Iran and Venezuela are Circumventing American Energy Sanctions
In September, Hassan Rouhani's Iranian regime sent four oil tankers to the Venezuelan coasts. The fleet arrived last week, a lifeline for a regime struggling to meet Venezuela's energy needs.
In the past, Venezuela was one of the largest oil producing countries in the world. Before the socialist revolution in Venezuela bankrupted the Venezuelan oil sector, the South American country was producing more than three million barrels of oil a day. Similarly, Venezuela was refining more than a million barrels of fuel a day, which is roughly ten times its domestic consumption. So Venezuela had enough fuel to subsidize the country's consumption and export most of it.
That is no longer the case today. The Venezuelan regime achieved the seemingly impossible after years of mismanagement of the Venezuelan oil industry. It turned oil-rich Venezuela into a nation desperate for fuel. The Venezuelan oil sector not only produces about 350,000 oil barrels per day, it also refines about 7,000 barrels of fuel per day, which is only 6 percent of the country's fuel needs of about 120,000 barrels of fuel per day.
As a result, the country has experienced chronic fuel shortages. To fill their tanks, Venezuelans now have to drive miles of lines in their cars. These lines usually last days, even weeks, in some cities like Barquisimeto and San Cristobal. And for those who can afford it, authorities estimate that between 5,000 and 15,000 barrels of fuel are being smuggled into Venezuela from Colombia, which is later sold for about $ 8 a gallon.
To overcome the nationwide fuel crisis, the Venezuelan regime depends on one of its closest allies: Iran. This oil partnership began in June when four Iranian tankers transported over 1.5 million barrels of fuel to Venezuela. In return, the Venezuelan regime paid Iran with gold, which is transported to Tehran by plane. In addition, the regime gave Iran control of the "El Palito" refinery, which can process 140,000 barrels of fuel per day. One can only speculate what other business these two "anti-imperialist" countries might do.
For these reasons, the United States decided in August to seize an Iranian shipment to Venezuela. The shipment carried 1.1 million barrels of fuel, was carried by four Liberian-owned oil tankers and managed by Greek companies Vienna LTD and Palermo SA. In particular, the United States ceased broadcasting on August 13. After Washington warned the crew and the company that they would be sanctioned for doing business with the sanctioned regimes of Maduro and Rouhani, the company decided to abandon the shipment by sending it to Houston.
In response, Iran sent another shipment in September. This time the program was promoted and administered by the Iranian regime itself. The shipment included four medium-sized ships, which were themselves identified as Honey, Forest, Fortune and Faxon. Iran sent them across African seas (around Africa's horn) to avoid any interference from the United States. The tankers also had their transponders turned off, making it difficult for tracking systems to identify their locations. Overall, the four tankers arrived in Venezuela between the last week of September and the first week of October. Between the four, they moved 2 million barrels of blending agent to kickstart Venezuela's crumbling oil production. The fleet also contained between 800,000 and 1.5 million barrels of fuel to meet Venezuela's urgent needs. In return, Venezuela pays Iran gold, controls its oil sector, and God knows what else.
While one can only speculate about the US response to this situation, it is safe to say that numerous Washington policymakers are concerned about it. To that end, they should ask themselves: why is Venezuela specifically relying on Iran, another sanctioned country from the other side of the world, to solve its fuel crisis? On this question, I would argue that the US sanctions are flawed.
Before the sanctions, Venezuela imported fuel from countries other than Iran. For example, two years ago Venezuela imported about 135,000 barrels of fuel a day from the US. A year ago, Venezuela imported around 196,000 barrels of fuel a day from Europe under oil-fuel exchange agreements. However, these transactions are no longer possible because the Treasury Department banned them under Executive Orders 13857 and 19884.
For this reason, I would argue that US foreign policy is - at least - partially responsible for this growing relationship between Caracas and Iran. While the Treasury Department's sanctions against Venezuelan officials and oligarchs are in effect, the unintended result of sanctions against the Venezuelan oil industry is bringing Iran and Venezuela together. As a result, I would recommend that the State Department reassess the desirability of the Treasury Department's sanctions against the Venezuelan oil industry, PDVSA.
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