As Russia pushes to find new buyers for its oil to evade increasingly tough Western sanctions, it is cutting the market share of two of its allies — Iran and Venezuela — and sparking a price war that could hurt them all.
Competition for sales to Asia has already forced Venezuela and Iran to cut their crude oil sharply to try to hold onto the few outlets available for their own sanctioned exports, according to oil analysts and traders.
And while both Iran and Venezuela openly profess to remain close to Russia, experts expect that if the oil battle intensifies, it will heighten tensions with the Kremlin, even as its leader, Vladimir V. Putin, tries to strengthen his alliances. On Tuesday, his government announced that he would make a rare trip outside the country to Iran’s capital, Tehran, next week.
The oil competition caused by Russia’s invasion of Ukraine already seems to be moving Venezuela a little closer to the West, after years of deep freezing relations over electoral and human rights abuses by the country’s authoritarian leader. The last remaining US oil producer thereChevron, has been in talks with the Venezuelan government, according to a Venezuelan oil boss and a local official.
Any possible deal to bring more Venezuelan crude to the world market would help the United States, which is increasingly… desperate to cut oil prices to limit the damage to western economies from the war and through sanctions against Russian oil. The economic fallout reduces support for Ukraine in its struggle against its larger neighbor.
“The war shows that countries have interests, not enemies or friends,” said Francisco Monaldi, a Venezuelan oil policy expert at Rice University.
The spike in energy prices has given fossil fuels a notoriety they last enjoyed in the 1970s, amplifying the effect of Kremlin policies well beyond the battlefields at a time when many world leaders had hoped to phase out oil. to tame climate change.
Daniel Yergin, a leading energy expert and the author of “The New Map: Energy, Climate, and the Clash of Nations,” said the energy crisis was unraveling the last vestiges of the post-Cold War global economy and creating a new era of great competition for power in an increasingly fragmented world.
“Oil and natural gas,” he said, “have become central to the outcome of this new battle.”
The resurgence of oil and gas – and the fact that so much of the global supply comes from Russia – is Mr Putin’s strongest weapon against the West, giving him geopolitical influence well beyond his country’s position as the 11th largest economy in the world.
Understanding the war between Russia and Ukraine better
It didn’t look like that earlier in the war, when the United States pushed allies to punish Russia, leading to the promise of an oil embargo by Europe. The hope was that cutting Moscow out of that market would help starve the revenues to wage its war.
Instead, the price of oil rocketed, reaching levels not seen since 2008. Russia’s oil revenues soared and continued to feed its war machine.
When Russia started losing its western markets, China and India, agreed to buy more of its oilat a discount, despite initial pleas from the United States.
The Biden administration is currently again trying to outsmart Russia. Despite the chilly relations, President Biden will travel this week to Saudi Arabia, the state in the Persian Gulf, where the West wants to pump more oil so that oil prices will fall. And US officials have proposed a plan that aims to: to limit the price of Russian oil†
For now, at least, Russia has won a short-term battle with the West over oil revenues. But it could come at a geopolitical price if Iran and Venezuela feel too much economic pain. Both countries have long been allies of Russia, one of the few countries to offer them economic aid when much of the world turned its back.
Venezuela and Iran treat oil-related statistics as state secrets, so it’s hard to say whether revenues are declining or whether the loss in market share will be offset by higher benchmark prices for crude oil sold. But Iran’s export volume is falling, according to a trader and analyst, preventing the country from reaping the benefits of the spike in energy prices.
The discounts offered by the Venezuelan state oil company known as PDVSA to Chinese refineries hit record highs since the invasion of Ukraine, according to Venezuelan energy experts and oil executives. A barrel of the country’s flagship, known as Merey, currently sells in Asia for up to $45 dollars less than Brent, a crude used to set global oil prices and currently trades at about $100 a barrel. .
Before the war, the discount was about half what it is today, according to the Venezuelan oilman, who wished to remain anonymous to speak on a sensitive topic.
Worse, since the start of the war, Russian shipping companies have stopped paying PDVSA for the crude they sell in Asia on behalf of the company, depriving the country of a crucial source of income, the executive has said. with the scheme. Last year, that plan provided the Venezuelan government with $1.5 billion, representing a quarter of all state oil revenues.
“Sanctioned Russia is struggling to be a reliable ally to Venezuela,” said Risa Grais-Targow, a Latin American analyst at risk consultancy Eurasia Group. “The economic relationship that has been around for a while is fraying.”
Iran faces similar challenges, said Sara Vakhshouri, an oil expert at Middle East-focused consultancy SBV Energy International.
She said the Chinese government has given priority to Russian imports, in part because it has closer strategic ties with its northern neighbor.
In the first two months of Iran’s lunar year, which began in late March, the country earned just 37 percent of its projected revenue for the period, according to figures from Iran’s Supreme Audit Center.
An Iranian oil trader, who spoke on condition of anonymity due to the sensitivity of the subject, said Russian competition has reduced Iran’s oil exports to China by more than a third of pre-war levels.
The trader said Iran’s exports to Asia have fallen to an estimated 700,000 barrels per day, half the export volumes on which the country is based. his annual budget†
“Iran has a significant economic and political disadvantage in the post-war Ukraine environment,” said Alireza Haghighi, a Canada-based political analyst.
Other Kremlin allies have felt the sting of Russia’s use of energy as leverage. Last week, a Moscow court unexpectedly ordered a month-long shutdown for a crucial pipeline transporting oil from Kazakhstan through Russia, citing environmental violations. The court order, which has been overturned, appeared to be a warning to Kazakhstan’s president, Kassym-Jomart Tokayev, who has distanced himself from the Kremlin’s war story, saying he would not recognize Russian-backed separatist areas in Ukraine. .
The court’s original action sent a strong signal to the energy market and the government of Kazakhstan about Mr Putin’s power over global oil supplies, and the economic fate of his hesitant ally, said George Voloshin, a Paris-based expert who risk runs the consultancy Aperio Intelligence.
Despite growing economic competition, both Iran and Venezuela have maintained a show of public solidarity with Mr Putin. In frequent face-to-face meetings since the start of the war, top Kremlin officials and their Iranian and Venezuelan counterparts have vowed to join ranks to overcome US sanctions.
But paradoxically, the spike in energy prices could bring Venezuela and Iran’s interests closer to the West.
Both countries desperately want to sell more oil, and the United States and Europe must find new energy sources to lower domestic fuel prices.
In a surprising development, senior US officials traveled to Caracasthe capital of Venezuela, twice since the start of the war, opening direct negotiations with the government of President Nicolás Maduro, the authoritarian leader whom the United States considers illegitimate.
The White House said the trips were aimed at securing the release of American prisoners in Caracas. But people familiar with the contents of the meetings said the possibility of restarting Venezuelan oil exports to the United States was discussed during both trips.
And under European pressure, last month the Biden administration quietly allowed the Italian oil company Eni and his Spanish colleague Repsol are going to export Venezuelan oil to Europeopening another crack in official policy to isolate Maduro’s economy.
At the same time, US energy giant Chevron is negotiating a deal to export production from its Venezuelan oil fields to the United States for the first time since 2019, according to the Venezuelan official and another person familiar with the talks.
The company declined to comment on the reported deal, adding that it complies with current sanctions rules.
Some Iranian officials are also trying to use the deadlock between the West and Russia to their country’s advantage.
Political factions supporting a nuclear deal with the West argue that Russia’s eviction from Europe’s energy market offers Iran a chance to win back Western oil customers, if the country’s leaders reach a settlement. In fact, both Iran and Venezuela are trying to compensate for what Russia is doing to them in Asia by taking away the western market share that Russia has lost.
“Iran knows the energy pain EU countries are carrying, and that it could get worse,” said Ms Vakhshouri, the energy expert. “In the end it is in Iran’s favor.”
Oleg Matsneva† Mariana Martinez† Jack Nicas and Ruth Maclean contributed to reporting and research.