President Donald Trump’s push to channel US and Venezuelan crude oil into India as part of a broad trade deal will run up against the hard reality of global oil economics.
The US president and Indian Prime Minister Narendra Modi on Monday announced the trade deal following lengthy and often tense negotiations, though details remain limited. Under the deal, the US cut its tariff on imports of Indian goods to 18 per cent from 25 per cent while Modi committed to buy more than $500 billion-worth of US energy, technology, agricultural and other products, Trump said in a social media post.
India, the world's third-biggest oil importer, also agreed to stop buying Russian oil and to buy “much more” oil from the US and potentially Venezuela, Trump said.
The trade deal appears to advance two key White House objectives.
First, the administration wants to revitalize Venezuela’s oil industry after Washington took effective control of the country’s crumbling oil sector, following the US seizure of President Nicolas Maduro last month. Second, Trump aims to tighten pressure on Moscow by squeezing Russian crude out of Asia, one of the country’s last major markets after Western sanctions were imposed on its exports that help to fund Russia's war in Ukraine.
The deal thus underscores Trump’s readiness to intervene in markets and use US geopolitical muscle to pursue his strategic goals - but the president may find that markets won't play ball.
The US and the interim Venezuelan government have taken several steps towards reviving the country's dilapidated energy sector. Those steps include agreeing to sell up to 50 million barrels of Venezuela crude, mostly to US refiners; changing the country's hydrocarbon laws to attract foreign investment; and easing some sanctions on Caracas’s oil exports.
Asia might initially appear to be a natural partner in this endeavour. China accounted for over half of Venezuela's crude exports last year as independent refiners mopped up the heavily discounted oil facing US sanctions. India, previously a major buyer, only cut off its purchases after Trump in March imposed a 25 per cent tariff on countries buying Venezuelan oil.
But despite Trump’s latest effort, Venezuelan crude is unlikely to play a dominant role in Asia’s refinery system any time soon – particularly India’s.
For one thing, Venezuelan production remains limited at around 900,000 barrels per day (bpd) and will take months, if not years, to recover.
Exports jumped to about 800,000 bpd in January from 498,000 bpd in December, shipping data showed, after Maduro's capture and the end of an oil blockade. But state-run energy company PDVSA's partners and traders would need to keep exports rising to draw down millions of barrels still in storage and fully reverse earlier output cuts.
The bigger issue, however, is simple economics. Venezuelan oil was only attractive to Asian buyers because it was sanctioned – and thus sold at steep discounts.
When several cargoes of heavy-grade Venezuelan crude were recently offered to Asia buyers at a $5 per barrel discount to global benchmark Brent futures, the buyers balked. Traders said the markdown was not enough to make the heavy sulfurous crude competitive with other grades.
Unless Venezuela sharply ramps up its output to the point that US refiners cannot absorb the excess volumes, leading Venezuelan producers to offer larger discounts, Asia will likely remain a marginal market for Caracas.
India is also unlikely to be a major buyer of US oil anytime soon. The country's price-sensitive buyers purchased an average of only 320,000 bpd of US oil last year, the equivalent of around $7.5 billion.
Significantly increasing that appears unfeasible due to higher freight costs and the reality that the US government has limited power over market dynamics.
India, the top buyer of discounted Russian crude after the 2022 invasion of Ukraine, pared back its purchases after Trump doubled duties on imports from India to 50 per cent in August to pressure New Delhi to curb its Russian oil buying.
This was compounded by US sanctions on Russia’s top two oil companies, Rosneft and Lukoil, in October, and the European Union's new restrictions on fuels produced from Russian crude.
The White House said on Monday that as part of the trade deal, the US will drop the additional 25 per cent tariff.
Yet India still imported 1.2 million bpd of Russian crude in January, over one-fifth of its total imports, according to Kpler data.
January's imports are significantly lower than the 2025 average of 1.7 million bpd, and Indian officials have indicated purchases could drop further.
Despite the trade deal, Russian flows to India are unlikely to disappear. The price incentives are simply too powerful.
Russian oil is today being offered at a discount of over $20 to Brent, the steepest markdown since April 2023, according to Reuters calculations.
While Indian refiners heavily dependent on exports to Europe, such as Reliance Industries’ Jamnagar complex, are unlikely to resume large Russian purchases because of EU rules, refiners serving India’s domestic market may find it increasingly difficult to resist such steep discounts.
New Delhi could also choose to push back against US pressure to help lower domestic fuel prices, a priority for any government facing political and economic constraints.
Ultimately, economics should prevail. The US may wield significant political and economic influence over partners such as India. But that doesn’t mean Trump can steer crude flows at will in a highly liquid, transparent global oil market.
Price signals, not political directives, will determine where Russian and Venezuelan barrels end up.
(Ron Bousso Editing by Marguerita Choy)
