Venezuela is deploying a secret weapon to defeat strict U.S. sanctions aimed at blocking the OPEC member's economically crucial crude oil exports, a dark fleet of tanker vessels using a range of strategies to conceal their location. Recently the dark fleet shipping Venezuela's oil to key customers, mainly in Asia, grew significantly with the assistance of Russia and Iran. Indeed, from 2020 authoritarian Iran emerged as a key strategic ally that is propping up the autocratic Maduro regime. Tehran supplies Venezuela not only with a steady supply of condensate for blending with the country's extra-heavy crude oil but also the parts and technical know-how required to rebuild vital petroleum infrastructure. This includes access to Iran's fleet of tanker vessels which ship Venezuela's crude oil to buyers, primarily in Asia, generating urgently needed hard income for a near-bankrupt Caracas.
The dark fleet is a term for the flotilla of tankers and other bulk chemical transportation vessels that disguise their identity, location, and origin through a range of techniques. Those include cloaking the vessel's identity by using multiple flags of convenience, turning off the identification system, or using the ship's transponder to spoof its location. While the vessels are concealing their identity so the cargoes of U.S.-sanctioned crude oil cannot be tracked, they also do so in order to maintain vital insurance coverage which for many ships is issued by U.S.-based companies. Those insurers automatically exclude coverage if the vessels they have issued policies to are engaging in activities in violation of U.S. sanctions.
Aside from the impact of Washington's strict sanctions on Venezuela's oil exports, the extremely poor condition of national oil company PDVSA's tanker fleet is weighing heavily on Caracas's ability to ship crude oil to customers. According to a recent Reuters article, a report from PDVSA declared that more than half of the company's fleet of 22 tanker vessels were so run down they were essentially inoperable and required immediate repairs or be taken out of commission. The report, as quoted by Reuters, went on to state that years of postponed maintenance had left vessels at risk of suffering a catastrophic failure such as flooding, fires, or sinking. Those events all have the potential to cause calamitous environmental and other damage.
To circumvent those constraints, Caracas regularly utilizes a flotilla of Iranian tanker vessels to ship crude oil exports to Asia which is the primary destination for Venezuela's U.S.-sanctioned petroleum. It is China, formerly a staunch supporter of the Maduro regime which receives most of the crude oil exported by Venezuela. For 2022, it is estimated that Beijing received 300,000 barrels of Venezuelan oil per day while for the first eight months of 2023 that has grown to 430,000 barrels per day. The Venezuelan petroleum purchased by China is typically branded as sourced from Malaysia. Iran and India also receive shipments of Venezuelan oil while Chevron, after receiving U.S. Treasury approval to recommence lifting oil in the OPEC member, is exporting the petroleum produced to U.S. facilities as per the terms of its license.
To further boost exports of sanctioned oil PDVSA, and overcome the constraints imposed by its existing rundown fleet of vessels, has bolstered efforts to buy and lease additional tankers. This has seen Venezuela's national oil company paying significantly more than the market rate when leasing vessels to transport its U.S.-sanctioned oil. According to Reuters, PDVSA was paying roughly double the market rate during 2022 when leasing tanker vessels, a financial burden that a near-bankrupt Caracas can ill-afford. For that reason, Venezuela's national oil company is focused on expanding its fleet by acquiring additional tankers. Earlier this year, PDVSA contracted an Iranian state-controlled shipyard to build two new Aframax tankers, which have the capacity to transport 500,000 to 800,000 barrels of oil.
The Bushehr shipyard where the vessels will be built is owned by Iran Marine Industrial Company, known by its Persian initials SADRA, a company controlled by Iran's Islamic Revolutionary Guard. It is the considerable assistance rendered by Tehran, which is also strictly sanctioned by Washington, that not only allowed the autocratic Maduro regime to survive but for PDVSA to significantly boost oil production. Venezuela's oil output has climbed from a 2020 all-time low of 500,000 barrels per day to 730,000 barrels daily during August 2023. While PDVSA has little to no spare capacity the ability to maintain current production volumes depends not only on Iran maintaining a supply of condensate but also the clearing storage tanks by shipping existing oil inventories to overseas buyers. For that reason, it is essential that PDVSA continues to expand the dark fleet of tankers that are capable of shipping U.S.-sanctioned petroleum from Venezuela to key markets in Asia.
By Matthew Smith for Oilprice.com
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Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located… More
Comments
And to further boost its exports and display its open defiance of US sanctions, Venezuela is expanding its oil tanker fleet by contracting an Iranian state-controlled shipyard controlled by Iran’s Islamic Revolutionary Guard (IIRG) to build two new tankers with the capacity to transport 500,000 to 800,000 barrels of oil.
Venezuela’s crude oil production has risen to 730,000 barrels a day (b/d) during August 2023 of which an estimated 430,000 b/d are exported to China as payment for loans China had lent the government of Venezuela.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert