Donald Trump’s announcement of a “total and complete blockade” of sanctioned oil tankers travelling to and from Venezuela has raised questions about the economic consequences for the regime of leftist president Nicolas Maduro.
Trump has made oil a central target in his ongoing campaign against Maduro, which was sparked by the US president’s claims that Maduro was to blame for the illegal flow of both migrants and drugs to the US from Venezuela.
The fragile Venezuelan economy is exceptionally dependent on oil. If Trump’s blockade threat turns out to be more than just words, it would have significant implications for Caracas.
What exactly has Trump threatened?
In a Truth Social post on Tuesday (Dec. 16), Trump said Venezuela “is completely surrounded by the largest Armada ever assembled in the History of South America” before saying he was ordering the blockade.
Since late August, the US has been setting up a major naval build-up across the Caribbean Sea — one of the largest US naval deployments in the region since the so-called Cuban missile crisis in 1962.
Up to a dozen US military vessels have been operating in the Caribbean in recent weeks, including aircraft carriers, guided-missile destroyers and amphibious assault ships.
How a blockade will work
A naval blockade is a military operation where warships encircle a specific coastline with a view to prevent maritime traffic from entering or leaving.
Trump’s threat specifies “all sanctioned oil tankers going into, and out of, Venezuela.”
Last week, US forces seized an oil tanker off the coast of Venezuela. US Attorney General Pam Bondi said the tanker had been transporting sanctioned oil from Venezuela and Iran. Caracas decried the seizure as an act of “international piracy.”
If successfully and fully implemented, the naval blockade threatened by Trump would dramatically reduce the amount of oil coming out of Venezuela. However, it is not yet clear exactly which tankers would be affected or precisely how a blockade would be carried out.
As is often the case with Trump’s social media pledges, there are also legal doubts. Elena Chachko, an international law scholar from UC Berkeley Law School in the US, told news agency Reuters that a blockade would raise “serious questions on both the domestic law front and international law front.”
While Venezuela’s state oil company, PDVSA, is heavily sanctioned and many vessels which pick up oil there are specifically sanctioned, others which transport oil from the country are not. US oil giant Chevron, for example, was given special licences by the Biden administration in 2022 to resume Venezuelan oil exports. The idea at the time was that softening Venezuelan sanctions would ease wider oil market pressures in the wake of Russia’s invasion of Ukraine.
But in October this year, the Trump administration gave Chevron fresh authorization to produce oil in Venezuela argueing the US company was a vital partner for Caracas.
How US sanction already hit
Venezuela is almost completely dependent on oil for state income. Crude oil and related products such as petrochemicals account for more than 90% of Venezuela’s export revenues. They keep Maduro’s heavily sanctioned and isolated government functioning and in power.
Experts say that if there were more cargo seizures, or if Trump were to follow through on the blockade, much of Venezuela’s oil would remain in the country, while that which makes its way out would likely be sold at a steep discount.
There is already evidence that the recent seizure of a Venezuelan tanker by US forces and the threat of further measures is having an impact.
According to data analytics firm S&P Global Commodities Insights, the number of oil tankers travelling to Venezuela has fallen sharply over the past few weeks. The London, UK-based firm said in a report on Tuesday that as of the week starting December 14, there were 17 tankers sailing to or around Venezuelan waters. That’s down from 24 vessels a month earlier.
The S&P report also noted that several sanctioned vessels currently “appear to be turning away” from Venezuelan waters and the broader Caribbean Sea following the US seizure of the tanker and subsequent sanction announcements.
On December 11, the US sanctioned six shipping companies and six tankers which operated regularly in Venezuela’s oil sector, with more sanctions likely in the coming weeks.
Could the Venezuelan economy handle the damage?
Given the level of crisis the Venezuelan economy has endured over the past decade, few can predict what fresh depths it could reach without impacting Maduro’s grip on power.
The country’s oil output has already been in decline in recent years as a result of sanctions, corruption and economic mismanagement. Venezuela has the world’s largest deposit of known oil reserves but has increasingly struggled to maximize revenues from it.
During the rule of Maduro’s predecessor, late Hugo Chavez, oil prices and revenues soared but they have fallen dramatically for more than a decade. Whereas Caracas once pulled in more than $100 billion (€85.6 billion) a year from oil, the figure is now closer to $20 billion.
According to the International Monetary Fund (IMF), Venezuela’s economy endured “the single largest economic collapse for a non-conflict country in almost half a century,” in the period since Maduro took office in April 2013.
What about global oil markets?
Although oil prices jumped by more than 1% on Wednesday, most analysts say Trump’s blockade threat on Venezuelan output has a limited impact on global markets.
“Overall, export volumes from Venezuela are relatively small in the global supply share. With all eyes on the Russia-Ukraine discussions, the market is still under downside risk,” one oil trader told Reuters.
Muyu Xu, senior oil analyst at Brussles-based data analytics firm Kpler, told Reuters that while Venezuelan oil production accounts for around 1% of global production, “most of it is concentrated on a small pool of Chinese buyers, and others in the US and Cuba.”
There are already expectations that the global oil market will face oversupply next year.
Saad Rahim, chief economist of commodity-trading giant, Trafigura, told the Financial Times earlier this month that the oil market will face a “super glut” as a burst of new supply collides with weakness in the global economy, and weighing on already falling prices for crude oil in 2026.
Edited by: Uwe Hessler
