The trade of Venezuelan oil to its largest buyer, China, came to a halt on Tuesday following a threat from U.S. President Donald Trump to impose tariffs on countries purchasing oil from Caracas. This development added new uncertainty just days after U.S. sanctions were imposed on China’s imports from Iran.
Trump’s order, which caught traders and refiners in China by surprise, states that the U.S. may impose 25% tariffs on goods from any country importing Venezuelan oil, at the discretion of the secretary of state, starting on April 2.
Chinese traders and refiners mentioned they were waiting to see how the order would be enforced and whether Beijing would instruct them to halt purchases. However, several industry insiders expressed confidence that the oil flows would likely continue, citing the frequent changes in Trump’s tariff threats.
‘Total Mess’
A top executive with a regular Chinese trader of Venezuelan oil said the firm will refrain from buying any April shipments.
“The worst thing in the oil market is uncertainty. We won’t dare touch the oil for now,” he told Reuters.
Another trading executive, at an independent refiner that occasionally buys Venezuelan oil, said the order creates significant confusion and would also affect Singapore-based buyers of Venezuelan fuel oil.
“It’s a total mess,” the executive said. “China is already in a tariff war with the U.S. So be it.”
A third trader also said the independent refiners known as teapots that are the main Chinese buyers of Venezuelan crude were pausing as they sought information on whether supply would continue to be available and at what price.
China is Venezuela’s largest oil buyer, directly and indirectly taking in 503,000 barrels per day (bpd) of Venezuelan crude and fuel, or 55% of its exports, that is mostly rebranded as Malaysian after transshipment.
Most Venezuelan oil imported to China is processed by a group of teapots favouring the heavy Merey grade that is cheaper than U.S.-sanctioned Iranian and Russian oil.
‘Illegal Unilateral Sanctions’
Beijing on Tuesday reiterated its long-standing opposition to unilateral sanctions, and said it firmly opposed the latest U.S. move.
“The United States has long abused illegal unilateral sanctions and so-called long-arm jurisdiction to grossly interfere in the internal affairs of other countries,” foreign ministry spokesperson Guo Jiakun told a press briefing.
Trump has hit Chinese goods with 20% additional tariffs since February and potentially more could be announced as soon as early April. In response, China has imposed counter tariffs, implemented curbs on exports of certain critical minerals and launched probes into foreign companies.
Unless Beijing orders refiners to stop purchasing Venezuelan oil, which traders and analysts said they believed was unlikely, teapots squeezed by narrow margins and in need of cheap feedstock would probably look to find ways to continue buying once they have more clarity, they said.
An official at an independent refinery that does not buy Venezuelan oil said he expects the U.S. move to have “minimal” impact on Chinese purchases.
“Refiners do not care about the 25% tariffs. It’s up to China’s stance – what the U.S. does is a violation of free trade and China will clearly remain against it,” the person said.
In addition to teapot buyers, Reuters reported in 2022 that China had been bringing in direct shipments of about 42,000-bpd through a trading arm of a state defense firm as part of a deal to offset Caracas’ billions of dollars in debt to Beijing.
That arrangement continues, the executive and a trader close to Merey deals said.
Last week, Washington imposed new sanctions on entities including Shouguang Luqing Petrochemical, a teapot refiner, and vessels that supplied oil to such plants in China, the top buyers of Iranian crude.
(With inputs from Reuters)
