By Güney Yıldız
Venezuelan President Nicolas Maduro was detained by US special forces in Caracas early in the morning of January 3. After a few hours, the tankers in the Caribbean began to change course. By noon, the difference in price between diesel and crude seemed to be "opening up". The market is not afraid of a global supply crisis, but of a big cut in crude production. And that says it all. Venezuela consumes less than 1% of the world's oil, but the Merey 16 quality powers refineries that cannot easily switch to other oil.
The US military operation raises serious questions about the violation of International Law. Washington's critics speak of violations of the use of force as provided for in the United Nations Charter, with the relevant discussions reminding... 2003 and the invasion of Iraq. The US intervention may worsen its relationship with Latin American states, increase migration flows from Venezuela and test the alliances of Moscow and Beijing. These geopolitical shifts may overshadow the short-term consequences on the market. However, the energy issue remains of paramount importance, as any disruptions in oil supply will put a strain on an already volatile environment.
China exposed on three fronts
The first front is financial: According to a survey by AidData, the outstanding capital from the Development Bank of China's "oil versus loans" program amounts to $17-19 billion. This is the largest commodity-backed position from a single country (Venezuela) in Beijing's portfolio, out of $60 billion that have been granted since 2007.
The second front is the operational one: Independent refining companies in the Chinese province of Shandong have set up coke plants specifically for Venezuela's heavy crude, a type of oil that is traded at a high discount because buyers from the West do not "touch" it.
The third front is strategic: Washington has shown that it is willing to use its forces to bring shocks in the supply chain from America to China.
Chevron's consortia continue to operate under a new special license from the Venezuelan Ministry of Finance. According to Reuters, exports from Venezuela to the US were around 150.000 barrels per day in November 2025. Valero and Marathon have priority in these barrels. The risk for China is simple: every barrel from Venezuela that reaches U.S. shores is a barrel that Beijing needs to replace from a more limited market and at a normal price.
The problem of raw material
Managers of Shandong's refineries face an immediate problem: Where will they replenish the lost barrels?
According to Reuters, Venezuela's exports reached about 921,000 barrels per day in November 2025, with China absorbing about 80% of production (about 746,000 barrels per day). These barrels arrived via Malaysia or through renaming practices aimed at concealing the origin of the crude. In the past, Reuters has revealed how traders renamed cargo from Venezuela to "Brazilian" to bypass trans-shipment stages.
This path seems more difficult today than it did at the end of 2025. U.S. threats to impose sanctions on entities involved in this process are an obstacle.
There are only substitutes. Not because Venezuela is unique, but because the "substitutes" have limitations due to the quality of the crude, the cost of transportation and the pipelines/tankers used.
Merey is heavy slow. The Merey Western Canadian Select is heavy and acidic. WCS Mexican Maya is also heavy and acidic. The problem with prices is that discount rates are variable. And they change quickly depending on transportation costs, refinery operation, and penalties. It's safer to think in terms of the regime: barrels from sanctioned Venezuela are usually sold at a significant discount to Brent and U.S. crude. Any attempt to set a narrow price range (e.g. $10-13 cheaper than Brent) should be considered a short-term solution and certainly not a fixed one.
Heavy Canadian oil through the Trans Mountain pipeline extension is a potential option for trading. If Chinese refiners bid more aggressively on Canadian cargo, the cost of raw materials is likely to rise and supply may be limited for American competitors, who also need heavy crude.
In short, Valero and Dongming Petrochemical are now competing for the same Canadian cargoes. And someone will pay more.
China's Credit Report
The Development Bank of China's (CDB) report on Venezuela looks more like a structural impairment risk than a trade loss.
According to an analysis by CSIS, CDB has provided loans worth more than $60 billion. Since 2007, with future oil shipments guaranteed and not government guarantees. The model worked when Venezuela produced 2.4 million barrels per day, but collapsed when production fell to 350,000 barrels per day in 2020, before recovering to around 900,000-1.1 million barrels per day by the end of 2025, according to OPEC data.
CDB gave grace periods, accepted delayed shipments of cargo, and renewed capital. The outstanding balance stabilized at €17-19 billion based on estimates that are no longer valid. The Stimson Center notes that Beijing agreed to repeatedly postpone Caracas' payments as its ability to repay loans decreased.
A transitional government in Venezuela can invoke the doctrine of odious debt and not comply with China's demands.
Recovery scenarios
Scenario A (45%): Realistic compromise. Beijing is discreetly working with the transitional government and redirecting demand toward Canadian and Iraqi grades of oil. Economic losses are absorbed and trade relations are maintained.
Scenario B (35%): Prolonged confrontation. Beijing refuses to recognize the transitional government and is trying to continue oil imports from Venezuela by renaming the crude country. The US is imposing secondary sanctions against Chinese banks that process payments from Venezuela. Eliminating profit margins within 6-9 months.
Scenario C (20%): Collapse of Venezuela. The transitional government is failing, the military cliques are fragmenting, production is falling below 600,000 barrels per day. Neither the recovery of the Chinese debt nor the American reconstruction succeeds. Heavy acid oil has been out of the world market for years.
Assessment of the conditions
Shandong's independent companies built their profit margin based on the arbitrage of sanctions, buying oil from Venezuela at a large discount. This model seems increasingly difficult to maintain. Dongming, Hengli, and other similar companies are seeing their profit margin squeeze. Some will not survive the transition.
The state-owned companies Sinopec and CNPC deliberately kept their distance from their overexposure in Venezuela. Scholars describe the phenomenon that China has created for itself as a "lender trap". Now state-owned companies are being pressured to absorb the deficits of private companies, which means that state balance sheets subsidize the impasse in which private companies have found themselves.
The Development Bank of China must choose between devaluing its portfolio (telling Ecuador, Pakistan and other borrowers that commodity-backed loans cannot survive regime change) and an indefinite extension in loan repayments. Neither option looks appealing.
Beijing's leadership has condemned American intervention, but economic stability is needed. The escalation of tensions with Washington on behalf of Venezuela leads to secondary sanctions targeting Chinese bank dollars. Realism requires adaptation and calmness, even if this contradicts what is said in public.
