The US administration plans to impose sanctions over Venezuela and this could mean bonanza for importers of Venezuelan oil like India and China. The United States could ban the import of Venezuelan oil in its war against the socialist President Nicolás Maduro whose policies destroyed the economy of the country. The Venezuelan romance with socialism started in the late 1990s with the election of Hugo Chavez and continues till date under the leadership of authoritarian president Nicolas Maduro. The socialist economic policies imposed on the country, overflowing with subsidies and welfare programs proved disastrous for the Venezuelan economy.
The US could deploy sanctions against the Latin American nation in the coming days, the sanction includes a ban on the import of Venezuelan crude oil for American refineries. The US is the largest importer of crude oil from Venezuela and if the government imposes the sanctions, only a few markets would be left for the Latin American country. India, China and the United States are the three largest importers of Venezuelan oil, other importers like Japan and South Korea have largely stopped imports from the Latin American nation due to the declining quality of its crude.
“The quality of Venezuelan oil has been deteriorating after years of under-investment and aging infrastructure,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects Ltd. “That’s making the country’s crude more difficult for refineries to run, reducing its customer pool. This means it’ll be tough for Venezuela to sell more oil to new markets and customers outside of traditionally active buyers in China and India.” The ban of imports by US will give a bonanza of cheap oil to India as Modi government enters in pre-electoral months. The country is the fourth largest supplier of crude oil to India after Iraq, Saudi Arabia and Iran. India imported 330,000 barrels a day in 2018 compared to 340,000 barrels a day by China. Although the import of Venezuelan oil by India is 13.6 percent lower compared to previous year and China imported 20 percent less oil compared to the previous year. The share of Venezuelan oil of the total imports of China declined from 5.2 percent in 2017 to 3.7 percent in 2018.
Venezuelan oil accounts for 8 percent of the total oil imports of India. Reliance Industries Ltd. and Nayara Energy Ltd are the only refiners in the country which import Venezuelan oil as other refineries do not have capacity to refine low quality Venezuelan oil.
The Venezuelan government is desperate to sell oil in the growing Asian market as the public finance of the country is in doldrums. The socialist economic policies and heavy borrowing during the commodity boom have pushed the country into debt. The socialist President Nicolás Maduro borrowed heavily when the oil prices were high but as the prices moved southwards, the country defaulted on loans.
The loans the country had taken from international financial institutions to support the social welfare programs became unsustainable. It couldn’t even pay the interest on the loans and was declared to be in default regarding debt payments by credit rating agencies. The central bank of Venezuela started printing more currency to meet the fiscal deficit targets and this resulted in hyperinflation which is expected to reach 1,000,000% by year’s end. In April, the IMF announced that Venezuela’s gross domestic product (GDP) was expected to be 45% below its 2013 level by the same time.
The country is in desperate need of petrodollars and only exporting to India and China could provide them. Therefore as the US stops tpurchasing Venezuelan oil, India and China would be getting cheaper oil.