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 were announced by President Trump and Indian Prime Minister Narendra Modi on Monday, but there are still few. 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 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, agreed to stop purchasing Russian oil, and instead buy more oil from the U.S., and possibly Venezuela.

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 seized control of Venezuela's crumbling industry following its seizure by the United States of President Nicolas Maduro in the last month. 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.

THE LIMITS OF VENEZUELA OIL The U.S. government and interim Venezuelan leadership have taken several measures to revive the country's deteriorating energy sector. These steps include agreeing on the sale of up to 50,000,000 barrels Venezuelan crude oil, mostly to U.S. refining companies; changing the country’s hydrocarbon laws to attract foreign investments; and relaxing some sanctions against Caracas’s oil exports. Asia may initially seem like a natural partner for this endeavor. China accounted last year for more than half of Venezuelan crude exports as independent refiners snatched up the oil at a heavily discounted price due to U.S. sanction. India, a former major buyer, cut off its purchases only after Trump insisted on a 25% tariff for countries purchasing Venezuelan oil.

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 barrels of oil per day. It will take many months, or even years, for the country to reach its previous levels. 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. The state-run PDVSA and its partners would have to "keep exports increasing" to remove the millions of barrels that are still stored and to fully reverse previous output 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 balked when several cargoes containing heavy-grade Venezuelan oil were offered at a discount of $5 per barrel compared to the global benchmark 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. refiners are unable to absorb the excess volume, leading Venezuelan manufacturers to 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 barrels per day of U.S. oil. This is equivalent to around $7.5 billion. It is not possible to increase that by a significant amount due to the higher costs of freight and the fact that the U.S. Government has limited control over the market dynamics.

ABRUPT CHANGES

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

The U.S. sanctions against Russia's two largest oil companies, Rosneft, and Lukoil in October and the European Union’s new restrictions for fuels made from Russian crude have compounded this situation.

As part of the deal, the U.S. will eliminate the 25% additional tariff.

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

Indian officials have indicated that the purchase could fall further. January's imports were significantly below the 2025 average 1.7 million bpd.

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

Calculations show that Russian oil today is being sold at a discount of over $20 compared to Brent. This is the biggest markdown since April 20,23.

Refiners that serve India's domestic market, however, may find it difficult to resist these steep discounts.

New Delhi may also decide to resist the pressure from the United States to lower domestic fuel costs, which is a priority for all governments facing political and financial 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)