From one angle, the US action to arrest then-Venezuelan president Nicolas Maduro and seize control of the country’s oil industry is an attempt to muscle China’s influence out of the Americas. In a world breaking up into spheres of influence, the Donroe Doctrine tells Beijing to keep its meddling hands out of the empire of crude that US President Donald Trump is building in the western hemisphere.
And yet China would be central to the next act in Venezuela’s drama — because any durable solution to its long-running crisis is likely to involve someone, somewhere, buying more Venezuelan oil.
“In terms of other countries that want oil, we’re in the oil business, we’re gonna sell it to them,” Trump said on Saturday last week. “We’re not gonna say we’re not gonna give it to them. In other words, we’ll be selling oil, probably in much larger doses.”
That would be easier said than done. China, the biggest contributor to oil demand growth in recent decades and the key customer for Venezuelan crude, is needing smaller doses as consumption shrinks. Any plans to make money from rebuilding Venezuela’s status as a major oil exporter would have to reckon with the fact that the biggest importer is pulling back from the market.
Since the first round of sanctions against Venezuela’s oil industry in 2019, its customer base has narrowed to just two countries: The US (where exports are occasionally allowed under a special waiver) and China, the only country with the financial and political muscle to flout Washington’s sanctions regime.
The key players here are the so-called teapot refiners, a collection of privately-owned plants which cluster in Shandong Province south of Beijing. They have attracted a reputation over the years for surviving by the skin of their teeth while competing with better connected, better capitalized state oil companies.
They have been the most important consumers of Venezuelan crude for years. Until about 2021, they were eager buyers of the country’s thick, viscous product — unattractive to many refiners, because it is hard to process — due to its suitability for producing asphalt for road surfaces and roofing. Shandong’s refineries churn out about 40 percent of the total — a good trade when China’s real-estate boom was at its height.
When the property bubble burst in 2021, that trade slumped to barely more than half of where it was at its 2020 peak — but the teapot refiners found a new angle. By buying sanctioned oil from Venezuela, Iran and Russia at steep discounts to normal prices, they have managed to continue eking out the thinnest of margins.
You can get a picture of the scale of this business by looking at Chinese imports of crude from Malaysia, and to a lesser extent Indonesia. Over the past few years, they have run far in excess of the volumes those countries could actually produce. That is a blaring signal that the real source is sanctioned crude getting transferred between ghost-fleet ships in international waters to disguise its origin.
Much now depends on whether China would even be allowed to buy Venezuela’s crude. Trump’s comments suggested he is in the same mercenary mode that has allowed US-China ethane trade to continue largely unhindered through a year of tariff chaos. Still, it is possible that more ideological considerations would lead to Beijing getting blocked. Even without that, a removal of sanctions would certainly raise the price of Venezuelan crude, which might undermine the teapots’ threadbare margins. Meanwhile, the security situation in Caracas appears to be fluid at best. Washington might not have the final say in any outcome.
Either way, it is not clear that there is need out there for more barrels from South America. With electric vehicles now comprising more than half of China’s auto sales, gasoline inventories at the teapots are at their highest seasonal levels in more than two decades. Unlike the US refineries on the coast of Louisiana and Texas best-suited to processing Venezuelan crude, which have been operating at close to 100 percent capacity in recent months, the teapots have been running below 50 percent for most of the past year. India is likely the only other place with the ability and space to process more heavy crude.
From asphalt, to gasoline, diesel and kerosene (which have seen demand stagnate since the COVID-19 pandemic), China’s appetite for oil is sated. Only petrochemicals and plastics are growing, and they depend on light, semi-gaseous hydrocarbons where Venezuela is less generously endowed. The biggest state-owned refiner, China Petroleum & Chemical Corp, or Sinopec, expects the country’s crude demand to peak before next year.
That is a tough climate in which to rebuild an oil industry decimated by decades of corruption and waste. Venezuela needs long-term buyers for its most important export. With global investment in upstream oil extraction declining, there has rarely been a worse time to sign up new customers.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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