Thread by @EdConwaySky

Donald Trump just announced 25% tariffs on anyone importing oil from Venezuela.
This is odd.
Because the country importing the most crude from Venezuela is... the US.
Capital Economics chart of Ven oil exports by Capital Economics via @rbrtrmstrng
But it raises a bigger point
🧵

Why does the US import so much oil from Venezuela?
Mainly for the same reason it imports so much oil from Canada.
And no it's not just because they're close.
It's because most US refineries are set up to refine the kind of oil they have in Venezuela and Canada.

To understand this it helps to recall that crude oil is actually a broad term. There are LOTS of different varieties of crude - a function of the geology of where the oil formed and the organic ingredients that went into it millions of years ago.
It's called "crude" for a reason

So there are super light oils that come out of the ground looking almost like a green smoothie.
A useful reminder that once upon a time this was algae or other ancient organic creatures. This stuff was shale oil from the Dakotas

Then there are heavy oils - thick and gloopy.
The stuff here might look TOTALLY different from the previous sample but technically the same stuff. Still crude oil.
But what matters in this case is that you need very different kit to refine this stuff vs that green smoothie

I'm talking of course about oil refineries.
Before Material World I assumed writing about oil refineries would be depressing and boring. Turns out it's utterly fascinating.
But one important nuance is that different refineries are set up to ingest different oils

In broad terms (simplifying enormously), American refineries have traditionally been set up to process HEAVY oils - the sludgy stuff.
In part this was because back in the day lots of Californian oil was heavy and partly because there's a lot of heavy oil close to the US

Yet the irony is most of the oil being produced domestically in the US these days is NOT heavy/sludgy. It's very light.
Because it turns out shale oil - the big growth area - tends to be a lot lighter.
But most US refineries aren't set up to refine the oil America produces(!)

Now in theory US refineries could retool and convert so they can process domestic crude.
But that will take a LOT of time and a LOT of money. And oil refining is a low margin game. So they've tended to stick with what they're good at.
And so America imports LOADS of heavy oil👇

So while statistically America is energy independent, producing enough oil to satisfy domestic consumption, in practice it's not.
In practice it sends its lovely light oils overseas for refining (inc to the UK!) and sucks in thick heavy oil from overseas.
Why? The refineries!

All of which is why America still imports more Canadian and Venezuelan crude than ANYONE else.
Because Canadian and Venezuelan oil is thick and gloopy, and because America still needs thick and gloopy oil for its refineries.
This stuff matters!

Now in the very long run the US could overhaul its refining set-up. But this will be a painful, expensive process.
Similar story for aluminium and steel. No reason this stuff couldn't be done domestically. But it will cost money and take time to build the infrastructure

But in the short run, tariffs on these oils will likely push up US gasoline prices.
And, substituting away from Venezuelan/Canadian oil is harder than most people appreciate, for the reasons you now know about too.
Who knew oil refineries could be so interesting, right?!

🖊️For more, check out this piece I wrote about Canadian oil/tariffs recently👇
These idiosyncrasies - refining capacity or the realities of smelting metal - are often ignored until suddenly they become all-important.
That moment might be coming soon edconway.substack.com/p/america-stil…