Introduction to the Crisis
The announcement of a "total and complete blockade" of sanctioned oil tankers traveling to and from Venezuela by Donald Trump has raised questions about the economic consequences for the regime of left-wing President Nicolas Maduro. Trump has made oil a central target of his ongoing campaign against Maduro, sparked by the US president’s claims that Maduro is responsible for the illegal flow of migrants and drugs from Venezuela into the US.
The Fragile Venezuelan Economy
The fragile Venezuelan economy is particularly dependent on oil. If it turns out that Trump’s blockade threat is more than just words, it would have a significant impact on Caracas. Maduro’s powerful international backers, including Russia, China, and Iran, have repeatedly offered lifelines against international pressure.
What Exactly Did Trump Threaten?
In a recent post, Trump said Venezuela was "completely surrounded by the largest armada ever assembled in the history of South America" before declaring he was ordering the blockade. Since late August, the U.S. has mounted a major naval deployment in the Caribbean Sea – one of the largest U.S. naval deployments in the region since the so-called Cuban Missile Crisis in 1962. Up to a dozen US military ships 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 in which warships circle a specific coastline to prevent maritime traffic from entering or leaving. Trump’s threat names "all sanctioned oil tankers entering and leaving Venezuela." Last week, US forces seized an oil tanker off the coast of Venezuela. US Attorney General said the tanker was carrying sanctioned oil from Venezuela and Iran. Caracas condemned the seizure as an act of “international piracy.”
Impact on Oil Production
If successfully and fully implemented, the naval blockade threatened by Trump would drastically reduce the amount of oil produced from Venezuela. However, it is not yet clear which tankers exactly would be affected and exactly how a blockade would be carried out. As is often the case with Trump’s social media promises, there are also legal doubts. An international law scholar told Reuters that a blockade would raise "serious questions on both the domestic and international law fronts."
US Sanctions and Their Impact
Venezuela is almost entirely dependent on oil for its government revenue. Crude oil and related products such as petrochemicals account for more than 90% of Venezuela’s export revenue. They ensure that Maduro’s heavily sanctioned and isolated government remains functional and in power. Experts believe that if there were more cargo seizures or Trump enforced the blockade, much of Venezuela’s oil would remain in the country, while what comes out would likely be sold at a significant discount.
The Effect on Global Oil Markets
Although oil prices rose more than 1% on Wednesday, most analysts say Trump’s threat to block Venezuelan production is having a limited impact on global markets. "Overall, export volumes from Venezuela are relatively low in global supply. With all eyes on the Russia-Ukraine discussions, there is still downside risk for the market," an oil trader told Reuters. There are already expectations that the global oil market will face oversupply next year. A chief economist at commodity trading giant Trafigura said the oil market would face a "super glut" as a surge in new supply collides with weakness in the global economy and weighs on already falling crude oil prices in 2026.
Can the Venezuelan Economy Absorb the Damage?
Given the scale of the crisis that the Venezuelan economy has endured over the last decade, few can predict what new dimensions it could reach without endangering Maduro’s grip on power. The country’s oil production has already declined in recent years due to sanctions, corruption, and economic mismanagement. Venezuela has the world’s largest known oil reserves but is increasingly struggling to maximize revenue from them. Oil prices and revenues soared during the rule of Maduro’s predecessor, the late Hugo Chávez, but they have fallen dramatically for more than a decade. While Caracas once earned more than $100 billion per year from oil, today it is closer to $20 billion. According to the International Monetary Fund (IMF), Venezuela’s economy has experienced "the largest economic collapse of a non-conflict country in almost half a century" since Maduro took office in April 2013.
