Energy security today is no longer just about prices. It is about control—who produces oil, who sells it, and on what terms. When oil was abundant, Venezuela barely mattered. Under sanctions and global supply stress, it suddenly does.
This is not merely a story of Venezuela’s domestic collapse. It marks the return of power politics to oil. Venezuela holds the world’s largest proven crude reserves—about 303 billion barrels, nearly 18% of global reserves—more than Saudi Arabia and Iran. Yet production has fallen from over 3 million barrels per day in the late 1990s to barely 0.9–1.1 million barrels per day today, less than 1% of global output. The oil exists, but access does not. Years of sanctions, weak governance, ageing infrastructure, and underinvestment have kept vast reserves underground.
Sanctions pushed Caracas closer to Beijing. Between 2007 and 2016, China extended more than $60 billion in oil-backed loans, tying Venezuela to a narrow set of non-Western partners and reshaping its geopolitical alignment. Beneath the visible economic crisis lies a deeper struggle over who will shape the next phase of global energy power.
Official reason and strategic reality
The United States frames its pressure on Venezuela around democracy, human rights, and regional stability. Yet three strategic interests stand out.
First, oil control. Sanctions weakened Venezuela but redirected its crude toward non-Western buyers, especially China, often at discounted and long-term terms. A political reset allows Washington to influence who buys Venezuelan oil and under what conditions.
Second, currency power. Venezuela gradually moved away from dollar-based oil trade, routing payments through Chinese banks and non-cash mechanisms. Each such shift weakened the dollar’s role in energy markets. Reintegrating Venezuelan oil into dollar pricing strengthens America’s financial leverage.
Third, China’s energy security. Venezuela offered Beijing a major oil source beyond US influence. Limiting that access increases China’s long-term energy vulnerability.
Venezuelan oil and US-China energy bargaining
As Western firms withdrew, China stayed. From 2007 onward, oil became the backbone of the relationship. Over the next decade, China emerged as Venezuela’s largest oil buyer—absorbing nearly 65–70% of its exports—and its most important creditor. Much of the $60 billion in loans was repaid through oil shipments rather than cash, bypassing Western banks and relying on Chinese financial channels.
For China, the gains were significant: reduced reliance on Middle Eastern oil, lower exposure to US-controlled sea routes, and greater influence in global energy markets. For Venezuela, China was not just a buyer but a lifeline.
This is why recent US action matters. Disrupting Venezuela’s oil ties with China is not simply about regional pressure; it is about rolling back a decade of energy and financial integration beyond dollar dominance. Venezuela has become a pivot point in the contest over who will shape the future rules of global energy trade.
Markets have reacted accordingly. In the short term, prices respond more to risk than to physical shortages. Even though Venezuela supplies less than 1% of global oil, uncertainty raises insurance costs and futures premiums. Brent crude rose about 1% after recent US action—signalling geopolitical anxiety rather than supply loss.
In the medium term, if Venezuelan oil re-enters markets under US-approved systems, supply could rise modestly and ease prices. But this stability comes at a strategic cost: it reinforces the dollar-based energy system underpinning American financial power. China feels the pressure most. Before tighter restrictions, it was receiving roughly 746,000 barrels per day from Venezuela. Disrupted flows force Beijing back toward dollar-priced Middle Eastern oil or costlier alternatives, raising import costs and weakening energy security.
Petrodollar power and China’s dilemma
At the core of the Venezuela crisis lies a contest not just over oil, but over money. Around 80% of global oil trade is still conducted in U.S. dollars, sustaining global demand for the currency and giving Washington immense financial influence.
Sanctions pushed much of Venezuela’s oil into non-dollar arrangements, particularly with China. These deals did not overturn the petrodollar system, but they showed that alternatives were possible under geopolitical pressure. If Venezuelan oil now returns under dollar pricing and U.S. oversight, the petrodollar receives a clear boost.
For China, the options are narrowing. Russia is its largest supplier, but sanctions and logistics limit expansion. Turning to the Middle East means accepting dollar pricing and Western financial networks—precisely what Beijing has sought to diversify away from. Strategic petroleum reserves, estimated at about 1.2–1.3 billion barrels, provide only short-term cushioning, not long-term security.
The result is a shift from politically flexible, discounted supply toward systems where pricing, currency, and logistics are shaped by others. That shift explains why Venezuela matters far beyond its current output.
India’s position: Insulated, not immune
India appears largely insulated from Venezuela—and to a degree, it is. Venezuelan crude accounted for about 6.7% of India’s oil imports in FY2018, but by FY2026 this fell to around 0.3% due to sanctions. Venezuela is no longer a meaningful supplier, even though a few Indian firms retain legacy stakes.
But insulation is not immunity. India still imports over 80% of its crude oil. Any sustained rise in global oil prices feeds quickly into inflation, the current account deficit, and fiscal pressures. Beyond prices, the episode tests India’s strategic autonomy in a world shaped by sanctions, currency blocs, and energy leverage.
India faces a choice. One path is to remain a price-taker—reacting to shocks and accepting decisions made elsewhere. The alternative is pragmatic leadership: diversifying suppliers, securing long-term contracts and storage, accelerating renewables, and managing currency exposure without locking into any single bloc.
Seen from New Delhi, Venezuela is not a distant crisis. It is a reminder that modern power increasingly flows through control of energy and finance. India’s direct exposure may be limited, but how it prepares will determine whether it remains a cautious observer—or emerges as an independent player in the next global energy order.
--The authors; Srishti Gupta is assistant professor, Tata Chair Unit, Institute of Economic Growth, Delhi, India; and Roshan Soni is MA Economics (F), Delhi School of Economics, University of Delhi. The views are personal.