Oil prices have continued to rise on Tuesday after US President Donald Trump on Monday announced that America will impose 25% tariffs on countries buying oil and gas from Venezuela.
Trump’s announcement of secondary sanctions targeting countries that import oil and gas from Venezuela is likely to bolster Brent crude oil prices.
These sanctions, scheduled to take effect in April, are designed to exert additional pressure on Venezuela’s already struggling energy sector and could potentially disrupt global oil supply chains.
US sanctions and oil prices
By restricting Venezuela’s ability to export oil and gas, the sanctions could lead to a decrease in global supply, thereby driving up prices.
The secondary sanctions are also aimed at discouraging countries from doing business with Venezuela, further isolating the country economically and politically.
This move by the Trump administration is part of a broader strategy to oust Venezuelan President Nicolas Maduro and support opposition leader Juan Guaido.
The potential impact of these sanctions on the global oil market is significant, and traders and analysts will be closely monitoring developments in the coming weeks and months.
Brent crude oil prices settled above $73 per barrel, the highest since late February, after the news broke on Monday.
ING Group’s analysts said in a note:
Oil, along with broader risk assets, also benefited from suggestions the Trump administration may take a more targeted approach with reciprocal tariffs.
At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $69.47 per barrel, up 0.5%, while Brent on the Intercontinental Exchange was up 0.4% at $72.69 a barrel.
Venezuela raised production in recent years
In recent years, Venezuela has experienced a resurgence in its oil production and exports, primarily attributed to the Biden administration’s decision to ease sanctions that had previously crippled the nation’s oil industry.
This easing of sanctions included a significant waiver granted to Chevron, allowing the American oil giant to resume operations within Venezuela.
The resumption of Chevron’s activities, along with other policy adjustments, has facilitated a gradual increase in Venezuelan oil output, enabling the country to re-enter the global oil market and bolster its export capabilities.
In February, Venezuela’s crude oil production reached 918,000 barrels per day, a significant increase from the 760,000 barrels a day produced in 2023, according to ING.
The country currently exports approximately 750,000 barrels per day of oil.
ING analysts said:
As such, this move could mean a fairly sizeable tightening in the global oil balance.
Disruptions
China, the US, and India are the primary importers of Venezuelan crude oil.
However, this situation may change as Chevron’s sanction waiver, which allows it to operate in Venezuela, will expire on May 27.
The US Treasury Department gave Chevron 30 days to wind down operations in Venezuela on March 4.
Trump’s new policy relieves some pressure on Chevron to quickly exit Venezuela.
Trump initiated the original wind-down due to his accusations that Venezuelan President Nicolas Maduro was not advancing electoral reforms or facilitating migrant returns.
This expiration could lead to a decrease in Venezuelan oil exports to the US.
Additionally, the previously mentioned tariffs will be implemented starting on April 2.
This date also marks the potential introduction of broader reciprocal levies, which may be put into effect on the same day, further impacting trade and economic relations between the involved parties.
“This should be supportive for heavier crude oil grades, of which Venezuela is a key exporter,” ING further said.
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