Shipping is already dealing with the fallout from two wars: trade disruptions due to Russia’s invasion of Ukraine and ship attacks off Yemen in the wake of the Israel-Hamas conflict. But there could be a third simultaneous war – and even more trade complications for shipping.
Venezuela is threatening to invade Guyana and annex Guyana’s oil-rich Essequibo region, claiming that its jungle region and offshore areas were stolen from Venezuela in 1899. Essequibo comprises about two-thirds of Guyana.
Guyana has been a bright spot for crude tankers
Since the start of offshore production in 2019, crude exports have increased to 400,000 barrels per day (b/d), with volumes forecast to double by the end of 2025 and above 1 million b/d by 2027.
In the event that Venezuela decides to follow through on its threats to Guyana, oil production and exports from both countries will likely suffer. On the other hand, sanctions on Venezuela will be reimposed—and possibly strengthened—and international oil companies will move their assets out of Guyana, crippling the country’s production.
The invasion would reduce the exports of the Atlantic basin
The upside for tankers in OPEC’s production cuts is that these cuts are reducing Middle East to Asia volume, which is being replaced by Atlantic Basin to Asia volume. This increases tanker demand by ton-miles (volume multiplied by distance).
New oil production coming west of Suez.
We have seen Brazil increase production and new production coming out of Guyana. We’ve seen Venezuela’s exports rise, while OPEC cuts are also “good news for the US”.
In the Americas region, US exports have averaged 4 million b/d this year. The International Energy Agency estimates Brazil’s exports at 1.8 million b/d. Colombia is at 400,000 b/d, according to Colombian oil company Ecopetrol. Venezuela exports 300,000-400,000 b/d, according to Frontline.
To the extent that Atlantic basin exports are touted as positive for tanker demand in light of OPEC cuts, a Venezuela-Guyana conflict would be negative, potentially affecting around 11% of regional exports.
Neither Venezuela falls nor Guyana rises
The oil industries of Venezuela and Guyana are a state of contradictions.
Venezuela boasts one of the world’s largest oil reserves, but its industry is in dire straits after decades of mismanagement and corruption and—in recent years—ever-tightening sanctions. Current production in Venezuela is less than a third of 2009 levels.
On the opposite side, Guyana’s oil industry has been a success story that portends a bright future for Guyana. Current production is via two floating production, storage and offloading (FPSO) vessels, Liza Destiny and Liza Unity, with a third FPSO, Prosperity, now being ramped up. Production is managed by a consortium led by Exxon Mobil, with a 45% stake, along with partners Hess, with 30% and China’s CNOOC, with 25%. Hess is in the process of being acquired by Chevron. Guyana granted exploration rights to eight additional offshore blocks in October. Data from Vortexa shows that almost all of Guyana’s current exports remain within the Atlantic basin, with very little long haul to Asia, at least so far.
Top buyers are Panama, the Netherlands and the USA
The destination of Venezuela’s exports has changed significantly as a result of the temporary relaxation of US sanctions. Previously, most of Venezuela’s crude oil was shipped to China using tankers in the so-called “shadow fleet” – vessels outside the Western financial and insurance systems.
In recent months, with US sanctions temporarily suspended, the US has replaced China as the biggest buyer of Venezuelan crude oil.
Double negative for tanker demand
Venezuela’s exports will rise to 600,000-700,000 b/d if sanctions are not reinstated. Most likely most of this Venezuelan oil will be transported short distances on Aframaxes and possibly Suezmaxes in the US. (Aframaxes carry 750,000 barrels, Aframaxes 1 million barrels). But there is also an effect on demand for very large VLCC crude carriers, (tankers with a capacity of 2 million barrels). some of which are heading towards India. These are ships that are not then available for the US, so this will really boost the Atlantic market.
An invasion of Guyana by Venezuela would be a double negative for mainstream tanker demand. It would derail growing exports from Guyana and inevitably lead to renewed US sanctions, pushing Venezuelan carriers back into the shadow fleet. The caveat is that Venezuelan and Guyana exports are much less important to US crude tanker demand and Brazilian exports, so the downside would be limited. The potential maritime impact of a third simultaneous war would be far less significant than the consequences of the first two.
