Venezuela’s crisis poses India a challenge of oil diplomacy as it tries to secure its energy interests

Venezuela has long been a distant yet symbolically important pillar of India’s energy security framework. Actual Venezuelan crude-oil imports into India have been negligible of late, constrained as they are by US sanctions, under-investment and systemic decay.

Yet, the current turmoil is already affecting us—not through tankers arriving at our ports, but via shifts in market psychology and geopolitical signalling.

Global markets do not price commodities based on today’s supply alone, but also on the perceived risk of tomorrow’s disruptions. After the US ‘capture’ of Venezuela’s president Nicolás Maduro, global market prices have been largely stable, thanks to over-supply and the country’s low share of overall output, but an ‘uncertainty premium’ may start getting priced in should a power vacuum in Caracas threaten instability beyond Washington’s ability to contain.

For an economy like India’s, which is structurally sensitive to the slightest movement in the price of oil, expectations of volatility could result in inflationary pressures that its central bank may need to guard against, regardless of whether a single barrel of Venezuelan oil is imported. Thus, the ‘Venezuela factor’ could come to weigh on India’s fiscal arithmetic and monetary policy not through trade flows but expectations.

As of now, an air of anticipation surrounds India’s private energy sector. Major refiners such as Reliance and Nayara have invested in complex secondary processing units designed to handle heavy, sour crudes—the type extracted from Venezuela’s Orinoco Belt.

If the US pushes for India’s Russian oil imports to be replaced with Venezuelan supplies, Maduro’s ouster could open up more options for them. Markets seem to expect that a post-crisis Venezuela, stabilized under US oversight, will eventually re-enter global markets with discounted heavy crude to service its enormous sovereign debts.

Even without Venezuelan supply, the mere prospect of its return could act as a ‘shadow option’ for Indian refiners to use as psychological leverage for bargains with West Asian suppliers.

However, there is a counter-expectation too: the fear that Venezuelan energy infrastructure is so dilapidated that any recovery will take years to materialize. This creates a strategic split: Indian firms must balance the hope of a future windfall with an immediate need to diversify their sources of oil.

A shift in expectations is even more dramatic for India’s public sector companies. ONGC Videsh Ltd and Indian Oil Corp have large Venezuelan exposures, including unpaid dividends, stalled projects and assets written off as dead capital. That could change.

What was assumed to be a permanent loss is now being re-imagined as potentially recoverable via debt restructurings, equity swaps or renewed dividend flows. Equity markets are re-rating these companies not on current output, but on anticipated political outcomes in Caracas.

If a transition government honours legacy contracts, as it should, India would benefit. Strengthened balance sheets would allow these state-run companies to pursue domestic exploration and capital investment more aggressively. This would support expectations of India’s energy security even before a single rupee is realized. Such an economic ripple would be psychological but powerful.

Diplomatically, the Venezuela crisis is a litmus test for India’s ‘strategic autonomy.’ As the US asserts its authority over the Western Hemisphere, it might expect India, as a democratic partner in the Indo-Pacific, to align its energy diplomacy with its aims.

At the same time, Russia, China and much of the Global South expect India to uphold its traditional neutral stance. This clash of expectations reduces India’s room for manoeuvre.

If India is perceived as leaning too far in favour of a US-backed administration in Caracas, it risks alienating partners in the Brics+ framework; if it remains too detached, it may lose its ‘seat at the table’ when new Venezuelan oil concessions are distributed. In that case, the aforementioned anticipation of benefits could evaporate. New Delhi must therefore take complex considerations into account.

Perhaps the most subtle but undesirable impact would be an ‘expectation of abundance’ that an optimistic scenario working out might foster within Indian policy circles.

A pro-US Venezuela and repaired relations with Washington could lead to complacency over India’s green-energy transition. If we begin to count on an era of heavy crude supply from the Americas, the urgency to fund green hydrogen projects or accelerate electric-vehicle adoption might diminish. Any such ‘re-fossilization’ based on expectations could keep India’s economy tethered to hydrocarbons for longer.

Paradoxically, expectations of future oil security could undermine the diversification that true energy security requires.

Ultimately, the Venezuela shock teaches us that in a hyper-connected world, significant shifts can take place in the minds of policymakers and investors long before they manifest at the pump. Managing these expectations and balancing hopes of gains against the reality of uncertainty is today’s central challenge for Indian statecraft.

The author is professor, economics and executive director, Centre for Family Business & Entrepreneurship at Bhavan’s SPJIMR.