Geopolitical Dimensions in the Energy Sector of the Strategic Alliance between Iran and Venezuela (Article)

The new state of volatility in the geopolitical scene represents a shift from the hostile position of the administration of former US President Donald Trump, as the United States, under President Joe Biden, is reconsidering its approach towards Venezuela.

This comes after Washington – which was previously intent on changing the country’s system of government – imposed sanctions on Venezuela’s oil sector in 2019, and supported opposition leader Juan Guaidó, and these measures failed.

Continued military support for Venezuelan President Nicolás Maduro, dwindling support for Guaido, and the need for alternative energy sources after the ban on importing Russian oil in 2022 prompted the United States to reconsider its position.

This latest shift underscores the potential for shifting diplomacy and its implications for global energy markets.

Venezuela, which has the world’s largest proven oil reserves and was once a major oil exporter to the United States, appears to be playing a major role in meeting the United States’ energy needs.

The Biden administration’s sanctions relief plan aims to revive the Venezuelan oil industry, facilitate its return to global markets, and stimulate the Venezuelan economy, which shrank significantly between 2014 and 2020.

The following graphic – prepared by the specialized energy platform – monitors economic growth rates in Venezuela:

At the same time, the Biden administration is moving toward a potentially significant agreement with Iran, and the country’s oil exports have rebounded.

Iran’s oil exports are currently estimated at 1.5 million barrels per day, the highest since the implementation of tough sanctions by the Trump administration in 2018.

In the context of the historic nuclear deal (Joint Comprehensive Plan of Action) of 2015, Iran obtained sanctions relief in return for restrictions on its nuclear program.

The resulting sanctions relief led to a strong increase in Iranian oil exports, peaking at 2.8 million barrels per day in 2018.

The abrupt withdrawal of the United States from the nuclear deal in 2018, and the reimposition of sanctions under the Trump administration, dealt a major blow to Iran’s oil export capabilities.

Venezuela’s oil exports decreased

Venezuela has seen a significant drop in its oil exports due to US sanctions imposed in 2019, a strategic move aimed at destabilizing the government of Venezuelan President Nicolás Maduro.

As a result, Venezuelan exports fell to their lowest level in 77 years, at 623,600 bpd in 2020, in stark contrast to the 1.89 million bpd recorded in 2016, the pre-sanctions era.

In light of this, the sudden axis in the US strategy aims to balance the growing influence of Russia and China in the Venezuelan and Iranian scene, and there is a noticeable variable in these geopolitical calculations that calls for careful study.

The central element is the strategic realignment of Venezuela and Iran toward Asia, which represents a decisive shift from American hegemony.

Venezuelan Iranian cooperation

In an important step for the energy industry, Iranian Oil Minister Javad Auchi, along with his Venezuelan counterpart, Pedro Rafael Telecia, recently signed a series of agreements aimed at deepening their cooperation.

These important agreements were concluded during Auchi’s diplomatic visit to Caracas on April 16, which saw him engage in high-level dialogue with Venezuelan dignitaries.

These agreements confirm the joint commitment between the two countries to strengthen their alliance in all oil sectors, from exploration and production to refining and distribution.

The multifaceted agreements include various initiatives, including the exploration and development of oil and gas fields, the rehabilitation of oil refineries in Venezuela, and the doubling of its operational output.

This development confirms a strategic step to benefit from the joint capabilities of the two countries in facing the multifaceted challenges in the global energy scene.

Despite the sanctions imposed by the United States on the state-owned PDVSA, Iran has remained steadfast in its support, particularly its supply of naphtha, a critical component in boosting Venezuelan oil production.

The following graphic – prepared by the specialized energy platform – monitors Iran’s exports of crude oil:

On the other hand, Iranian technical and engineering expertise helps modernize the oil infrastructure in Venezuela, including petrochemical complexes and stations. This partnership includes international trade and export of oil, gas condensate and petroleum products.

This alliance, reinforced by Iranian President Ebrahim Raisi’s visit to Venezuela, reflects an enduring partnership between Tehran and Caracas, attesting to their shared determination to bypass US sanctions amid evolving global dynamics.

The two oil-rich countries sanctioned by the United States, Iran and Venezuela, recently strengthened their alliance by signing 25 memorandums of understanding in the fields of energy, trade, industrial development, and the cultural and scientific sectors.

These agreements are a reflection of the 20-year cooperation agreement signed last year during Venezuelan President Nicolás Maduro’s visit to Tehran, and the agreements were strategically designed to bypass sanctions and mitigate their consequences.

For his part, Iranian Oil Minister Javad Auchi announced that Iran has provided significant refining support to Venezuela over the past 20 months, including operating its refinery and assistance in Venezuela’s petrochemical sector, according to memorandums of understanding.

In addition, Venezuela contracted Iran’s Sadra Marine Industries Company, which is subject to US sanctions, to build new Aframax-class oil tankers, facilitating the modernization of PDVSA’s aging tanker fleet.

circumvent US sanctions

Iran and Venezuela, both adept at circumventing US sanctions, provide important insights into geopolitical shifts in the energy market.

Iran, previously a mainstay of US policy in the Middle East, along with Saudi Arabia, has suffered major repercussions on its oil production due to US sanctions targeting demand, which is still recovering.

The following graphic – prepared by the specialized energy platform – monitors Iran’s production of crude oil:

At present, Russia’s oil sector is teetering on the brink of a similar ordeal, mainly due to technological inefficiency caused by declining foreign investment.

This impasse threatens to become more acute for Russia than it is for Iran and Venezuela, given the broader trade restrictions imposed by the United States, the United Kingdom, and the European Union.

The oil industries of Iran and Venezuela have been greatly disrupted by the sanctions, which could portend the fate of Russia.

The repercussions for the economies of these countries were profound, exacerbated by low global energy prices.

* Velina Chakarova is a political affairs specialist in energy-producing countries.

*This article represents the opinion of the author, and does not necessarily reflect the opinion of the energy platform.