After Russia, Venezuela's crude oil will now become a weapon for India, this is how it will benefit

According to commodity data and ship-tracking company Kpler, if US sanctions are lifted, India could resume large-scale crude oil purchases from Venezuela. This could result in imports of approximately 100,000 to 150,000 barrels of oil daily. 

Following recent discussions of a shift in the US stance on Venezuelan President Nicolas Maduro, there are hopes of stability in the country's oil sector. Venezuela has the world's largest oil reserves. 

Experts say this situation could be beneficial for India in the medium to long term. Sumit Ritolia, lead analyst for refining and research at Kpler, said that this could reintroduce Venezuelan heavy crude oil into India's imports, particularly benefiting complex refineries.

Complex refineries, like Reliance Industries' Jamnagar refinery, can convert heavy crude oil into more useful fuels and petrochemicals. In contrast, simple refineries designed for light crude oil have limited capacity. 

According to Kpler, if political stability returns and new investments are made, Venezuela's oil production could gradually improve. This would increase India's oil purchasing options and improve the profitability of complex refineries.

Buying oil from Venezuela

Venezuela was once a major supplier of crude oil to India. In FY18, it accounted for 6.7% of India's total oil imports. According to data from Rubix Data Sciences, Venezuela consistently ranked among India's top six oil suppliers from FY18 to FY20, with its share ranging between 5.9% and 6.7%. 

In terms of value, oil imports from Venezuela increased to $7.2 billion in FY19, highlighting its significant role in India's energy strategy.

This situation for India comes at a time when it is already facing heavy US tariffs on the purchase of cheap Russian crude oil. According to Kpler, if the proposed 500% US tariffs on countries buying Russian oil are implemented, it could completely change the way oil is purchased. 

From a crude oil source perspective, improved Venezuelan exports will be positive for India, although not all refineries will benefit equally, Ritolia said.

India will benefit

Furthermore, Venezuelan crude oil provides India with a politically acceptable alternative amid ongoing scrutiny of Russian oil. It also supports India's larger energy security goal. 

According to Ritolia, increased Venezuelan oil imports will also increase India's bargaining power with Middle Eastern suppliers, even if actual purchases are limited to a few refineries.

Venezuelan heavy and ultra-heavy crude oil is not suitable for all Indian refineries. Previously, it was mostly processed at Reliance's Jamnagar refinery and Nayara Energy's Vadinar refinery. 

Both refineries are equipped to handle high-sulfur and heavy oil. Ritolia explained that IOC's Paradip refinery, MRPL, and HPCL-Mittal Energy have also occasionally processed limited quantities of Venezuelan oil, but currently, most government refineries lack the adequate facilities to process such heavy and acidic oil on a large scale.

Will oil be available at a discount?

Although Indian refineries can purchase oil from the Middle East and the United States, the transportation costs of these oil sources are high, resulting in lower profits. 

Therefore, Venezuelan crude is expected to enter the market at a discount, making it more attractive to refineries that are well-suited. Ritolia said this will increase oil purchasing options, provide flexibility, and strengthen India's bargaining power with other suppliers.

Investments underway to enhance the complexity of some refineries, including Visakhapatnam, could increase India's capacity to process Venezuelan heavy crude in the future. Until then, new supplies from Venezuela will be limited primarily to a few select Indian refineries, according to Kpler.

Oil production will increase

According to S&P Global Energy, Venezuela's oil production could increase if sanctions are lifted. However, billions of dollars in new investment would be needed to increase production to 1.5 million barrels per day in the next 12 to 24 months, which is about 500,000 barrels per day more than the current level.

This also has significant implications for India's upstream holdings. ONGC Videsh Limited (OVL) holds a 40% stake in Venezuela's San Cristobal onshore field and an 11% stake, along with IOC and Oil India, in the Carabobo-1 heavy oil project in the Orinoco Belt. 

Sanctions, low investment, and payment difficulties have left these projects underutilized for a long time, resulting in pending dividend and outstanding payments.

There will be benefit here

According to Kpler, if a stable environment is established under US supervision, the redevelopment of these fields could be possible. This would clear cash flow and allow for the recovery of outstanding amounts. 

While some risks remain regarding contract terms and administration, Venezuela needs capital, technology, and long-term buyers. This suggests that Indian companies' participation may remain rather than dwindle. 

Venezuela's share of India's crude oil imports has declined sharply since FY21. According to Rubix, its share fell to 1.1% in FY21, and imports reached zero in FY22 and FY23. This reflects the impact of US sanctions, which have increased transaction risks and costs.

FY24 saw some relief, with Venezuela's share rising to 0.6% ($802 million) following the partial easing of US sanctions at the end of 2023. 

However, this declined again to 0.3% in the April-October period, with imports falling to $255 million, and Venezuela slipping to 18th place among India's suppliers. This clearly indicates that shipments to India are once again limited and intermittent.