According to analysts, a recently approved Chinese tax could deal a severe economic blow to the Nicolás Maduro regime by nearly doubling the cost of importing the oil that Venezuela sells in violation of US sanctions.
The Chinese government plans to begin collecting the $30 to $40 per barrel tax on June 12 as an environmental measure to penalize private refineries’ imports of the dirty and extra heavy so-called bitumen mix, which is primarily sold by Iran, Canada, and Venezuela.
But, of the three, Venezuela would be the hardest hit by the tax, because private Chinese refineries are the final destination for the bitumen oil that is sold in defiance of US sanctions with the help of third parties.
Analysts say the new tax threatens to leave Maduro without a market to sell his oil products, despite the fact that those sales account for the lion’s share of the oil income that the Venezuelan socialist regime still receives after sanctions cut off the country’s access to traditional markets.
“If they don’t manage to fix the problem, the impact will be catastrophic because we are talking about all the Venezuelan oil that is being exported. Except for the small amount that is going to Cuba, the rest of the Venezuelan oil is practically going to China,” said Francisco Monaldi, Rice University fellow in Latin American energy policy.
The announcement of the tax, which came from China, a traditional ally of the Caracas regime, caught many oil traders off guard. The measure could remove up to 350,000 barrels per day of Venezuelan crude from the market, which was being mixed with other products in Malaysia in an attempt to conceal its Venezuelan origins before being shipped to China.
While the measure was announced as an environmental provision, many traders are skeptical that this is the true motivation for the measure. “The most important thing here is to understand the true motivation behind the tax, because if the motivation is to harm independent refiners while benefiting Chinese state-owned enterprises, that’s one thing. But if it is intended to punish Venezuela because the Chinese government is concerned about what the US government might do — because the Chinese know that the oil that goes to Malaysia ends up in China — that would be very serious for Maduro, because it means that the Chinese have no real incentive to solve the problem,” Monaldi said.
For years, China has been a major creditor to Venezuela’s regime, providing more than $54 billion in loans in recent years, more than a third of which the South American country still owes. However, the regime has failed to fulfill its commitments because it is engulfed in the worst economic crisis in its history and is isolated by economic sanctions imposed by the US and other countries.
“Venezuela has not been a good ally, whereas China has. Venezuela has not paid China its enormous debt, nor have they even attempted to get to a point where they can begin to service the debt,” said Russ Dallen, president of the investment firm Caracas Capital.
Due to the risk of buyers acquiring crude sanctioned by US authorities, the Venezuelan regime has been offering steep discounts on the crude it sells under the table. At a time when the benchmark Brent crude is close to $68 per barrel, the Venezuelan bitumen mix is available for $40 to $45.
Dallen stated that, despite the recent spike in crude prices, Venezuela may still be able to find buyers if it offers even greater discounts, but the proposal is always accompanied by the possibility that the buyer will be punished for violating the sanctions. The tax would exacerbate the regime’s already precarious financial situation, which has seen its oil revenues plummet since the Trump administration sanctioned state-owned Petróleos de Venezuela in January 2019.
So far, Maduro has resisted the impact of the sanctions, but the situation is putting a lot of pressure on the regime, according to Antonio De La Cruz, executive director of the firm Inter American Trends.
