Venezuelan and Iranian regimes agree to oil swap that violates international sanctions

Venezuela has made a key deal to swap oil for Iranian condensate that it can use to improve the quality of its crude, with the first deliveries expected this week, five sources close to the deal said. Pact between state-owned company Petróleos de Venezuela (PDVSA) and National Petroleum Company of Iran (NIOC) deepens cooperation between regimes facing Washington, as the South American country seeks to revive its exports despite sanctions imposed by the United States, sources said.

One of the people said that in principle The swap agreement is expected to last six months, with the possibility of an extension. Reuters could not immediately determine further details of the pact.

The Iranian and Venezuelan oil ministries, as well as state-owned companies PDVSA and NIOC did not respond to requests for comment.

The deal could violate US sanctions against the two countries, according to an email sent by that country’s treasury department to Reuters, which referred to orders under which the government established the punitive measures.

Washington’s sanctions programs not only prevent U.S. entities from doing business in the Iranian and Venezuelan oil industries, but also warn non-U.S. Individuals and companies who deal with their state oil companies of the possibility of ” secondary sanctions “.

Secondary sanctions can result in a range of sanctions, including blocking those involved from the US financial system, fines, or freezing US assets. Any “transaction with the NIOC by a non-US person is generally subject to secondary sanctions,” the Treasury Department said in response to a question about the negotiation.

He also indicated that “he reserves the power to impose sanctions on anyone he deems operating in the petroleum sector of the Venezuelan economy”, but did not specifically answer the question of whether the new exchange agreement violated sanctions.

Sanctions are generally discretionary in application. Former President Donald Trump’s administration seized shipments of Iranian fuel going to Venezuela alleging the violation of sanctions, but his successor Joe Biden has failed to take similar action.

In Washington, a source familiar with the matter said the exchange was on the radar of U.S. officials as a possible violation of sanctions, so they are following it to see how far it will go in practical terms.

Officials fear, the source said, that the supply of Iranian diluents could provide financial assistance to Nicolás Maduro while he negotiates with the opposition the possibility of elections.

Sanctions against the two countries have reduced their crude sales in recent years, leading the NIOC to support Venezuela – through transportation services and oil exchanges – for the placement of exports in Asia.

At a meeting at the United Nations General Assembly on Wednesday in New York, the foreign ministers of Venezuela and Iran publicly pledged to strengthen bilateral trade, despite attempts by the United States to block it.

Trump’s tightening of sanctions contributed in 2020 to a 38% drop in Venezuela’s oil exports, the backbone of its economy, to their lowest level in 77 years, also reducing its sources of imported fuel, which exacerbated the gasoline shortage.

A spokesman for the US Treasury said the department was “concerned” about reports of oil deals between Venezuela and Iran, but added that it had not verified the details. “We will continue to apply our sanctions related to both Iran and Venezuela,” the spokesperson said. He also added that the United States “has demonstrated its willingness” to veto entities which support Iranian attempts to escape them, as well as those which “give rise to their destabilizing behavior in the world.”

The swap deal would guarantee PDVSA a source of condensate, which it needs to dilute extra-heavy oil production in the Orinoco Belt, its largest producing region, residents said. This crude, very dense and with a high sulfur content, must be diluted for transport and export.

In return, Iran is expected to receive shipments of Venezuelan heavy oil that it can trade in Asia.said the individuals, who declined to be identified as they were not authorized to comment.

OIL TRADE

PDVSA has pushed oil exchanges to minimize its cash payments since the US Treasury banned it from dealing in dollars in 2019. Washington has also sanctioned foreign companies for transporting or receiving Venezuelan oil. Since last year, PDVSA has imported two shipments of Iranian condensate under specific swap agreements to meet diluent needs, and has also traded Venezuelan jet fuel for Iranian gasoline.

The new contract would stabilize stocks of diluents and, consequently, the export of crude oil blends from the Orinoco Belt. At the same time, it would allow PDVSA’s lighter crudes to be released for refining and production of vehicle fuels, three people said.

The first shipment of 1.9 million barrels of heavy Merey crude from Venezuela under the new swap agreement began this week. from PDVSA’s Jose terminal to Supertanker Felicity, owned and operated by National Iranian Tanker Co (NITC), the three people and the monitoring service TankerTrackers.com said.

NITC, a unit of NIOC, did not respond to a request for comment.

The vessel was not included in PDVSA’s port schedules for September, which lists expected imports and exports. However, TankerTrackers.com identified the vessel while in Jose this month.

The shipment constitutes partial payment for a shipment of some 2 million barrels of Iranian condensate that arrived in Venezuela on Thursday, according to the three sources and one of PDVSA’s calendars.

Last year, the Trump administration seized more than one million barrels of Iranian fuel bound for Venezuela and blacklisted five tanker captains as part of a “maximum pressure” strategy.

The US State Department declined to comment. The spokesman for the US Treasury did not respond to a question from Reuters about his fears that the new deal would allow PDVSA to increase its exports.

US officials have insisted they have no plans to ease sanctions against Venezuela unless President Nicolás Maduro takes definitive steps towards free and fair elections.

Trump’s restrictions on established companies doing business with PDVSA have led the Socialist government to resort to trading with Iran and other countries, while pushing for trade deals with little-known customers.

New buyers and trade have given some stability to Venezuelan exports, which average around 650,000 barrels per day (bpd) this year, after highs and lows in 2020. However, a growing shortage of diluents recently restricted exports, placing the Orinoco belt in a critical situation. “emergency” situation, according to PDVSA operational reports for August and September reviewed by Reuters.

PDVSA plans to mix Iranian condensate with extra heavy oil to produce diluted crude (COD), a variety requested by refiners in Asia that the state-owned company has been unable to export without problems since suppliers stopped supplying diluents in late 2019 due to sanctions, the three sources said.

By Marianna Parraga and Deisy Buitrago – Reuters

KEEP READING: