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Iran and Venezuela Cooperate to blunt the U.S. Economic Sanctions

On this issue, we invited Akbar Torbat for an interview. Akbar E. Torbat is a retired faculty at California State University Los Angeles and the author of "Politics of Oil and Nuclear Technology in Iran" (2020), Palgrave Macmillan,He received his Ph.D. in political economy from the University of Texas at Dallas.


Webpage: Copyright Akbar Torbat © 2022.

Akbar E. Torbat: Iran and Venezuela Cooperate to blunt the U.S. Economic Sanctions


In order to overthrow the Nicolás Maduro Moros administration, the former Trump Administration implemented financial sanctions, oil embargo and secondary sanctions, Blacklisted shipping companies, threatened intermedia rise and seized CITGO, a Venezuelan oil refinery headquartered in the United States. Under U.S. sanctions, Iran and Venezuela strike oil export deal in September. Since Venezuela has agreed to a key contract to swap its heavy oil for Iranian condensate that it can use to improve the quality of it star-like crude, the country's oil export has steadily increased. Based on the above background we ask two main questions:What is the operation status of major oil fields in Venezuela? Can we achieve the goal of producing one million barrels a day?;Will the current Joe Biden White House ease the sanctions or strengthen the punishment for cooperation between Iran and Venezuela?Akbar Torbat's article will respond to both of these questions.

The United States has attempted to overthrow the government of President Nicolas Maduro in Venezuela, which he inherited from the late Hugo Chavez in 2013. In August 2019, President Donald Trump called Maduro's re-election a sham. He imposed trade sanctions on Petróleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned oil and gas company and its subsidiaries, as a way to oust Maduro. The measures barred exports to the United States, which used to buy most of Venezuela's crude. Furthermore, President Trump ordered the freezing of all Venezuelan government assets in the United States and barred transactions with U.S. citizens and companies. Since then, the United States has had no diplomatic relations with Maduro's government. Still, it has maintained ties through Juan Guaidó, a US-supported activist who in January 2019 used his position as the speaker of Venezuela's National Assembly to proclaim himself "interim president" to oust Maduro.

The U.S. economic sanctions have caused Venezuela to swap oil with Iran and trade with some little-known companies to avoid the sanctions. Both Iran and Venezuela have been under U.S. sanctions for years. In the past decade or so, Iran and Venezuela have established trade cooperation to neutralize the U.S. sanctions. Venezuela has received vital oil equipment for its oil industry from Iran and exports heavy oil and other primary products to Iran. The United States is not happy with such trade cooperation between the two countries. In July 2020, President Trump ordered to seize four tankers that were sailing to carry gasoline to Venezuela. Its cargo was later sold, and its proceeds were given to the U.S. government. The seizure was obviously in violation of international law. However, President Joseph Biden's administration so far has hesitated to prevent Iranian oil shipments to Venezuela.

In 2021, Iran began providing PDVSA with condensate that is used to make Venezuela's extra-heavy oil exportable. According to Reuters, PDVSA and the National Iranian Oil Company (NIOC) signed a swap agreement that formalized the exchange of Venezuelan crude for Iranian condensate. Iran receives heavy oil that can market in Asia. Reuters reported none of the countries have commented on the agreement. Madura plans to visit Tehran very soon to finalize new agreements on cooperation between the two countries., which helps Venezuela to boost its oil output while under U.S. sanctions. U.S. officials at the Department of Treasury have declined to comment on whether the agreement violates the U.S. sanctions. Nonetheless, because Iran is using its own oil tankers for the swap, there is no third party involved, and thus the deal would not violate the U.S. extraterritorial sanctions.

The shortage of diluents has reduced Venezuela's oil exports and has impeded heavy oil production from the Orinoco Belt. The Orinoco Oil Belt contains one of the largest recoverable oil accumulations in the world. The Orinoco Oil Belt encircles about 50,000 square km of the East Venezuela Basin Province that is estimated to have more than 1 trillion barrels of heavy oil.

The new agreement would help PDVSA secure a source of dilution, which would enhance the export of Orinoco's crude blend while allowing its own lighter oil to be refined in Venezuela to produce badly needed motor fuel. PDVSA plans to mix the Iranian condensate with extra-heavy oil (tar-like oil) to produce diluted crude oil, a grade demanded by Asian refiners. According to Reuters, since late 2019, suppliers have halted diluent shipments to Venezuela due to the sanctions.

Since Iran has vast reserves of natural gas, it can produce a large amount of condensate from its natural gas output which is in excess of domestic need. Condensate is a low-density mixture of hydrocarbon liquids which is a component in the raw natural gas produced from natural gas fields. According to Tehran Times, Iran is currently producing over 550,000 barrels of condensate daily, of which some are exported, and a part is used for domestic refineries. Exporting condensates to Venezuela is beneficial to Iran and will also be helpful to Venezuela to increase its oil output and refined oil products. Therefore, the oil swap makes the impact of the U.S. sanctions on both countries much less effective and helps them to adjust their trade balance.

As the West has tightened sanctions on Iran, the country has promoted its trade relations with other friendly countries, particularly with China. In the past few years, Iran has exported more oil to China and other countries to support its economy and challenged the Trump administration's so-called maximum pressure campaign.

Access to oil from the Persian Gulf region is a "high politics" for the U.S. and its European allies. It is not only an economic issue, but it has vital strategic significance for their national security. The West is in competition for oil import from the region with other major powers, primarily China. China has not been historically engaged in imperialist adventures. Instead, it has been a victim of British imperialism and had suffered substantial damages from two opium wars with Britain in the mid-19th century. Hence, China and Iran have a similar experience with Western Imperialism domination. China's policy is to promote its relations with the oil-rich countries in the region, including Iran. China gets about half of its imported oil needs from the Persian Gulf region. Indeed, the U.S. economic pressures on Iran have turned the country towards China, which is a secure buyer of Iranian oil. The two countries' trade has increased substantially in recent years, and China is now the largest trade partner with Iran. China has been engaged in oil and infrastructural projects in Iran.

Iran and China signed a 25-year agreement on March 27, 2021, which further warmed up their economic relations. This agreement secures China's oil import from Iran. Since China is a major importer of Iranian oil, the agreement helps to weaken the U.S. sanctions against Iran. The two countries agreed on a wide-ranging economic and security cooperation agreement, defying U.S. attempts to isolate Iran. Details about the agreement have not been released; however, a draft of the agreement was leaked to the media in 2020, which listed China's investments in various projects ranging from nuclear energy, ports, railroads, and Iran's oil-and-gas contracts. In return for its investments, China would receive continuous supplies of oil from Iran. Also, according to the Wall Street Journal, the two countries have agreed to establish an Iranian-Chinese bank, which could help Iran to bypass U.S. sanctions that have barred it from worldwide banking systems. This agreement further advances Iran's diplomatic ties with the East and away from the West.

The recent higher oil prices have hurt the U.S. economic recovery. Consequently, the U.S. may contemplate lifting the oil sanctions, hoping more oil exports from Iran will increase oil supply, and in turn, reduce global oil prices. On November 23, 2021, President Joe Biden ordered to tap the U.S. Strategic Petroleum Reserves as a part of a coordinated effort with five other countries (the U.K., India, Japan, Korea, and China} to help reduce oil prices. Lifting the oil sanctions will increase the global oil supply and, in turn, push the oil prices lower, which will help the global economic recovery from the severe coronavirus recession.

Collator: Lǚ Pengfei



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