Oil Holds Gains as Trump Vows Tariff on Venezuelan Crude Buyers

Oil prices held steady on Monday as investors assessed the potential impact of President Trump's announcement of a 25% tariff on countries purchasing Venezuelan oil. The tariff, set to take effect on April 2, 2025, aims to pressure countries into reducing their reliance on Venezuelan oil, potentially favoring U.S. energy exports instead. This move has sent shockwaves through global energy markets, with Brent crude futures down 8 cents, or 0.1%, at $72.08 a barrel by 0046 GMT, and U.S. West Texas Intermediate crude falling 5 cents, or 0.1%, to $68.23.

The tariff is part of a broader strategy to reshape global crude trade dynamics, with significant implications for global oil supply and pricing. Countries that rely heavily on Venezuelan oil, such as China, which bought 68% of the oil exported by Venezuela in 2023, will face higher costs and may look elsewhere for their energy needs. Jorge León, a Rystad Energy analyst, stated that the threat of higher tariffs will probably cause China to seek oil from other sources. This shift could lead to increased competition for oil supplies from other producers, potentially driving up global oil prices.



The geopolitical ramifications of Trump's tariff policy are equally significant. The tariff is part of a broader geopolitical battle over Venezuelan oil, one that could reshape global energy trade for years to come. The latest OFAC decision, combined with Trump’s aggressive tariff policy, underscores the high-stakes geopolitical battle over Venezuelan oil. This could lead to further tensions and retaliatory measures from affected countries, potentially destabilizing global energy markets.

In the context of existing OPEC+ production cuts, the tariff could exacerbate supply constraints. OPEC+ has been cutting output by 5.85 million barrels per day, equal to about 5.7% of global supply, agreed in a series of steps since 2022 to support the market. It confirmed on March 3 that eight of its members would proceed with a monthly increase of 138,000 bpd from April, citing healthier market fundamentals. However, the tariff could disrupt these plans by forcing countries to seek alternative suppliers, potentially leading to higher prices and increased volatility in the oil market.

The potential for increased U.S. oil exports is another factor to consider. The U.S. energy firms added oil and natural gas rigs for the first time in three weeks, as reported by Baker Hughes on Friday. This increase in drilling activity suggests that the U.S. could ramp up its oil production to meet the demand created by the tariff on Venezuelan oil. However, the effectiveness of this response will depend on the U.S.'s ability to quickly increase production and the willingness of other countries to purchase U.S. oil at potentially higher prices.

The tariff policy has already led to retaliatory measures from China. Trump imposed a 10% tariff on all imports from China, which has responded with retaliatory tariffs on U.S. energy imports, export controls on critical minerals like tungsten, and an antitrust probe into Google. These actions are likely to escalate tensions and could lead to further economic decoupling between the two countries. This could disrupt global oil trade dynamics, as China is a major importer of oil and any disruption in its supply chain could lead to increased competition for oil supplies from other producers, potentially driving up global oil prices.

The tariffs on Canada and Mexico are part of a broader strategy to renegotiate the United States-Mexico-Canada Agreement (USMCA) and to address what Trump perceives as unfair trading practices. However, the tariffs could also raise sovereignty challenges for Canada and Mexico, potentially leading to diplomatic tensions. Canada and Mexico have already announced some measures to address Trump's accusations, but the tariffs remain a significant threat. If implemented, these tariffs could upend decades-long integration in North American trade, particularly around energy, resources, and manufacturing. This could lead to a shift in trade flows, with large volumes of Mexican crude that currently ship to the Gulf Coast directed to Europe and Asia. Coastal refiners could seek alternative sources of crude in the form of seaborne imports from both the Middle East – particularly Iraq – and Latin America, although US sanctions mean Venezuela isn’t currently an option.

In summary, the 25% tariff on countries purchasing Venezuelan oil is likely to increase costs for global buyers, disrupt oil trade dynamics, impact U.S. oil imports, trigger market volatility, and have significant geopolitical implications. These factors combined could reshape the global oil market and the pricing dynamics of crude oil, as well as U.S. relations with key trading partners. The coming months will be crucial in determining the full impact of these tariffs on global energy markets and geopolitical dynamics.