Venezuelan Oil Discounts Deepen Amid Sanctions and Regional Tensions

Asian buyers demand steep discounts on Venezuelan crude due to competition from sanctioned Russian and Iranian oil. Despite increasing exports, PDVSA struggles with low prices and geopolitical pressures. China's oil imports from Venezuela have surged, as PDVSA faces challenges with shipping costs and military threats.

Oil buyers in Asia are pushing for substantial discounts on Venezuelan crude. They cite a surge in sanctioned oil from Russia and Iran, combined with increased risks in loading oil from Venezuela due to the bolstered U.S. military presence in the Caribbean, according to traders and industry insiders.

Venezuela's state-run oil company, PDVSA, has increased exports this year, outpacing 2024 levels despite escalating U.S. sanctions. The U.S. Navy has targeted vessels in the Caribbean suspected of drug smuggling but has not yet hindered Venezuelan oil tankers. Nevertheless, President Trump's administration has suggested expanding military operations to land-based targets, adding to risks for PDVSA.

Asian markets, particularly China, find themselves inundated with competing sanctioned crude supplies. As a result, PDVSA has slashed prices to remain competitive, offering deep discounts on its Merey heavy crude. Meanwhile, shipping contracts have become more expensive due to 'war clauses' that account for potential military conflicts, forcing PDVSA to accommodate higher freight costs with further discounts.