The United States has announced a new tariff on Venezuelan crude oil. Under this rule, any country that buys oil from Venezuela—directly or indirectly—will have to pay a 25% tariff when trading with the US. This decision was made by US President Donald Trump, and it is expected to have major consequences on global trade.
Trump’s New Tariff on Venezuelan Oil
The tariff will take effect on April 2 and will remain in place for a year after a country last purchased Venezuelan oil. However, the US has also stated that the tariff could be removed sooner if America decides to do so. This policy is a secondary tariff, which means it is designed to discourage other nations from importing Venezuelan crude by making their trade with the US more expensive.
The move is being seen as a response to ongoing tensions over illegal immigration from Venezuela into the United States. It also adds pressure on countries that rely on Venezuelan oil, including India and China.
Venezuela’s Oil Exports and Its Global Importance
Venezuela is a major player in the oil market. According to the 2022 BP Statistical Review of World Energy, the country holds the world’s largest proven oil reserves, with 304 billion barrels. This is even higher than Saudi Arabia’s 298 billion barrels.
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In the past, Venezuela had strong trade relations with the US, with bilateral trade peaking at $50 billion in 2006. A significant part of this trade was driven by Venezuela’s crude oil exports to the United States. However, due to geopolitical tensions, trade has declined over the years. In 2023, Venezuela’s exports to the US were valued at $3.81 billion, with crude oil remaining a major part of the exports.
By imposing tariffs, the US aims to limit Venezuela’s oil sales globally. This is likely to impact major buyers like India and China, both of which import significant amounts of Venezuelan crude.
How the Tariff Will Impact India
India is one of the largest importers of crude oil, meeting 85% of its demand through imports. Venezuela has been a key supplier, providing India with a steady flow of crude oil. In December 2023, India imported 191,600 barrels per day (bpd) from Venezuela. This number increased to 254,000 bpd in January 2024, making India Venezuela’s biggest oil buyer at that time.
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Here’s how the new US tariff could affect India:
Higher Oil Prices
With the 25% tariff in place, the cost of importing Venezuelan oil will rise. This will directly affect Indian refineries and industries that depend on crude oil, such as transportation and manufacturing. Higher oil prices could lead to increased production costs, ultimately impacting the economy.
Impact on Indian Companies
Indian companies that purchase Venezuelan crude will feel the immediate impact. After the US lifted sanctions on Venezuela in 2023, several Indian firms resumed importing oil. One of the biggest buyers was Reliance Industries, which imported 127,000 bpd from Venezuela in December 2023. With the new tariff, operational costs for such companies are expected to rise. Similarly, Indian Oil Corporation, another major refiner, might see reduced profit margins due to increased procurement costs.
Disruptions in Supply Chain
India may need to shift its oil purchases to other suppliers to avoid the tariff. This means turning to oil-producing countries like Russia, Saudi Arabia, or African nations. However, switching suppliers is not a simple process. It involves adjusting supply chains, logistics, and refining processes to match different crude oil grades. Such changes could create additional expenses and operational challenges for India’s energy sector.
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India’s Strategy to Reduce Impact
India has already taken steps to minimize the impact of disruptions in oil imports. Instead of relying solely on Venezuelan crude, Indian companies are increasing their purchases from Russia.
Reports indicate that Indian oil firms such as Bharat Petroleum and Indian Oil Corporation are reducing spot purchases (one-time oil buys) from various countries. Instead, they are focusing on stable long-term supplies from Russia.
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Russia has been exporting crude oil to India through non-sanctioned tankers, which means these shipments are not affected by US or European restrictions. This allows India to buy Russian crude at lower prices, reducing the financial burden caused by the US tariffs on Venezuelan oil.
The new US policy is expected to shake up global oil trade, especially for countries that rely on Venezuelan crude. India, being a major importer, will have to navigate these challenges carefully to avoid economic disruptions.
