Oil prices have risen in recent weeks, but they would likely be much higher without production from two countries with risky relations with the United States: Venezuela and Iran. However, new political developments could curb some of these supplies, which could lead to a further rise in oil and gasoline prices.
International crude oil prices are up 13% this year, to $87.29 per barrel. The national average price of gasoline is $3.68 per gallon, about 60 cents higher than at the start of the year.
It’s becoming a tricky political issue for President Joe Biden, whose administration is trying to keep gasoline prices from rising while navigating complicated relationships with oil-producing countries.
Earlier this week, the Biden administration announced it would reinstate some sanctions on Venezuelan oil, due to actions by President Nicolas Maduro’s government. The United States had lifted sanctions in October, on the condition that Maduro progress toward free and fair elections in 2024. But since then, Venezuela has blocked the main opposition candidate from running, among other actions that it said American officials are violating the agreement.
Reinstating sanctions may not significantly change total crude oil supply in the near term. Venezuela produces about 800,000 barrels of oil per day out of a total global supply of about 102 million barrels. The sanctions could reduce its total supply by 120,000 barrels, according to Rystad Energy.
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Chevron
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the largest U.S. oil producer operating in Venezuela, has a separate license that would not be affected by new sanctions. Chevron has increased its production in Venezuela and could reach 200,000 barrels per day by the end of the year, according to the Energy Information Administration. Other companies operating in Venezuela include European producers Eni and Repsol.
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Helima Croft, an analyst at RBC Capital Markets, wrote that she does not expect the change in sanctions against Venezuela to significantly reduce total oil production. Although the general operating license in Venezuela will be revoked, the government will allow individual exceptions on a case-by-case basis. Additionally, Venezuela should be able to divert some of its oil to China. As sanctions are reinstated, “some of these barrels, although at a deeper discount, may soon return to Eastern markets,” she wrote.
Iran, however, is now a much bigger player than Venezuela in the oil markets, pumping about 3.1 million barrels per day. Iran is already subject to U.S. sanctions on oil exports, due to former President Donald Trump’s decision to withdraw from the nuclear deal that President Barack Obama signed with the country. Biden tried to restore the nuclear deal, but negotiations failed. Biden’s critics say his administration is not enforcing sanctions strongly enough, allowing Iran to continue making money from oil sales even though the country has attacked Israel directly and through proxy groups.
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White House National Security Council spokesperson Eduardo Maia Silva said Barron’s “We continue to enforce all of our sanctions against Iran, which include oil sanctions.”
The House of Representatives, however, is intensifying pressure on the administration to toughen up repression.
House Speaker Mike Johnson included two bills affecting Iranian oil exports in a multifaceted foreign aid package being considered by the House. One of the bills is the “Iran-China Energy Sanctions Act of 2023”, which would expand the application of secondary sanctions to target Chinese financial institutions that conduct transactions with Iranian banks to facilitate Iranian oil purchases. It passed the House this week. China is Iran’s largest oil customer, so aggressive secondary sanctions could curb Iranian supplies.
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In November, the House passed the Stop Harboring Iranian Petroleum Act (SHIP Act), which would prohibit shipping companies and others from knowingly transporting or processing Iranian oil. ClearView Energy Partners estimates that the sanctions – if passed and enforced – could reduce Iranian exports by about 770,000 barrels per day, enough to push oil prices up to $8.40 per barrel and prices of gasoline about 20 cents a gallon.
There is even more uncertainty ahead. Even if these bills pass the House, “it is far from certain that any of them will be introduced in the Senate,” Croft wrote. If they pass the Senate, she said, Biden may be forced to sign them, “given Iran’s primary role in the current conflict.” The White House did not say whether Biden supported the bills.
What is clear is that international relations are complicating the government’s efforts to keep energy prices low ahead of the election.
“We cannot imagine that the White House is eager to deal with increased oil sanctions given the current state of the market and the possibility that retail gasoline prices will exceed $4 per gallon this summer,” Croft wrote.
Write to Avi Salzman at [email protected]
