Chinese imports may ramp up, but only at deeper discounts.
• Bearish Venezuelan and Iranian oil pricing in China, as buyers take advantage of higher risks in the sanctioned crude market.
• Bearish USGC naphtha cracks. The loss of Venezuela as the top destination for PADD 3 naphtha exports (63 kbd YTD) removes a key outlet, weakening demand and pressuring cracks.

The White House escalated its energy sanctions strategy on Monday 24 March 2025, by announcing a 25% tariff on all countries importing Venezuelan crude, effective from 2 April. While the mechanism for such enforcement remains unclear, the move further signals a shift in Washington’s willingness to sacrifice oil price stability in favour of broader geopolitical goals—namely isolating Iran and Venezuela and challenging China, only a few days after the US Department of State directly sanctioned a Chinese teapot refiner, underlining that the primary target is Beijing.

However, the measure would be challenging to implement. In general, tariffs are taxes a country imposes on goods entering its own borders. The U.S. cannot force other countries to pay tariffs to it if the trade doesn’t involve the U.S. directly as it has no jurisdiction to impose a tariff on that transaction. Unlike Iranian crude, Venezuelan barrels are not currently subject to secondary sanctions, limiting the reach of unilateral US enforcement. However, retaliatory measures such as sector-specific tariffs—on Chinese cars or Indian pharmaceuticals—may provide the leverage needed.

We expect the tariffs threat to be enough for India’s Reliance to halt Venezuelan imports. However, we believe Repsol may continue only under existing debt repayment arrangements. China, on the other hand, is unlikely to yield. Over the weekend, Beijing enacted an “Anti-Foreign Sanctions Law,” reinforcing its stance against external pressure. Flows of Venezuelan crude into the USGC (230 kbd) and India (70 kbd) may now redirect to China, where discounts will need to widen to attract demand. Merey is currently assessed at a $5/bbl discount to ICE Brent delivered into Shandong.

Venezuela oil exports by destination country, kbd

Source: Kpler

President Trump’s decision comes a few weeks after Chevron was revoked its waiver to continue operating in Venezuela. The Major received an extension until 27 May to wind down its operations in the country.

Chevron’s withdrawal from Venezuela will further reduce US access to heavy sour grades. Venezuela has been the second-largest supplier of heavy crude to PADD 3 refiners, behind Mexico. YTD, Venezuelan arrivals into the USGC have averaged 235 kbd, primarily feeding Valero’s Port Arthur and St Charles refineries and Chevron’s Pascagoula facility. Substitution demand is expected to lift prices for Canadian and Latin American heavy sour alternatives. Conversely, the naphtha balance will weaken. Venezuela was the single largest destination for USGC naphtha, receiving 63 kbd YTD—26% of total exports. Loss of this outlet will weigh on domestic cracks.

Despite the added pressure, PDVSA will struggle to offset Chevron’s exit due to ongoing diluent shortages. As a result, we see a further 40–50 kbd downside risk to Venezuelan supply after June, following Chevron's exit. Our base case remains a total 170 kbd production loss by year-end.

Venezuela crude supply, kbd

Source: Kpler

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