The hard economic reality of oil will sabotage President Donald Trump's efforts to funnel U.S. crude oil and Venezuelan crude into India, as part of an overall trade agreement.

Details of the deal, which was announced by President Trump and Indian Prime minister Narendra Modi after lengthy and often tense talks are still scarce. In the agreement, the U.S. reduced its tariffs on Indian imports to 18%, from 25%, while Modi agreed to purchase?more than 500 billion dollars worth of U.S. agricultural, energy, technology and other products. Trump announced the deal in a post to social media. India, which is the third largest oil importer in the world, has also agreed to stop buying Russian oil and buy "much" more oil from the U.S., and possibly Venezuela, Trump said.

Two key White House goals appear to be advanced by the trade agreement.

First, the administration is looking to revive Venezuela's oil sector after Washington took control of the country’s crumbling industry following the U.S. takeover of President Nicolas Maduro. Trump wants to increase pressure on Moscow to squeeze Russian crude from Asia, which is one of its last major markets, after Western sanctions were imposed against the country for exports that fund Russia's conflict in Ukraine.

The deal shows Trump's willingness to use geopolitical power and intervene in the markets to achieve his strategic goals. But he may find that the markets don't want to play ball.

VENEZUELA OIL LIMITS The U.S. and the interim Venezuelan Government have taken several measures to revive the country's dilapidated oil sector. These steps include agreeing on the sale of up to 50,000,000 barrels Venezuela crude to U.S. refining companies, changing the hydrocarbon laws in order to attract foreign investments and easing some sanctions against Caracas’s oil exports. Asia may initially seem like a natural partner for this endeavor. China was responsible for more than half of Venezuelan crude exports in the past year, as independent refiners sucked up the oil at a steep discount due to U.S. sanction. India, a former major buyer, only stopped its purchases when Trump imposed a 25% tax on countries that bought Venezuelan oil in March.

Venezuelan crude will not dominate Asia's refining system anytime soon, despite Trumps latest efforts. This is especially true for India.

Venezuelan production is still limited to around 900,000.00 barrels per day. It will take many months, or even years, for it to recover. Shipping data revealed that exports increased to 800,000 barrels per day in January, up from 498,000 in December. This was after Maduro had been captured and an oil blockade ended. Exports must continue to rise for the state-run PDVSA to be able to reduce millions of barrels in storage, and to fully restore earlier production cuts.

But the bigger problem is economics. Venezuelan oil only appealed to Asian buyers due to its sanctions, and the steep discounts it offered.

The buyers of Venezuelan heavy crude balked when they were offered to Asia at a discount of $5 per barrel compared to Brent futures. The traders said that the discount was not sufficient to make heavy sulfurous crude competitive against other grades.

Asia will remain a marginal marketplace for Caracas unless Venezuela dramatically increases its production to the point where U.S. refining companies cannot absorb the surplus volumes, forcing Venezuelan producers offer greater discounts. India will also not be a major purchaser of U.S. crude oil any time soon. Last year, India's price-sensitive customers bought an average of 320,000 bpd U.S. crude oil. This is the equivalent of $7.5 billion. It is not possible to increase that amount significantly due to the higher costs of freight and the fact that the U.S. Government has little control over the market dynamics.

ABRUPT CHANGES

India, which was the largest buyer of Russian oil after the invasion of Ukraine in 2022, reduced its purchases after Trump increased tariffs on Indian imports to 50% in August, to pressurize New Delhi to reduce its Russian oil purchasing.

The U.S. sanctioned Russia's two largest oil companies in October, Rosneft, and Lukoil. And the European Union imposed new restrictions on fuels made from Russian crude.

As part of the trade agreement, the White House announced on Monday that the U.S. would drop the additional 25% tariff.

Kpler data shows that India imported more than one fifth of its total imports in January, 1.2 million barrels per day of Russian crude.

Indian officials indicated that purchases could drop further. January's imports were significantly lower than 2025 averages of 1.7m bpd.

The Russian flow to India is unlikely to stop despite the trade agreement. The price incentives simply are too strong.

According to calculations, Russian oil today is being sold at a discount over $20 compared to Brent, which is the biggest markdown since April 20, 2023.

Refiners in India who serve the domestic market, however, may find it difficult to resist these steep discounts.

New Delhi could also decide to resist U.S. pressure in order to lower the domestic fuel price, which is a priority for all governments facing political and economical constraints.

In the end, economics will win out. The U.S. could have significant economic and political influence on partners like India. Trump may have significant political and economic influence over partners such as India, but that does not mean he can control crude oil flows at his whim in an extremely liquid and transparent global market for oil.

Prices, not political directives will determine the fate of Russian and Venezuelan barrels.

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(source: Reuters)