On March 8, the White House banned all imports of coal, oil, and liquefied natural gas from Russia as the United States tightened sanctions on the Kremlin in response to the Russian invasion of Ukraine. As a show of condemnation and an attempt to de-escalate Russian aggression before the war spreads, the United States is trying to hit Russia where it hurts - its energy industry. But now, the White House needs to find a new source of energy imports to fill that vacuum, and they're looking to a surprising source: Venezuela.
According to data from the U.S. Energy Information Agency (EIA), in 2021 the United States imported 672,000 barrels of Russian crude and refined products per day. Refined products made up 70% of those imports. In fact, the United States hit a new record for Russian crude imports last year, "after U.S. Mars grade crude production was halted in the second half of the year due to hurricanes along the Gulf Coast, which damaged the offshore LOOP facility," according to Factbox reporting by Reuters.
Now, the United States needs to replace that 672,000 daily barrels, or at least the 199,000 bpd of crude oil, from another source. And, amazingly, the Biden administration is looking to Venezuela, another country under U.S. sanctions. While the relaxing of sanctions against crude imports has yet to be finalized, Big Oil is preparing to step in and take control of their stalled operations in Venezuela the moment they get the green light.
According to Reuters, Chevron Corp. "has begun assembling a trading team to market oil from Venezuela" and is poised and ready to "expand its role in the four joint ventures it shares with state-run company PDVSA." Venezuela has the largest proven oil reserves on the planet, and before the global community shunned despotic president Nicolas Maduro, Venezuela was a key part of many oil supermajors' portfolios. Under the weight of sanctions and a crushing economic collapse, however, what was once one of the world's biggest oil industries saw the departure of its very last oil rig in 2020. An opportunity to reclaim some of those stakes lost to sanctions will likely not be slept on by Big Oil companies such as Chevron.
If the United States were to approve licensing of Venezuelan oil, the move could introduce an additional 400,000 barrels per day at a moment when the U.S. desperately needs more oil supply. In spite of the opportunities presented to the United States by reopening the Venezuelan taps, it is still highly uncertain whether the easing of sanctions will actually come to pass. In order to reestablish energy trade between the much embattled and embittered countries, the United States and Venezuela will have to successfully reach an accord through fraught political talks which, so far, are not going well.
Whether or not the United States begins to import Venezuelan crude once again, the war in Ukraine has already caused a remarkable level of cooperation between the United States and Russia. Representatives from the two countries had their first high-level bilateral talks in years earlier this month in the Venezuelan capital city of Caracas. Some critics consider this to be a major misstep for the United States, who see aiding Maduro in any way to be a politically risky and ethically irresponsible move, oil prices be damned.
The fact that the United States is even considering this option after years of harsh sanctions on Venezuela without the desired result - Maduro's ousting - shows that the country's energy sector is really in hot water. Soaring inflation rates are hitting consumers hard at the pumps, causing unrest and lowering public approval of the Biden administration. While oil prices were already through the roof, sanctions on Russia caused them to skyrocket a stunning 20% on March 7 to reach nearly $140 a barrel. These kinds of sky-high oil prices haven't been seen in nearly 14 years.
By Haley Zaremba for Oilprice.com
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Comments
Some US decision-makers might argue that in terms of current Venezuelan crude oil production and inability to replace the banned Russian oil exports to the US estimated at 600,000-700,000 barrels a day (b/d), it isn’t worth rolling back sanctions against Venezuela. Anyway, even if Venezuela was able to replace Russian banned exports, it wouldn’t have shipped a single barrel of oil to the United States until all sanctions against it were lifted.
Long-term, lifting the sanctions is quintessential given the fact that Venezuela sits on the world’s largest proven oil reserves estimated at 304 billion barrels and also the fact that the Venezuelan Orinoco Belt will be one among three regions in the world that will produce the very last oil barrels. The other two are the Aran Gulf region and Russia’s Arctic.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
My reading of the history of the demise of the Venezuelan oil industry goes back to when the administration of Hugo Chavez nationalized the oil industry. They expropriated much of the assets of the oil companies working there and, with great delight, put PDVSA in charge. It wasn't long before things started deteriorating as capital funds were funneled off for use of the party and los compañeros de Chavez.
After all, how hard can it be to get oil out of the ground?