By Robert Harvey and Jeslyn Lerh
London — Oil prices rallied more than 1% on Wednesday after US President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela, raising global political tensions at a time of concern over demand.
Brent crude futures were up 81c, or 1.37%, at $59.73 a barrel at 2.14pm GMT, while US West Texas Intermediate crude was up 74c, or 1.34%, to $56.01 a barrel.
On Tuesday, Trump ordered a “blockade” of all sanctioned oil tankers entering and leaving Venezuela, adding that he regarded the country’s leadership as a foreign terrorist organisation. It marks Washington’s latest move to increase pressure on President Nicolás Maduro’s government, targeting its main source of income.
It is unclear how Trump will impose the move against the sanctioned vessels and whether he will turn to the US coast guard to interdict vessels in the same way he did last week. The administration has moved thousands of troops and nearly a dozen warships, including an aircraft carrier, to the region.
“For the theft of our assets, and many other reasons, including terrorism, drug smuggling and human trafficking, the Venezuelan regime has been designated a foreign terrorist organisation,” Trump wrote on Truth Social.
“Therefore, today I am ordering a total and complete blockade of all sanctioned oil tankers going into and out of Venezuela.”
In a statement, Venezuela’s government said it rejected Trump’s “grotesque threat”.
“Russian risks are well telegraphed, but there are clear risks to the Venezuelan oil supply,” ING analyst Warren Patterson said.
While many vessels picking up oil in Venezuela are under sanctions, others transporting the country’s oil and crude from Iran and Russia have not been sanctioned. Tankers chartered by Chevron are also carrying Venezuelan crude to the US under an authorisation previously granted by Washington.
“Venezuelan oil production accounts for around 1% of global output, but supplies are concentrated among a small group of buyers, mainly Chinese teapot refiners, the US, and Cuba,” said Muyu Xu, senior oil analyst at Kpler.
China’s foreign minister Wang Yi said on Wednesday after a phone call with Venezuelan foreign minister Yvan Gil that Beijing opposes “unilateral bullying” and supports countries in safeguarding their own sovereignty. China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its imports.
A large drop in US inventories also supported oil prices. Crude stocks fell by 9.3-million barrels last week, market sources said, citing American Petroleum Institute figures on Tuesday.
The fall, if confirmed by Energy Information Administration data later on Wednesday, is much higher than the 1.1-million-barrel drop analysts polled by Reuters had predicted.
Legal questions
American presidents have broad discretion to deploy US forces abroad, but Trump’s asserted blockade marks a new test of presidential authority, said international law scholar Elena Chachko of UC Berkeley Law School.
Blockades have traditionally been treated as permissible “instruments of war”, but only under strict conditions, Chachko said.
There has been an effective embargo in place after the US seized a sanctioned oil tanker off the coast of Venezuela last week, with loaded vessels carrying millions of barrels of oil staying in Venezuelan waters rather than risk seizure.
Since the seizure, Venezuelan crude exports have fallen sharply, a situation worsened by a cyberattack that knocked down state-run PDVSA’s administrative systems this week.
The oil market is presently well supplied and there are millions of barrels of oil on tankers off the coast of China waiting to offload. If the embargo stays in place for some time, the loss of nearly a million barrels a day of crude supply is likely to push oil prices higher.
Two US officials said the new policy, if implemented fully, could have a major impact on Maduro.
David Goldwyn, a former state department energy diplomat, said if Venezuela’s affected exports are not replaced by increased Opec spare capacity, the impact on oil prices could be in the range of $5 to $8 a barrel.
“I would expect inflation to skyrocket, and massive and immediate migration from Venezuela to neighbouring countries,” Goldwyn said.
Since the US imposed energy sanctions on Venezuela in 2019, traders and refiners buying Venezuelan oil have resorted to a “shadow fleet” of tankers that disguise their location and to vessels sanctioned for transporting Iranian or Russian oil.
As of last week, more than 30 of the 80 ships in Venezuelan waters or approaching the country were under US sanctions, according to data compiled by TankerTrackers.com.
Increased tensions
Trump’s pressure campaign on Maduro has included a ramped-up military presence in the region and more than two dozen military strikes on vessels in the Pacific Ocean and Caribbean Sea near Venezuela, which have killed at least 90 people.
Trump has also said US land strikes on the South American country will start soon.
Maduro has alleged the US military build-up is aimed at overthrowing him and gaining control of the Opec nation’s oil resources, which are the world’s largest crude reserves.
In wide-ranging interviews with Vanity Fair, Susie Wiles, Trump’s chief of staff, said Trump “wants to keep blowing up boats until Maduro cries uncle”.
The Pentagon and US coast guard referred questions to the White House.
Maduro, speaking on Tuesday before Trump’s post, said: “Imperialism and the fascist right want to colonise Venezuela to take over its wealth of oil, gas and gold among other minerals. We have sworn absolutely to defend our homeland and in Venezuela peace will triumph.”
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