Iran and Venezuela are Circumventing American Energy Sanctions

In September, the Iranian regime of Hassan Rouhani sent four oil tankers to Venezuelan coasts. Last week, the fleet arrived, a lifeline for a regime that has been struggling to meet Venezuela’s energy needs.

Historically, Venezuela has been among the largest oil-producing countries in the world. Before Venezuela’s socialist revolution bankrupted the Venezuelan oil sector, the South American country used to produce over three million barrels of oil per day. Similarly, Venezuela used to refine over a million barrels of fuel per day, which is roughly ten times its domestic consumption. Hence, Venezuela had enough fuel to subsidize the country’s consumption and to export the vast majority of it.

Today, that is no longer the case. The Venezuelan regime, after years of mismanaging the Venezuelan oil industry, achieved the seemingly impossible. It turned the oil-rich Venezuela into a nation desperate for fuel. The Venezuelan oil sector is not only producing just about 350,000 oil barrels per day but also refining about 7,000 barrels of fuel per day, which is just 6 percent of the country’s fuel demand of about 120,000 barrels per day of fuel.

As a result, the country has been experiencing chronic fuel shortages. To fill up their tanks, Venezuelans now have to do kilometric lines in their cars. These lines usually last days, even weeks in some cities, such as 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 from Colombia to Venezuela, which is later sold at about $8 per gallon.

To overcome its nationwide fuel crisis, the Venezuelan regime is relying on one of its closest allies: Iran. This oil partnership began in June, when four Iranian tankers carried over 1.5 million barrels of fuel to Venezuela. In exchange, the Venezuelan regime paid Iran with gold, which is being transported by plane to Tehran. Moreover, the regime also gave Iran the control of the “El Palito” refinery, which can process over can process 140,000 barrels of fuel per day. One can only speculate what other deals could these two “anti-imperialist” countries might be doing.

For these reasons, in August, the United States decided to seize an Iranian shipment bound for Venezuela. The shipment carried 1.1 million barrels of fuel, it was being transported by four Liberian-owned oil tankers, and it was managed by the Greek firms Vienna LTD and Palermo SA. Specifically, the United States stopped the shipment 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 surrender the shipment by sending it to Houston.

In response, Iran sent another shipment in September. This time, the shipment was carried and managed by the Iranian regime itself. The shipment included four medium-size vessels, self-identified as Honey, Forest, Fortune, and Faxon. Iran sent them through African seas (around Africa’s horn) to avoid any interference from the United States. The tankers also had their transponders switched off, making it difficult for tracking systems to detect 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 carried 2 million barrels of blending agents to boost Venezuela’s collapsing oil production. The fleet also contained between 800,000 and 1.5 million barrels of fuel, to fulfill Venezuela’s urgent needs. In exchange, Venezuela is paying Iran with gold, control over its oil sector, and God knows what else.

As a result, while one can only speculate the U.S. response to this situation, it is safe to say that numerous policymakers in Washington are worried about it. To this end, they should begin asking themselves: Why is Venezuela specifically relying on Iran, another sanctioned country from the other side of the globe, to solve its fuel crisis? To this question, I would argue that the U.S. sanctions have some fault.

Before the sanctions, Venezuela imported fuel from other countries besides Iran. For instance, two years ago, Venezuela used to import about 135,000 barrels of fuel per day from the United States. A year ago, Venezuela used to import about 196,000 barrels of fuel per day from Europe under oil-for-fuel swap agreements. Yet, these transactions are no longer possible, as the Treasury prohibited them under executive orders 13857 and 19884.

For this reason, I would argue that the U.S. foreign policy is — at least — partially responsible for this growing relationship between Caracas and Iran. While the Treasury’s sanctions against Venezuelan officials and oligarchs are being effective, the sanctions against the Venezuelan oil industry are having the unintended consequence of bringing Iran and Venezuela together. As a result, my recommendation to the State Department would be to reevaluate the desirability of the Treasury’s sanctions against the Venezuelan oil industry, PDVSA.

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