How Venezuela's twin earthquakes impact India
What's the story
The two earthquakes that struck Venezuela on June 24 have raised concerns of disruption to India's oil trade with the South American country, which has recently become a key supplier of crude oil to Indian refiners. The twin quakes, measuring 7.2 and 7.5 on the Richter scale, were the strongest to hit Venezuela in over a century.
Trade impact
Shipping delays, port disruptions feared
India's oil supply from Venezuela had increased in recent months as refiners sought alternatives amid Middle East uncertainties. However, the earthquakes have raised fears of shipping delays, port disruptions, and higher insurance costs. Kunal Khanna, Managing Director - Reinsurance & Global Head of Natural Resources at EDME Insurance Brokers Ltd., said that any disruption in Venezuela's export infrastructure could have far-reaching implications beyond its borders.
Supply chain impact
Export terminals may not be structurally harmed
He said even if export terminals in Venezuela escape major structural harm, associated disruptions can still affect global supply chains. Power outages, damaged transport links, and emergency restrictions at ports can slow cargo movements for days or even weeks. La Guaira, Venezuela's key cargo gateway, has been placed under a disaster declaration, increasing concerns over shipping schedules and port operations.
Insurance and investment
Marine insurance policies may get affected
The earthquakes could also raise insurance costs for shipments from Venezuela. Khanna said marine insurance policies were mainly designed around geopolitical and sanctions-related risks, but a major seismic event introduces a different layer of uncertainty. "The corridor was evaluated mainly through the lens of shipping and political risks. Natural catastrophe exposure is now part of the equation," he said.
Investment
India has direct investment exposure in Venezuela
The ramifications also extend beyond shipments presently at sea. India has direct investment exposure in Venezuela through ONGC Videsh, which holds stakes in oil projects there. India's ONGC's overseas arm, ONGC Videsh, holds a 40% participating interest in Venezuela's San Cristobal field. In the Carabobo-1 field, ONGC Videsh owns 11%, Indian Oil 3.5%, and Oil India 3.5%. Any prolonged disruption could therefore have both operational and financial implications for Indian interests.
Trade vulnerabilities
Earthquakes may prompt delays in investment talks
The earthquakes have highlighted how every new trade route comes with its own vulnerabilities. Prime Minister Narendra Modi recently held talks with acting President Delcy Rodriguez to explore investment opportunities in various sectors, including mining and pharmaceuticals. However, the earthquakes may prompt delays or reconsideration of these plans. Following US oversight of Venezuela's oil sector and the relaxation of sanctions after President Nicolas Maduro's capture, Venezuelan crude has been flowing freely into global markets, with India emerging a key buyer.