What would be the consequences for the United States of imposing an oil embargo on Venezuela?

Diplomatic relations between the United States and Venezuela have reached a new low because of the decision of President Donald Trump to recognize the opposition leader of the South American country as legitimate president. But both countries have a long history of oil interdependencewhich has lasted for years of political tension. Trump has long considered imposing sanctions that would block Venezuelan oil imports. This would significantly affect both countries.

What is the dependence of the United States on Venezuelan oil imports?

Venezuelan oil exports to the United States have steadily declined over the years, particularly over the past decade, when production has collapsed in the midst of a long economic and political crisis. The United States imported less than 500,000 barrels of oil and petroleum products per day in 2017, less than 1.2 million barrels per day in 2008., according to the Energy Information Administration (EIA).

"Venezuelan production has rapidly collapsed and many of its customers have already adapted to this declining supply, including in the United States," said Francisco Monaldi, Latin American energy policy researcher. at the Baker Institute of Rice University.

But Venezuela has always been the third or fourth supplier of crude oil to the United States and any interruption of imports would be costly. In fact, imports of Venezuelan crude oil to the Gulf of Mexico coast increased last summer, in part because of the contraction in the heavy oil market, according to a report by S & P Global Platts citing US Customs data. However, the long-term trend is to rely less on Venezuelan oil. Refineries on the east coast of the country have not imported Venezuelan crude since 2017, according to the S & P report.

The US government could reduce the impact by gradually limiting Venezuelan oil imports in a manner that reflects the trend that US refineries are already adjusting for a long time.said John Auers, executive vice president of Turner's refining consulting firm, Mason & Company.

In 2017, the last year for which data were available, Venezuela accounted for about 6% of US crude oil imports..

How would the United States replace Venezuela's oil?

Oil is not lacking in the world today, with a global supply that has hit a record last summer. The International Energy Agency said in September that the world's oil supply was reaching 100 million barrels a day for the first time in August, driven by increased production in the United States and several OPEC countries. A report released Thursday by the American Petroleum Institute said the United States had excess gas reserves "that could come close to binding levels" and would impose a further drop in gasoline prices.

But the supply is more limited for heavy oil, which the United States imports from Venezuela. Heavy crude oil production in Mexico is declining and, although supply is strong in Canada, it is difficult to ship this crude oil to refineries on the Gulf Coast.

"There are not enough oil pipelines to carry all the oil that the companies have produced," said Jim Burkhard, vice president of oil market research at IHS Markit.

The United States may have to import some of this heavy oil from the Middle East, which would increase transportation costs..

Which US companies would be most affected by an embargo?

Although refineries along the Gulf Coast are designed to handle heavy crude oil, they may spend more money to buy it elsewhere.. Valero and Citgo are two of the largest importers of Venezuelan crude.

Any sanctions would come at a time when the global market for heavy oil would be squeezed. The latest cuts in OPEC production have made it harder to supply heavy crude oil to Saudi Arabia.

"The heavy oil shortage on the Gulf Coast will drive up the price, and the fact that it has to be imported from places like Iraq makes the price a bit more expensive," said Monaldi.

The US professional badociation of fuel and petrochemical companies, which account for 95% of the refining sector, has been heavily mobilized over the past two years against any attempt to restrict Venezuelan oil imports. EIA data indicate that refineries on the Gulf Coast rely on Venezuelan heavy crude for about one-quarter of their imports.

Other highly oil-dependent industries may be affected. "Major oil companies, shale producers, will benefit a littlesaid Michael Lynch, president of Strategic Energy & Economic Research Inc. "Airlines and trucking companies will lose a bit because they will pay more for fuel"

Would the price of gasoline increase?

Consumers will not be hurt too much. A reduction in Venezuelan imports would push up refinery prices on the Gulf Coast, the market is sufficiently competitive to prevent producers from transferring a large portion of the costs to consumerssaid the experts.

How would the sanctions affect Venezuela?

Venezuela relies heavily on the United States for its oil revenues. The country sends 41% of its oil exports to the United States. In addition, US refineries are among the few customers who pay their oil in Venezuela. Indeed, Venezuelan oil shipments to China and Russia are often the repayment of billions of dollars in debt.

"Most of the money that the Venezuelan government receives comes from the US market, so they will have to find a way to ask the Chinese to give them money, otherwise they will run out of money. "said Monaldi.