Trump orders blockade of sanctioned oil tankers entering, leaving Venezuela

U.S. President Donald Trump on Tuesday stateside designated Venezuelan government a “terrorist” organization and ordered a “complete and total” blockade of sanctioned oil tankers moving in and out of the country.

In a post on Truth Social, Trump said “Venezuela is completely surrounded by the largest Armada ever assembled in the History of South America.”

“For the theft of our Assets, and many other reasons, including Terrorism, Drug Smuggling, and Human Trafficking, the Venezuelan Regime has been designated a FOREIGN TERRORIST ORGANIZATION. Therefore, today, I am ordering A TOTAL AND COMPLETE BLOCKADE OF ALL SANCTIONED OIL TANKERS going into, and out of, Venezuela,” Trump said. 

He added, “It [the blockade] will only get bigger, and the shock to them will be like nothing they have ever seen before — Until such time as they return to the United States of America all of the Oil, Land, and other Assets that they previously stole from us.”

According to the U.S. State Department, the designating an entity as a “Foreign Terrorist Organization” makes it illegal for any U.S. citizen to knowingly provide “material support or resources” to such an organization, among other measures.

Andy Lipow, president of Lipow Oil Associates, told CNBC that a full embargo of Venezuelan oil would affect 800,000 to 900,000 barrels of oil per day, which could increase prices by about $2 to $3 per barrel.

That would still leave the world “well supplied” as the there’s a global oil surplus of about 2 million barrels per day, Lipow said.

However, Lipow also pointed out that “The oil market will be watching the Chinese reaction as they are the largest buyer of Venezuelan oil, benefiting from discounted prices and, they may be reluctant to observe USA sanctions, keeping Venezuelan oil flowing into the market.”

Brent crude rose 0.9% to $59.46 a barrel, while U.S. West Texas Intermediate crude gained 1% to $55.82 a barrel after after the news. Prices had hit a four-year low on Tuesday stateside, with WTI falling nearly 3% to $55.27 per barrel, while Brent lost 2.71%, or $1.64, to settle at $58.92.

Lipow’s view was also echoed by Bob McNally, president at Rapidan Energy Group, who said that “nothing substantively has changed,” as long as only sanctioned tankers are targeted.

“We estimate that sanctioned (only) tankers would threaten about 0.3 million barrels of Venezuela’s roughly 0.9 million barrels a day of total crude exports.”

McNally said that this alone is not enough to impart a sustained spike into crude prices, which are beginning to fall as surpluses emerge.

The Trump administration has escalated pressure on Venezuelan President Nicholas Maduro in recent months, saying that his “days are numbered” in an interview with Politico. Trump has categorically not ruled out a ground invasion of the South American nation.

The White House has reportedly undertaken a large military buildup in the Caribbean, including deploying its largest aircraft carrier to the region, as well as launching strikes against boats that it claims were trafficking drugs to the U.S.

— CNBC’s Lee Ying Shan contributed to this report.