The recent capture of Venezuelan President Nicolas Maduro by U.S. forces has thrown the future of Venezuela's vast oil reserves into uncertainty, raising concerns about the potential impact on global crude oil prices and, consequently, India's economy.
Venezuela holds the world's largest proven oil reserves, estimated at over 300 billion barrels, accounting for approximately 17% of global reserves. However, due to a combination of U.S. sanctions, economic crises, and underinvestment, its production has been significantly constrained. Output had fallen to around 1 million barrels per day, a fraction of its potential.
Impact on Crude Oil Prices
The immediate impact on international oil prices is expected to be muted, given that the oil market is currently well-supplied and global demand is relatively subdued. The recent U.S. blockade and seizure of Venezuelan oil tankers had no significant impact on prices. Experts don't anticipate any major spike in the near term.
However, the long-term outlook remains uncertain. If the U.S. can effectively control Venezuela's oil industry, increased Venezuelan oil flow could exert downward pressure on prices. Conversely, any disruptions to production or exports could lead to price volatility, especially if geopolitical tensions escalate. Some experts believe the U.S. involvement is to ensure the safety of the petro dollar regime.
India's Economy: Limited Direct Impact
India appears to be relatively insulated from any immediate direct impact. Indian refiners currently do not import Venezuelan crude. Moreover, with a well-supplied market, any upward pressure on international oil prices is expected to be limited.
However, India, the world's third-largest consumer of crude oil and dependent on imports for over 88% of its needs, remains vulnerable to price fluctuations. Higher oil prices could increase the import bill, potentially impacting inflation and the country's fiscal deficit.
Potential Upsides for India
There is a potential upside for India if the U.S. and Venezuela can negotiate an easing or suspension of sanctions. This could reopen doors for Venezuelan oil to flow into the international market, including to India.
Before the imposition of U.S. sanctions in 2019, India, specifically Reliance Industries, was a regular buyer of Venezuelan crude. In 2019, Venezuela was India's fifth-largest oil supplier. In late 2023, there was a brief period when India emerged as the top buyer of Venezuelan crude. An easing of sanctions could also allow ONGC Videsh to recover dividends from its investments in Venezuelan oil and gas projects and create opportunities for further Indian investment in the sector.
GTRI's Assessment
The Global Trade Research Initiative (GTRI) asserts that the ongoing crisis is unlikely to have a significant economic or energy impact on India. Trade between the two countries has shrunk significantly due to U.S. sanctions. In 2024-25, India's crude oil imports from Venezuela were $255.3 million, a sharp drop from $1.4 billion in 2023-24. Given the low trade volumes, existing sanctions, and geographical distance, the GTRI believes the developments in Venezuela are not expected to have any meaningful impact on India's economy or energy security.
Conclusion
While the immediate impact of the U.S.-Venezuela conflict on crude oil prices and India's economy appears limited, the situation remains fluid. The future of Venezuelan oil production and exports will depend on the evolving political landscape and U.S. policy. India needs to remain vigilant and diversify its energy sources to mitigate potential risks associated with geopolitical instability.
