In a significant escalation of pressure on the Nicolas Maduro government, former US President Donald Trump has announced a total blockade on all sanctioned oil tankers traveling to and from Venezuela. However, this move is predicted to have a minimal impact on the worldwide crude oil market, according to a fresh analysis by the global data and analytics firm Kpler.
Understanding the Blockade and Venezuela's Oil Flow
The blockade, declared by Trump via his Truth Social platform, targets what he termed a "FOREIGN TERRORIST ORGANIZATION." The stated aim is to cripple the regime's primary revenue source by preventing the movement of sanctioned vessels. While details on enforcement—such as potential US Coast Guard involvement—remain unclear, the administration has already bolstered military presence in the region with thousands of troops and numerous warships.
Despite the aggressive rhetoric, the market's reaction has been muted. Venezuela currently produces about 900,000 barrels per day (bpd), constituting a mere 1% of global supply. Its export dynamics are heavily skewed: approximately 76% of its 765,000 bpd in exports flows to China, specifically to independent "teapot" refiners, as state-owned entities avoid the shipments due to sanction fears.
The United States, which took around 35% of Venezuela's exports in 2024, now receives only about 17% following adjustments to Chevron's license. The remaining oil goes to Cuba, Spain, and Italy under prior agreements.
Why the Global Market May Shrug It Off
Kpler's report suggests the blockade introduces some geopolitical risk but is unlikely to overhaul core market fundamentals. The reasoning hinges on a two-tiered market structure where disruptions affect only a sanctioned segment already flush with supply.
Critically, Trump's order specifies "sanctioned" tankers. This implies that legitimate shipments, like those to the US under Chevron's license, may continue unhindered. The brunt would thus fall on cargoes bound for China and Cuba.
Cuba imports roughly 28,000 bpd of crude, with 35% sourced from Venezuela. While a cutoff poses immediate challenges, Cuba could potentially turn to Russian oil to cover deficits, despite recent US sanctions on Russian firms like Rosneft and Lukoil.
Impact on Key Buyers and Price Dynamics
Chinese teapot refiners, reliant on Venezuelan crude, would feel the pinch. However, Kpler notes the impact will be cushioned by substantial volumes of Venezuelan oil already in transit and plentiful alternative supplies from Iran and Russia.
Market data underscores this surplus. Prompt deliveries of Venezuelan Merey crude are trading at a steep discount of about $15 below ICE Brent in China. Attempts by sellers to raise prices have been thwarted by a glut of Iranian cargoes and falling Russian oil prices. Many Iranian heavy oil parcels remain unsold, further capping any potential price rally for Venezuelan crude.
This points to a broader trend: both sanctioned and non-sanctioned oil markets are experiencing a significant supply overhang. Combined floating storage for Iranian, Venezuelan, and Russian crude has hit 74 million barrels, the highest level since November 2022, making buyers increasingly indifferent to geopolitical flare-ups.
In essence, while Trump's blockade intensifies pressure on Caracas, the well-supplied and segmented nature of the global oil market is poised to absorb the shock without major price disruptions or sentiment shifts.
