The people familiar with the matter told Reuters last week that the US will resume allowing Venezuelan oil to flow to Europe. The outlet reported that Eni SpA and Repsol SA, which are Italian and Spanish respectively, could ship Venezuelan oil to Europe as early as next month after the Biden administration authorized the plan last month.
According to these people familiar with the matter, the oil “has to go to Europe. It cannot be resold elsewhere.”
The Biden administration’s reported permission to allow for the use of Venzeluan oil comes as part of a push to rely less on Russian oil and redirect Venezuela’s shipments from China, according to the latest reports.
To shed light on the issue, we reached out to Mehmet Öğütçü, former Turkish diplomat and chairman of the London Energy Club.
Why has the US decided to do so?
I was surprised to learn that after so many years of confrontation and sanctions a group of senior US officials flew to Venezuela last March. The mission was to meet with President Nicolás Maduro’s government for a discussion of the possibility of easing sanctions on Venezuelan oil exports. The trip came at a time when the United States was seeking to isolate Russia for its attack on Ukraine and help Europe fill the widening supply of gas.
Venezuela, the Kremlin’s most important ally in South America and home to the world’s largest oil reserves, used to be a significant supplier of crude to the United States before exports were hobbled by domestic mismanagement and crippling sanctions from Washington.
When a decision was taken as a result of bargaining behind the closed doors in Caracas, Italian oil company Eni SpA and Spain's Repsol SA have been allowed to ship Venezuelan oil to Europe as soon as next month to make up for sanctioned Russian crude.
My understanding is that the oil has to go to either the US refineries or to Europe and it cannot be resold elsewhere. Also, the volume of oil Eni and Repsol will receive is expected to be fairly small with a minimal impact on oil prices around the world. There is a pressing need for more oil supply to come and help Europe fill the demand gap.
Do you see any relation between the US administration's decision and the upcoming congressional midterm election?
I do not think there is any direct correlation between the Venezuelan deal and the US midterm election. Still, US President Joe Biden could decide that the need to bring down record-high pump prices ahead of November’s midterm elections outweighs the benefit of strictly enforcing sanctions on Venezuela and Iran.
What concerns the US voters are the rising cost of living, unsafe streets, and pending Supreme Court ruling on abortion, and how the Ukrainian war and growing tension with China will be handled.
Inflation is a constant presence in the minds of voters when buying groceries, filling their gas tanks, or paying their home heating bills. There is no escaping from it, and unless there is a significant easing in the next few months, it will continue as one of the top issues of concern.
So far, Ukraine has not become a dominant US political issue, in part because of support for Ukraine and advocacy of US assistance in both parties. Nor has the praise Biden has won from the foreign policy establishment or European allies translated into positive marks for his overall handling of national security issues. But no one is ready to predict where this issue will be by next fall.
If the war continues in Ukraine, do you see any possibility that the US will allow Iran's oil export to increase even if the two sides can’t reach a nuclear agreement in Vienna?
For the same reason as Venezuela, I believe that the US may allow more sanctioned Iranian oil onto global markets even without a revival of the 2015 nuclear accord. While a new agreement would limit Iran’s atomic activities and ease US sanctions on its energy exports, talks between Tehran and world powers have stalled since March. We are increasingly pessimistic that negotiators will strike a deal.
If the midterms are dominated by the need to get gas prices lower in America, turning a somewhat greater blind eye to the sanctioned barrels flowing out is probably something you might expect to see.
Iran has raised oil exports this year, most of them ending up in China. A new nuclear deal would lead to an additional 500,000 to 1 million barrels per day coming on to international markets, enough to weigh on prices. Iran also has around 100 million barrels of oil in storage that could be sold down quickly.
While many Republicans and some Democrats oppose any lifting of Iranian sanctions, Biden is under plenty of pressure to lower gasoline prices, which have shot up to an average of more than $4.80 per gallon in the US.
Iran might decide to use the opportunity provided by instability in the global energy markets and push its demands in nuclear talks in Vienna now that the Ukraine crisis has increased the West’s need for the Iranian energy sector. Iran may also well as the United States to provide “economic, technical and political” guarantees for not reneging on the country’s 2015 nuclear deal with world powers again as it did in 2018.
Mehmet Ogutcu is Chairman of the London Energy Club. He was a former Turkish diplomat, advisor to the Prime Minister, a senior executive of the International Energy Agency, OECD, and British Gas.
Interview by Zahra Mirzafarjouyan
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