The ongoing political and economic crisis in Venezuela is coming to an end after 6 years of harsh sanctions from the United States. However, the US government recently said that Washington is thinking of imposing a fresh set of sanctions on Venezuela for some reasons. Previous sanctions have not only affected Venezuela's oil industry but have also sent shockwaves through the global oil market, impacting major importers like India.
Venezuela's oil production has declined from over 2 million barrels per day (BPD) in 2018 to less than 500,000 BPD in recent years. India's total trade deficit was roughly $20 billion in December 2023 due to higher oil import costs. India's crude oil imports from Venezuela which dwindled to negligible levels due to the sanctions, have now seen a huge rise with Venezuela being India’s biggest oil importer.
Background
Venezuela is a member of the OPEC and has huge oil reserves. Before the imposition of US sanctions, Venezuela used to supply approximately 10% of India's crude oil imports and after the US eased the sanctions, India started the procurement of huge volumes of Venezuelan Oil.
Venezuela possesses the world's largest proven oil reserves, making it a crucial player in the global oil market. However, years of mismanagement, corruption, and political instability have plunged the country into a deep economic crisis. The US government, under successive administrations, has imposed a series of sanctions on Venezuela in response to human rights abuses, anti-democratic actions, and allegations of supporting terrorism.
The sanctions imposed by the US had targeted Venezuela's oil sector, including state-owned oil company PDVSA (Petroleos de Venezuela), and if the sanctions are imposed again, it can prove very dangerous for Venezuela. These measures have restricted Venezuela's ability to sell its oil internationally, access financing, and maintain its infrastructure. As a result, Venezuela's oil production has plummeted to historic lows, exacerbating its economic woes and leading to severe shortages of basic necessities.
What will happen if the USA reimposes sanctions?
Venezuela's diminished oil production will have ripple effects across the global oil market. With fewer barrels available for export, other oil-producing nations will have to increase their output to compensate for the shortfall. This dynamic will place an upward pressure on oil prices, impacting oil-importing nations like India.
India is heavily reliant on imported crude oil to meet its energy needs, with Venezuela historically being one of its key suppliers. However, US sanctions on Venezuela have disrupted this supply chain, forcing India to seek alternative sources of crude oil. As a result, India has diversified its oil imports, turning to countries like Saudi Arabia, Iraq, and the United Arab Emirates to meet its energy demands.
The shift in India's oil import sources has had economic implications. While India has managed to secure alternative suppliers, it has often had to pay higher prices for crude oil, impacting its import bill and widening its trade deficit. Additionally, the volatility in global oil prices stemming from the Venezuelan crisis has contributed to uncertainty in India's energy sector and the broader economy.
Conclusion
The US sanctions on Venezuela will have far-reaching implications for global oil markets, with India feeling the effects due to its significant reliance on imported crude oil. While India has adapted by diversifying its oil import sources, the Venezuelan crisis underscores the interconnectedness of the global economy and the vulnerability of nations to geopolitical tensions.
Moving forward, in any case of reimposition of sanctions, diplomatic efforts to resolve the crisis in Venezuela and stabilize its oil industry will be essential to mitigating the adverse effects on India and other oil-importing nations. However, as India is emerging as a leader of the global south and has proved time and again that India will keep their national interests first, it may not be shocking to see that India may not follow the sanctions imposed by the USA as she did during the Russia-Ukraine war.
