Are Trump's threats on Venezuelan oil aimed at China?

Even though the latest salvo in US President Donald Trump’s tariff war appears to target Venezuela, the real aim appears to be at China.

Trump on Monday announced that any country purchasing oil and gas from Venezuela will face 25 per cent tariff on top of any existing tariffs on any trade they do with the United States. He said the tarrif will come into effect on April 2.

As the largest buyer of Venezuela’s oil, China is set to be hit hardest with the 25 per cent tariff. In two tranches, Trump has already imposed 20 per cent tariff on China on top of sector-specific tariffs imposed previously by the Joe Biden administration.

Oil prices rose by around 1 per cent in the hours after Trump’s announcement.

Trump kills 2 birds with 1 stone

Trump’s tariff on Venezuelan oil is not just expected to slash the country’s exports but add to the woes of its principal trading partner China.

For decades, China has had close ties to the Venezuela, whose authoritarian leaders in recent decades —firstly Hugo Chavez (1992-2014) and then Nicolas Maduro (2013-)— have presided over the economic ruin of the country and its international isolation. China is the largest buyer of Venezuelan oil.

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Last month, China purchased around 55 per cent of Venezuela’s entire oil export, according to Reuters.

These Chinese companies have already been plagued by excess capacity and razor-thing margins for a long time. Trump’s tariff is a latest blow to their operations.

A host of Chinese companies import Venezuelan crude and process it into bitumen used in road-making in China and abroad. For some companies and construction manufacturers, Venezuelan imports make up up to a fifth of all supplies, according to analysts cited by Bloomberg.

Any halt in supplies or switch to expensive supplies elsewhere is bound to erode the already thin margins of these companies and reduce Chinese profits in the construction sector that now operates across the globe thanks to President Xi Jinping’s Belt and Road Initiative (BRI).

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Other major purchasers of Venezuelan oil include Spain, Italy, and Cuba. Despite sanctions, Venezuela is the fourth-largest foreign supplier of oil to the United States. However, that may be about to end as the only US company operating in Venezuela and allowed to import Venezuelan oil, Chevron, has been given a deadline till May 27 to cease these operations and imports.

Venezeula’s woes to worsen

Under Maduro’s decadelong rule, Venezuela’s GDP has fallen by nearly 75 per cent despite the country having largest proven oil reserves in the world.

Gross corruption, political repression, a string of poor economic decisions, such as excessive public spending and nationalisation of industries, and sanctions for the country’s alliance with Russia, China, and Iran, have led to a socioeconomic crisis where millions of people flee the country every year.

Currently, the country is also battered by hyperinflation and a worsening energy crisis amid a hot summer summer. The condition is such that Maduro’s regime has cut working hours in public offices as part of electricity rationing.

Moreover, oil remains Venezuela’s major export. As the largest buyer, China, is certain to seek alternatives in the wake of Trump’s tariffs, the country’s already-battered economy is set to suffer more.