US Control of Venezuela’s Oil Revenues Triggers Debt Tensions With China

U.S. control over Venezuela’s oil export revenues has drawn in crude shipments previously used to service debt owed to China, raising the prospect of a new geopolitical and financial standoff that could further complicate Caracas’s efforts to emerge from default.

China is estimated to hold around 10% of Venezuela’s $150 billion foreign debt, much of it extended through oil-backed loans that were repaid via crude cargoes. Those arrangements have been disrupted after the United States took control of Venezuela’s oil sale proceeds earlier this month, effectively cutting off a key repayment channel.

Debt specialists warn that competing claims over the oil revenues could make it more difficult for Venezuela to restructure its debt, which has been in default since 2017, and could also strain Beijing’s willingness to cooperate in debt restructurings involving other developing nations.

“Even under the best circumstances, this was going to be very messy,” said Christopher Hodge, chief economist at Natixis and a former U.S. Treasury official. “Trying to disentangle where all these creditors stand in the credit hierarchy is extremely complex.”

Hodge added that the U.S. role in overseeing Venezuela’s oil income was unprecedented. “The fact that America is now controlling the main financial inflows and outflows of the country introduces a level of opacity and entanglement we have not seen before,” he said, noting that oil revenues remain Venezuela’s primary source of income.

Oil Shipments and China’s Claims

Documents and sources from state-owned oil company PDVSA show that three supertankers have transported Venezuelan crude to China over the past five years as part of interest payments under a temporary deal reached in 2019. However, these shipments represented only a portion of Venezuela’s total crude exports to China.

Research group AidData, based at the U.S. university William & Mary, said some cash proceeds from oil shipments to China were deposited into accounts controlled by Beijing and used to service debt, even as sanctions and default prevented payments to other creditors.

The Trump administration has now said proceeds from Venezuelan oil sales will be deposited into a Qatar-based account controlled by Washington, potentially giving the U.S. president significant influence over which creditors are paid and when.

China’s foreign ministry, responding to questions about the oil cargoes and debt repayments, said Beijing had “repeatedly stated its position.” At a January 7 news conference, Chinese officials condemned the redirection of Venezuelan oil exports, saying that the “legitimate rights and interests of China and other countries in Venezuela must be protected.”

US Position and Market Sales

The White House said President Donald Trump had brokered an oil arrangement with Venezuela that “will benefit the American and Venezuelan people,” according to spokeswoman Taylor Rogers.

U.S. officials said China would still be allowed to purchase Venezuelan oil, but not at what Washington described as unfairly discounted prices previously offered by Caracas. Any current sales to Chinese refiners are private market transactions and are not intended as debt repayments, officials said.

“The people of Venezuela will receive a fair price for their oil from China and other nations,” a U.S. official said.

Venezuela’s communications ministry did not immediately respond to requests for comment.

Debt Restructuring at Risk

Advisers warn that U.S. control over oil revenues could disrupt the traditional hierarchy of creditors in a future debt restructuring.

“All of these steps could have the practical effect of subordinating existing bondholders,” said Lee Buchheit, a global sovereign debt expert, adding that it remains unclear whether the U.S. president has the legal authority to decide which creditors are paid first.

Around $60 billion in Venezuelan bonds entered default in 2017. A restructuring agreement is considered essential for the country to regain access to international borrowing and attract new investment.

In most sovereign restructurings, bilateral lenders negotiate losses first—often through the Paris Club—setting benchmarks for private creditors. Analysts say this process could be severely strained if oil revenues are controlled by the United States.

“Comparability of treatment will be a major challenge, particularly if the U.S. controls how oil revenues are used,” said Mark Walker, a veteran sovereign debt adviser.

If Washington presses China to accept deep writedowns—and Beijing resists—it could delay any restructuring and prolong Venezuela’s economic crisis, investors warn.

China’s leverage is limited in the short term, as countries rarely pursue legal action over sovereign lending disputes. However, analysts say Beijing could respond by withholding cooperation in future debt restructurings under the G20 Common Framework, where China has played a key role in cases involving Ghana, Zambia and Ethiopia.

“China’s leverage is to refuse cooperation in future debt workouts until it believes it has been treated fairly in Venezuela,” Buchheit said. “That threat would carry real weight.”