Venezuela's oil unlikely to lift global oil supplies anytime soon

New Delhi: The US intervention in Venezuela is unlikely to immediately increase crude oil supplies for global and Indian refiners, given the prolonged production decline in the sanctions-hit Latin American country, according to sector experts.

“Venezuela is currently producing only about 0.8% of global oil output, even as it holds around 18% of global oil reserves,” said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, Icra Ltd. “Investment in the oil industry and ramping up production could take years but may eventually lead to significantly higher supplies, easing global oil markets.”

India, which imported around 400,000 barrels per day of Venezuelan crude before sanctions were imposed in 2020, currently procures a negligible quantity from the country. While Venezuela’s viscous and heavy crude is expected to re-enter global markets at a discount to benchmark Brent and WTI, there is limited refining capability for such grades in India.

"A stabilization of Venezuela's oil sector could allow limited volumes of discounted heavy crude to re-enter India's import mix, primarily benefiting complex refineries,” said Sumit Ritolia, lead research analyst, refining, supply and modelling at Kpler. “Venezuelan crude is predominantly heavy to extra-heavy and can be processed on a sustained basis by only a handful of Indian refineries, constraining system-wide intake. Any impact is likely to be incremental and dependent on sanctions policy and the pace of production recovery."

Renewed access to Venezuelan crude would still offer strategic benefits, said Ritolia. It could improve feedstock optionality, enhance procurement flexibility, and strengthen India’s negotiating leverage with other suppliers, even if actual volumes remain restricted to a few refiners capable of handling heavy crude, he said.

However, according to Icra's Vasisht, “Venezuelan crudes are heavy and sour, making them cheaper. Any lifting of sanctions could open an avenue for Indian refiners to buy lower-cost crude, many of whom are capable of processing such grades.”

Choice Institutional Equities said in a report that cheaper Venezuelan barrels, priced at a discount to Brent, could enable Indian refiners to generate higher gross refining margins.

However, the outlook will largely depend on how smoothly the US manages the political transition and enhances production, according to an executive at an Indian refinery. Years of underinvestment and low output have severely affected crude productivity in Venezuela, despite the country holding the world’s largest proven oil reserves.

Queries emailed to Indian Oil Corp. Ltd, Bharat Petroleum Corp., Hindustan Petroleum Corp. and Reliance Industries remained unanswered till press time.

Indian investments stuck

In a post-midnight operation on Saturday, the US bombed multiple facilities in Caracas, captured President Nicolás Maduro, and flew him to the US, in a dramatic culmination of years of confrontation over alleged drug trafficking and electoral subversion. Trump said US forces had conducted a “large-scale strike” and captured Maduro and his wife, Cilia Flores.

The US intervention in Venezuela has added uncertainty for New Delhi, which has energy investments and millions of dollars in unpaid dividends stuck in the country.

Earlier, Mint reported that a possible easing of sanctions after the US intervention could, over time, restore India’s access to Venezuela’s vast oil reserves and about $600 million in unpaid dividends. India’s state-run firms had invested around $2.5 billion in Venezuela before US sanctions were imposed in 2020.

India on Sunday expressed “deep concern” over the developments in Venezuela, reaffirming its support for the well-being and safety of the Venezuelan people.

The turn of events in Caracas will determine the fate of India’s multi-billion-dollar investments and hefty dividends.

ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corp. Ltd (ONGC), faces both risks and potential upside. It has owned a 40% stake in Venezuela’s San Cristobal oilfield since 2008, with state-owned PDVSA holding the rest. US sanctions squeezed production at San Cristobal and blocked the repatriation of dividends. New Delhi’s efforts to secure a sanctions waiver or receive oil in lieu of dollars have failed so far.

Separately, OVL has partnered with Indian Oil Corp. and Oil India Ltd to invest $2.2 billion in the Carabobo-1 project, where production has also suffered following the US sanctions.

"A significant increase in output from Venezuela remains limited due to years of underinvestment by the state-owned oil producing firm PDVSA. In a best-case scenario, the output could increase by 150kbd during 2026, wherein only operational expenditure would be required rather than capital expenditure," said Choice Institutional Equities.

Further increase in output would only come from the next calendar year, provided oil companies make significant investments, it said.

“Indian upstream players may benefit as the access to equipment and investments could be granted and subsequently output could be increased from the fields of San Cristobal and Carabobo-1, wherein Indian firms jointly operate with PDVSA,” it said.

Oil may drop further

Meanwhile, SBI Research has projected a fall in oil prices this year. In a report on Monday, it said crude prices are expected to touch $50 a barrel by June 2026. At the time of writing the story, the February contract of Brent on the Intercontinental Exchange was trading at $61.39 a barrel, higher by 1.17% from its previous close.

India imports about 88% of its oil requirement, accounting for about 25% of the country’s import bill. A $1 per barrel hike in prices raises the total import bill by ₹13,000 crore.

India’s trade with Venezuela is now small and declining. In FY25, India’s total imports from Venezuela stood at $364.5 million, with crude oil accounting for $255.3 million, marking an 81.3% fall from $1.4 billion in crude imports in FY24. India’s exports to Venezuela were modest at $95.3 million, led mainly by pharmaceutical shipments worth $41.4 million.