Oil Markets Are on Edge Over Iran and Venezuela Sanctions. What Comes Next.

It’s becoming a tricky political issue for President Joe Biden, whose administration is trying to keep gasoline prices from jumping while navigating complicated relationships with oil-producing countries.

Earlier this week, the Biden administration said it would reinstate some sanctions on Venezuelan oil, because of actions by the government of President Nicolás Maduro. The U.S. had lifted sanctions in October, contingent on Maduro making progress toward a free and fair election in 2024. But since then, Venezuela has blocked the leading opposition candidate from running, among other actions that U.S. officials say violate the agreement.

The reinstatement of sanctions might not change total crude oil supply much in the near term. Venezuela produces about 800,000 barrels of oil a day out of the total global supply of around 102 million barrels. Sanctions could curb its total supply by 120,000 barrels, according to Rystad Energy.

Chevron
,

the largest American oil producer operating in Venezuela, has a separate license that wouldn’t be affected by any renewed sanctions. Chevron has been ramping up production in Venezuela and could get to 200,000 barrels a day by the end of the year, according to the Energy Information Administration. Other companies with operations in Venezuela include European producers

Eni

and

Repsol
.

RBC Capital Markets analyst Helima Croft wrote that she doesn’t expect the change in Venezuelan sanctions to bring down total oil production significantly. While the general license to operate in Venezuela will be revoked, the government will allow individual exceptions on a case-by-case basis. In addition, Venezuela should be able to divert some of its oil to China. As sanctions are reinstated, “some of those barrels, albeit with a heavier discount, could make their way back to eastern markets soon,” she wrote. 

Iran, however, is a much bigger player than Venezuela in oil markets today, pumping out about 3.1 million barrels daily. Iran is already subject to U.S. sanctions on oil exports, because of former President Donald Trump’s decision to pull out of the nuclear deal that President Barack Obama had signed with the country. Biden tried to restore the nuclear deal, but talks fell apart. Biden’s critics say his administration isn’t enforcing the sanctions strongly enough, allowing Iran to keep making money off oil sales even as the country has attacked Israel directly and through proxy groups.

White House National Security Council spokesman Eduardo Maia Silva tells Barron’s “we continue to enforce all of our sanctions on Iran, which include oil sanctions.”

The House of Representatives, however, is ramping up pressure on the administration to crack down harder.

Speaker of the House Mike Johnson has included two bills affecting in Iranian oil exports in a multifaceted foreign-aid package being considered in the House. One bill is the “Iran-China Energy Sanctions Act of 2023,” which would expand secondary sanctions enforcement to target Chinese financial institutions that transact with Iranian banks to facilitate purchases of Iranian oil. It passed the House this week. China is Iran’s most important customer for oil, so aggressive secondary sanctions could curb Iranian supplies.

In November, the House passed the “Stop Harboring Iranian Petroleum Act” (SHIP Act), which would bar shipping companies and others from knowingly transporting or processing Iranian oil. ClearView Energy Partners estimates that the sanctions—if they pass and are enforced—could reduce Iranian exports by about 770,000 barrels a day, enough to raise oil prices by as much as $8.40 per barrel and gasoline prices by about 20 cents per gallon.

There’s more uncertainty ahead. Even if these bills pass the House “it is far from certain that any of these bills will be brought to the Senate floor,” wrote Croft. If they pass the Senate, she says, Biden might be compelled to sign them, “given Iran’s main character role in the current conflict. The White House didn’t comment on whether Biden supports the bills.

What’s clear is that international relations are complicating the administration’s push to keep energy prices down ahead of the election. 

“We cannot imagine that the White House is eager to contend with strengthened oil sanctions architecture given the current state of the market and potential for retail gasoline prices to exceed $4/gallon this summer,” Croft wrote.

Write to Avi Salzman at avi.salzman@barrons.com