India ambassador to the United States has announced his country is halting oil imports from Venezuela, potentially dealing a death blow to the finances of the embattled regime of Nicolas Maduro.
Venezuela currently exports an average of about 250,000 barrels of oil per day to India, accounting for 35% of its exports, experts say. Since U.S. sanctions were imposed of Venezuela’s state oil company, PDVSA, in late January, Maduro has been looking to boost oil sales to India to recoup for the loss of sales to U.S. refineries.
“Sanctions and their indirect effects are certainly having an impact,” noted Sergi Lanau, deputy chief economist at the Institute of International Finance (IIF), a global association of the financial industry based in Washington DC.
The announcement by Indian Ambassador Harsh Shringla at a Thursday press conference came on the heels of Wednesday's landslide re-election of Indian Prime Minister Narendra Modi. India has already stopped importing oil from Iran in order to comply with the US sanctions on Tehran over its nuclear program.
Shringla said that New Delhi wants to shift its trade policies more towards the United States and away from Russia, including its large defense budget, according to the Hindu Times. India is the world’s second-largest arms importer and fifth-largest economy and has close ties to Russia, including oil and weapons deals.
Venezuelan Oil Minister Manuel Quevedo told reporters in February during a trip to India that the oil rich South American nation wanted to double sales to India, and was considering barter payment arrangements with India to evade U.S. sanctions.
The U.S. government on Jan. 28 issued its toughest sanctions yet against PDVSA, barring companies based in Venezuela and U.S. subsidiaries from transferring proceeds of oil sales to PDVSA’s bank accounts until democratic elections are held.
Russia’s Rosneft buys Venezuelan oil for its Essar refinery in India, which it purchased in 2016. However, it remains unclear if the Indian ambassador was referring to all imports of Venezuelan crude, including Rosneft’s purchases. The Indian embassy did not immediately answer a request for comment. Rosneft's offices were closed for the weekend.
India relies on energy imports from Iran and Venezuela and has expressed concern that U.S. sanctions would result in higher oil prices, potentially causing inflation that could severely impact the 25% of its population that lives in poverty. With a total population of 1.4 billion, India is the second most inhabited country in the world.
Shringla told reporters that diversifying India’s oil supply will cost more and the country was working to mitigate impact of the move, Bloomberg reported.
While the ambassador referred to imports being halted after May 3, industry experts said ship tracking data show shipments headed to India since then, according to Russ Dalen, managing director of Caracas Capital, a Venezuela-based boutique investment bank.
Some oil tankers were already at sea at the time of the cancellation of purchases and those won't be turned back, the ambassador said, according to Bloomberg. "In terms of new contracts, we're not doing those," he said.