China’s private refiners, already struggling with excess capacity and razor-thin profit margins, are now grappling with the latest challenge: a 25% tariff on Venezuelan oil and gas imposed by the Trump administration. This move adds to the economic pressures faced by China’s oil industry, which has long been closely tied to Venezuela through both commercial and political relationships.
For years, China has maintained strong connections with Venezuela, offering substantial financial support and becoming the country’s largest crude oil buyer. In February, China imported over 40% of Venezuela’s oil exports, reinforcing the deep economic ties between the two nations.
Most of Venezuela’s oil is purchased by China’s independent refineries, often referred to as “teapots,” located in the eastern Shandong province. These refineries process Venezuelan crude, such as the dense Merey grade, into various products, including fuel and bitumen for road paving and construction. In some cases, Venezuelan oil constitutes up to 20% of the feedstock at these refineries, according to estimates from Chinese analysts.
While the new tariffs are unlikely to cripple China’s oil industry entirely, they will drive up costs and limit supply for smaller refiners already dealing with sluggish domestic demand. Additionally, a structural shift away from oil consumption in transportation and ongoing US efforts to halt the flow of cheap, sanctioned crude from Iran add further strain.
Private refiners have already faced declining run rates and plant closures over the past year. “Like the US sanctions on Chinese teapots involved in the Iranian oil trade, Trump’s tariff aims primarily at Venezuela, seeking to sever its economic ties to the global market and push it into negotiations with the US,” said Muyu Xu, senior crude oil analyst at Kpler, a Singapore-based analytics firm.
Although enforcement of the 25% tariff will be difficult, industry insiders expect the flow of Venezuelan oil to continue. Traders anticipate an increase in workarounds, including ship-to-ship transfers in international waters. “The secondary tariff may be challenging to enforce, but licensed companies could be reluctant to handle Venezuelan crude,” Xu added. Despite this, China is unlikely to abandon its oil imports, especially since some of the shipments are tied to sovereign debt agreements backed by Beijing.
In 2019, China officially ceased imports of Venezuelan crude due to US sanctions but resumed in February 2024. However, it is widely believed that China never fully stopped buying, with Venezuelan oil sometimes disguised as bitumen mix to bypass sanctions.
Venezuela’s Merey crude is one of the cheapest oil grades globally, making it an attractive option for refineries that can process its thick, sulfur-heavy composition. However, with the added tariff risks, the cost-benefit calculation for Chinese buyers may change. As noted by Bloomberg Economics’ Chang Shu and David Qu, “The costs of heightened tariffs outweigh the modest advantages of cheaper energy from a small producer.”
China National Petroleum Corp. (CNPC), which started exploration projects in Venezuela in 1997, was a major buyer of Venezuelan crude until 2019. Meanwhile, India’s Reliance Industries Ltd. has continued to purchase Venezuelan oil under a waiver, with state-run refineries scaling back their involvement in recent months.
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