Published by Minyanville
“We’ll sell oil to whoever we want to. We don’t need money from gringos… The imperialists can go to hell,” said Venezuelan oil minister Rafael Ramírez on the news that the United States will hit Venezuelan state-run oil company Petróleos de Venezuela (PDVSA) with sanctions. These are thanks to its continued trade with Iran, which the US is cracking down on under the 1996 Iran Sanctions Act, which hopes to limit the country’s nuclear capabilities.
“By imposing these sanctions we're sending a clear message to companies around the world: those who continue to irresponsibly support Iran's energy sector or help facilitate Iran's efforts to evade US sanctions will face significant consequences," said the United States’ Deputy Secretary of State James Steinberg. PDVSA is just one of six oil and shipping companies around the world to be targeted.
The sanctions, however, are largely symbolic as they have no sway over Venezuela’s oil sales to the US which account for 45% of the Latin American country’s total. There is also no effect on US-based subsidiary Citgo.
“The sanctions mean nothing to us,” a defiant Ramírez added, with Venezuelan president Hugo Chávez weighing in with the much more grandiose, and typically Simón Bolívar-hailing, “Sanctions against the Fatherland of Bolivia? Imposed by the Gringo imperialist? Well, welcome Mr Obama, don't forget we are the children of Bolívar!”
Analysts have said that the sanctions are nothing more than a slap on the wrist. Nomura’s Boris Segura described the act as “fairly inconsequential.” The United States would be biting the hand that feeds it if it had given the sanctions any teeth as Venezuela is the fifth largest crude supplier to the US, making up around 10% of imports. Nearly 30m barrels were sent from Venezuela to the US in February. Citgo’s refineries there produce 750,000 barrels a day which is just over 4% of the total consumed by the US market.
PDVSA also part owns the Hovensa refinery along with Hess Oil (HES) as well as the Chalmette Refining plant along with Exxon Mobil (XOM) which produce 350,000 and 192,000 barrels per day respectively.
Venezuela delivered $50m worth of reformate, a blending component, to the Middle Eastern pariah between December and March. Both president Mahmoud Ahmadinejad and Chávez have voiced their aims to end US “imperialism” and spoken out against organizations such as the International Monetary Fund. Chávez has also supported the country’s nuclear program and called Israel a “genocidal state," making him popular in the Arab world. Trade between Venezuela and Iran was worth nearly $90m in 2009 and there were even flights between the countries between 2006 and 2010.
The move by the US highlights the desire to trouble Iran, though in reality will do nothing but play up to political animosities between Caracas and Washington—delicate, to say the least.
President Hugo Chávez has, on a number of occasions, threatened to cut oil supplies to the United States, notably if he were to discover an assassination plot against him. Like President Fidel Castro of Cuba—who has had a number of CIA-backed threats on his life—Chávez has been a staunch critic of the United States, notably under George W. Bush who he described as the devil at a United Nations meeting in 2006. “The devil came here yesterday,” Chávez famously said. “It still smells of sulfur today.”
Frank Jack, writing for Reuters, suggests that Chávez will want to respond with similar gusto to the sanctions. However, Venezuela will risk loosing billions of dollars of oil trade if he goes too far. This will hinder prospects for next year’s presidential election, campaigning for which has already tacitly begun.
Jack claims the most likely scenario is that Chávez will limit his response to “stick-waving” and simply drop the subject after a few days of angry oratory and empty threats. It is unlikely that Chávez will stop all oil shipments to his number-one buyer. The question is whether Venezuela will move closer to Iran, perhaps heightening sanctions, or further from it.
According to Venezuela’s oil ministry, production of oil went up to 2.81m barrels in March, up from the previous month’s figure of 2.77m. Exports, however, were down 7.5% in April from March to 2.22m barrels. Figures from the oil ministry are often disputed and have been shown on occasion to be incorrect.