The U.S. had imposed sanctions on Venezuela’s oil company on January 28. This has set off a domino effect.
Though it has collapsed the economy of Venezuela, it has affected the U.S. economy too.
Venezuela was the fourth largest importer of crude oil from the U.S. But with the sanctions, the U.S. has lost a valuable customer. Similarly, the Gulf Coast in the U.S. has many refineries that depended on Venezuela for heavy crude, but with the imports cut off, the refineries in the U.S. are seeking other alternatives.
Heavy crude is priced lower than light crude as it is much cheaper. But the demand for heavy crude has increased with sanctions imposed on Venezuela, especially from the refineries in the U.S. Gulf Coast. This growing demand has made the price of heavy crude shoot up.
The U.S. refineries Chevron, Valero and Citgo require huge quantities of heavy crude from Venezuela to mix with the light crude that is abundantly available in the shale oilfields in the U.S. With this, they are able to produce diesel, gasoline and jet fuel. But with the sanctions, the supply of heavy crude has been cut short and alternate supply is becoming more expensive for the U.S refineries.
In turn, the economy of Venezuela which depends on its oil exports for revenue is suddenly affected by the sanction. It depended on heavy crude exports for 90 percent of its revenue. The Oil Minister Manuel Quevedo is now reaching out to India, expecting India to import from Venezuela.
Venezuela is facing deep financial crisis. Families are unable to meet their daily supplies. Starvation, unemployment, and confusion prevail, with its main source of income cut off.
Production of oil in 2015 was at 2.4 million barrels a day. But currently, only 1.34 million barrels per day is produced, says data from Rystad Energy research firm.
Now, the price of Brent crude is rising.