Venezuela’s oil shake-up could go either way for India

The unfolding crisis in Venezuela draws into sharp relief a less-recognized feature of the modern global economy: the movement of expectations often matters more than that of physical goods.

- TULSI JAYAKUMAR

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 oversupply 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.