Oil industry analysts expect China to replace its oil imports from Venezuela with increased purchases of Iranian crude, following the arrest of China’s ally Nicolás Maduro by U.S. forces over the weekend.
President Donald Trump announced on Tuesday that Maduro’s successor, interim president Delcy Rodríguez, and other Venezuelan officials have agreed to sell up to $2 billion in crude oil to the United States. The deal would divert oil coveted by China to U.S. refineries.
Trump explicitly instructed Rodríguez to evict Chinese, Russian, Iranian, and Cuban agents from Venezuela and sever all economic ties with those nations. He also demanded exclusive contracts and favorable prices with American refiners for Venezuelan crude oil. The socialist Maduro regime long ago destroyed Venezuela’s refining capacity, so the oil-rich but desperately impoverished nation is heavily reliant upon foreign refineries.
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Secretary of State Marco Rubio reportedly told U.S. lawmakers that Venezuela has filled every available tanker and storage facility with crude oil, frustrated by Trump’s blockade on sanctions-defying oil shipments, and the post-Maduro government faces financial collapse in a few weeks if it cannot generate income by selling its crude oil. These two factors would presumably make Caracas receptive to Trump’s demands to divert its shipments from China to the United States.
Trump said on Tuesday that Venezuela would hand over 30 million to 50 million barrels of sanctioned oil to the United States immediately. Other administration sources said shipments to American refiners would continue “indefinitely” thereafter, with the profits to be held in U.S.-controlled accounts and shares released back to Venezuela at U.S. discretion. Most of that oil would have otherwise gone to China.
Reuters on Wednesday quoted industry analysts who said China’s “teapot” independent refineries have quickly and quietly accepted the loss of Venezuelan imports and are making plans to replace the lost oil from Venezuela with Iranian products, possibly augmented with purchases from Russia.
Chinese refineries needed to move quickly, as supplies from Venezuela were effectively halted on January 1 by Trump’s blockade.
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China currently obtains far less of its oil from Venezuela than it used to, in part because Venezuela’s productivity slipped so badly under Maduro’s mismanagement, while Russia slashed its prices after it was hit by international sanctions for invading Ukraine in 2022. Venezuela no longer appeared to be a good deal for Chinese buyers, and imports from Venezuela commensurately slipped to about four percent of China’s total intake from overseas suppliers.
“Teapot” refineries blossomed in China after the government began allowing independent operators to purchase crude oil from overseas in 2015. These small operations are highly dependent upon discounted crude to make their business models work. They have developed a reputation over the past decade for being very nimble at switching suppliers on short notice, in pursuit of the highest discounts available.
Teapot buyers have a sweet tooth for oil suppliers who have been sanctioned by Western powers because they tend to offer deep discounts in their desperation to find buyers. Venezuela was offering some of the best discounts on the market, up to $15 per barrel, before Trump shut down the supply. Iran is offering about $10 per barrel at the moment, double the discount China can get from non-sanctioned sources like Canada.
The Chinese Foreign Ministry on Wednesday howled that Trump’s seizure of Venezuelan oil was an act of “bullying” that “violates international law” and “infringes on Venezuela’s sovereignty.”
“Venezuela is a sovereign state and has full permanent sovereignty over all its natural resources and economic activities. The U.S. blatantly used force against Venezuela and asked the country to ‘favor’ America with regard to its oil reserves,” complained Foreign Ministry spokeswoman Mao Ning.
Mao was clearly terrified that Trump’s revival of the Monroe Doctrine could jeopardize China’s interests in other Latin American narco-states and socialist dictatorships, insisting that China would “continue to be a friend and partner” to those countries – but falling uncharacteristically silent when a reporter asked if China would provide more “financial or economic support” to those countries.
Despite Mao’s repeated invocations of “international law” and “sovereignty,” the fact is that Beijing took a multibillion- dollar gamble by doing business with the illegitimate regime of Nicolas Maduro, and it lost that gamble on Saturday morning.
While Beijing struggles to mitigate its losses from the fall of Maduro, China’s independent refiners have begun shopping elsewhere for their discounted oil. They might want to be careful about signing any long-term contracts with the tottering regime in Tehran.
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