Iran offers support to Venezuela's oil sector

Iran has stepped in to support the oil sector of fellow sanctions-hit Venezuela, following an unannounced trip to Caracas by Iranian oil minister Javad Owji earlier this month.

Owji and his Venezuelan counterpart, Tarek el Aissami, signed an initial deal in early May for Tehran to supply refinery equipment to Venezuela and to help with repairs at state-owned PdV's 140,000 b/d El Palito refinery in Carabobo state, according to a source close to the matter. The agreement deepens existing co-operation between the two countries. Iran has been critical in supporting a recovery in Venezuela's crude production, which according to Argus estimates rose to 700,000 b/d in January-April from 470,000 b/d in the same period last year.

In a swap for Venezuelan crude, Iran is sending shipments of condensate to dilute and upgrade extra heavy oil supply from the Orinoco belt into an exportable crude grade. Tracking data from oil analytics firm Vortexa indicate Iran is now also shipping Iranian Heavy crude to Caracas, with the tanker Dino I discharging 370,000 bl of the grade at Venezuela's Jose Terminal on 7 May. At 29.5°API, Iranian Heavy offers a lighter alternative to Venezuelan crude.

It is not clear whether Tehran will continue such deliveries to Venezuela, but it may have more Iranian Heavy available because of reduced demand from China in the wake of recent Covid lockdowns there. Chinese buyers, which are the main consumers of both Iranian and Venezuelan crude exports, also have the option of importing heavily discounted supplies of Russian Urals crude, which Moscow is prepared to redirect from Europe if the EU goes ahead with its proposed embargo on Russian oil imports.

Meanwhile, Venezeulan crude output could pick up further if PdV's joint-venture partners, notably Chevron, resume operations that have been restricted by US sanctions since 2019. The White House said this week that it will give Chevron more leeway to negotiate its future operations in Venezuela - a gesture of goodwill intended to incentivise talks between President Nicolas Maduro and Juan Guaido's opposition coalition - but without real progress in those talks, sanctions relief is unlikely.

By Nader Itayim and Ruxandra Iordache