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Does Washington’s Global War Against China’s Oil Suppliers Stand Any Chance of Success?

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Does it make any sense? Among the White House demands of Venezuela is that it “kick out” China and sever economic ties.

The Financial Times declares that “Donald Trump’s Venezuela action raises threat for China’s oil supplies.” As even Seymour Hersh reports:

Their bluster and crude language transfixed the world’s media, but they also diverted attention from an opportunistic Trump plan whose goal was not only to unseat the corrupt President Nicolás Maduro, but also, crucially, to cut off China, America’s economic rival, from its ongoing purchases of Venezuela’s cheap heavy crude oil. 

Okay, but there’s a problem.

China Does Not Rely on Venezuelan Oil 

While the mainstream media has mostly ignored this fact, it is clear:

China was the major buyer of crude from Venezuela, but those shipments made up only 4 per cent of China’s oil imports last year. Caracas did, however, provide a high-sulphur crude that’s used to produce bitumen, which is used for construction and road building, and Beijing was getting it at a steep discount thanks to U.S. sanctions on Venezuela sales. According to The Business Times, Beijing has plenty of that sludgy oil in reserve:

… a hoard of sanctioned crude in floating storage will cushion Chinese buyers in the coming months. Almost 82 million barrels is currently on tankers in waters off China and Malaysia, according to data intelligence firm Kpler. More than a quarter is Venezuelan and the rest is Iranian, it said. 

China could take a small hit from the US move in Venezuela. In September, China Concord Resources Corp. (CCRC) installed a self-elevating offshore oil platform in Lake Maracaibo. From Venezuelanalysis:

The privately-owned China Concord secured a 20-year deal to run the Lago Cinco and Lagunillas Lago oilfields and will reportedly invest US $1 billion with the goal of raising production from the present 12,000 barrels per day (bpd) to 60,000 bpd by the end of 2026.

Chinese oil majors Sinopec and China National Petroleum also have legacy claims to develop Venezuelan oil reserves, but that appears unlikely if the US has its way. Still, let’s look at the makeup of Chinese oil imports, courtesy of the Financial Times:

As the Times notes, those imports from Malaysia are believed to be mostly Iranian crude in a route to circumvent US sanctions. And following the kidnapping of Venezuelan President Nicolas Maduro, the American Zionists are now back focused on Tehran. Hersh also reported the obvious:

 The next target, I have been told, will be Iran, another purveyor to China whose crude oil reserves are the world’s fourth largest.

And yet even if Washington and Israel are finally able to topple the government there, it would likely just drive Beijing and Moscow even closer together. Let’s look at how that energy relationship continues to evolve ever since Washington embarked on its grand plan topple the government in Moscow. First on natural gas. From Amwaj:

Following the September summit of Chinese, Mongolian and Russian leaders in Beijing, Russia’s Gazprom and China National Petroleum Company (CNPC) agreed to launch the Power of Siberia-2 (PoS-2). The pipeline is designed to deliver up to 50B cubic meters (cm) of gas annually to China. Although no firm timeline is set, the project is expected to go online after 2030–31.

China and Russia also decided to expand flows through existing gas pipelines. By 2028, the capacity of Power of Siberia-1 will rise from 38B to 44B cm. Meanwhile, the Far Eastern route—expected to enter service in 2027—will transfer 12B cm of gas, up from 10B. Moscow additionally plans to ramp up liquified gas exports to China via the new Arctic LNG-2 project and the existing Sakhalin-2 plant.

Despite western sanctions on Russia, China began receiving Arctic LNG-2 cargo in late August, becoming the sole major customer of the project and thereby effectively keeping it alive. 

Notably, Beijing is expanding imports from Russia despite analysts’ assessment that existing contracts will likely cover the country’s needs over the next decade. It’s almost as if Beijing knows there’s a plan afoot to cut off its supplies and so is leaning on its most reliable and geographically convenient partner.

And it’s doing the same with oil.

Even if the US knocks out other suppliers and American pirates control most of the world’s seas blocking a huge chunk of the oil trade, disrupting that “dragonbear” hydrocarbon supply chain is a whole different game than Venezuela and Iran, as the years-long unsuccessful Project Ukraine has shown.

But is there more at play than simply cutting supply to China. As Nick Corbishley pointed out Friday, even the most American-friendly states in Latin America are having a difficult time severing their relationship with China. Not even the US can do that. So what did Washington achieve on this front—if anything?

Grand Industrial Planners or Spoiled Destructive Children?

Despite all the talk of the oil and mineral bonanza in Venezuela, there are still loads of roadblocks, and someone will have to point to a recent example of the US successfully building anything.

Morlock offers some important reminders, including:

Do you seriously believe that Trump, along with his Palantir Technologies cronies, are about to become industrial planners? That without invasion, without regime change, without national reconstruction, they’ll somehow negotiate a $200 billion, 15-year industrial oil expansion in a country whose infrastructure has been deliberately strangled for a decade?

This is a pipe dream of pipe dreams.

What’s actually lined up for Venezuela is not extraction, but asset stripping.  The firms positioned to “re-enter” Venezuela are overwhelmingly financial, not productive. Asset managers like BlackRock are positioned to absorb distressed sovereign and PDVSA-linked debt, restructure it, and turn future production into collateral streams rather than national revenue. U.S. and European oil majors are waiting not to build capacity but for production-sharing agreements, arbitration rulings, and debt-for-equity swaps that cap output and guarantee rents. Sanctions relief is used as leverage not to expand capacity, but to discipline the state and force Venezuela into IMF-style restructuring, privatization, and legal subordination to Western capital markets.  They want the Chinese to pay for this oil in dollars, a minor nuisance for Xi, a silly ploy for the western rentier oligarchs. 

China reportedly holds roughly $19–20 billion in loans to Venezuela tied to “oil-for-loan” deals. That’s not much, but also won’t set a great precedent if Caracas defaults on the debt and ends resource exports to China.

‘Control’ Over Existing Production in Western Hemisphere?

While oil majors are reluctant to jump into Venezuela, what about existing production in the Western Hemisphere?

Javier Blas writes at Bloomberg of the US exerting control over all the oil production of countries—from Canada to Argentina— living under the “Donroe Doctrine.” That’s nearly 40 percent of the world’s oil output.

Now Blas assumes the US can control this vast territory, but seeing Canada as a vassal state and the rightward, US-friendly turn of much of Latin America, could he be right—at least on the oil front?

President Donald Trump now has his very own oil empire. And I’m talking about actual barrels already flowing into the market, not underground reserves that would take time and money to be developed1. With such resources Trump has an economic and geopolitical lever no US president has had since Franklin D. Roosevelt in the 1940s. At home and nearby, his country can tap a vast sea of oil. The implications of getting unfettered access to Venezuela’s reserves, the world’s largest, were immediately apparent to anyone in the energy and commodities business, particularly American foes. Oleg Deripaska, a US-sanctioned Russian oligarch, put it well on Saturday: Washington would have the means to keep the oil price close to $50 a barrel — giving it a winning hand in the future against anyone threatening to push the price higher by curbing supply. The Kremlin envoy Kirill Dmitriev said seizing power in Venezuela offered “huge leverage” over the global energy market. Having de facto control of the Western Hemisphere’s petroleum wealth is a geopolitical game changer. For decades, US military adventurism was constrained by the impact of any war on energy costs. Today the White House has primacy over oil-producing allies and adversaries alike — whether it’s Saudi Arabia or Iran, Nigeria or Russia. The past 18 months have already shown what these new hydrocarbon riches mean for US foreign policy. Trump’s administration has taken once unthinkable steps: from bombing Iranian nuclear facilities to helping Ukraine target Russian oil refineries.

There is also talk that in the more immediate future the larger effect from the move against Venezuela could be in neighboring Guyana:

And there’s the ol’ ‘swingman’ argument:

But what of China’s role as a “swingman”? As Kevin Walmsley notes:

China is very well-insulated from any supply-side shocks for oil, no matter where from.

This is a surprising situation now, for economists and experts in the oil market. China is the world’s biggest importer of crude oil, and the world’s biggest consumer of oil. The traditional thinking – until recently — is that it is the oil suppliers, like OPEC+, who determine the global price for oil, and that big importers, like China, are price takers in the market. Now, if the market faces oversupply, it would be OPEC members who would be price takers, temporarily, until they can push production down to balance supply and demand again.

But a new development has scrambled all that convention wisdom: China’s enormous — and still growing — oil storage industry. That is putting a floor on the global prices—Chinese buy when oil prices fall enough, and stash the surplus into their tanks. But there is also a ceiling on price—if prices rise, China will just reduce imports or draw down inventories until prices fall again.

Where does it leave us? It sounds a lot like an inverted strategy against Russia. Rather than stopping Moscow’s ability to sell, Washington is now after Beijing’s ability to buy. The real danger for Beijing—and for the rest of the world— is not that the US is likely to succeed; it is that a newly emboldened Washington believes it can threaten, topple, smash, and grab whoever it wants wherever it wants. And it treats the world as a game of Risk.

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2 comments

  1. Michaelmas

    This is a good analysis as far as drawing in almost all the relevant threads, including neighboring Guyana where GDP has grown by some 30 percent each of the last two years after the discovery of the offshore oilfield there.

    What it leaves out of the equation is this—

    Trump says he will visit Beijing in April and host China’s Xi for a state visit later next year
    https://apnews.com/article/trump-xi-china-taiwan-aab2ec36f55abc9e98d91a5f0d133a92

    Current thinking in China is that Trump wants as much leverage as he can get right now in the short term to reach a grand agreement analogous to the Nixon-Mao summit 55 years ago which set the global power balance in the US’s favor for the following 40 years. Trump’s aim at this Trump-Xi summit is to do that for the next 40 years.

    And yes, as Conor’s OP notes, the Chinese could reset their oil imports to make up the loss of S. America oil imports with increased Russian imports. But there’s a debate now in China as to whether it wants to make itself that strategically dependent on Russia going forward.

    Pragmatically, then, Xi and China could take the option of playing along with an agreement which lets Trump return from China claiming that China has acceded in whatever degree to Trump and the US’s terms in the knowledge that, firstly, no such agreement is in the long term worth the paper it’s written on if it’s not advantageous to both sides and, secondly, US decline is baked in at this point.

    Conversely, though, part of what Trump and the US want is for China to acknowledge No 2 pole position behind the US as the No. 1 global hegemon and also to resume buying US treasury debt — which is now over $38 trillion — in the quantities China formerly did. (Because, honestly, who else can buy enough of it at this point?)

    Does China need to accept that? What’s the best strategy to handle this dangerous, declining (and frankly racist, in the Chinese view) hegemon, the USA?

    A big complicating factor is that — as Conor also notes — China believes that, immediately following April and this Trump-Xi summit — where Trump intends to have settled US-China hegemonic relations for the next few decades in the US favor — Trump and the US will then pivot to Iran to settle the disposition of the Middle East as US-Israel wish to have it in the coming decades.

    Furthermore, Washington and Israel understand that attacking Iran will likely mean that it then close downs oil exports from the Middle East, possibly for years if it attacks and destroys its neighbor’s oil fields. Indeed, they’re planning for it. Europe currently gets roughly 10–15% of its crude oil from the Middle East, for instance. The world’s biggest oil exporter is already the US and, going forward, it intends to control the fifth of proven global oil reserves in South and Central America. So the US will then be able to demand whatever it wants to ask for oil going to the EU….

    And so on.

    You may believe this Trump-US strategy is nutso in its narcissistic grandiosity and has too many moving parts not to fail. But, honestly, it’s no more nutso grandiose that the preceding US plan under the neocons to disassemble Russia and cannibalize its resources in order to recollateralize US and the ‘West’s’ capitalist order. That was Plan A , if you like (to put on my inner Alastair Crooke), and the current Trump-US plan is Plan B.

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