The move also signals Washington’s growing impatience with President Hugo Chavez’s penchant for warmly embracing (literally and figuratively) some of Washington’s worst enemies, such as Iran’s Mahmoud Ahmadinejad and Libya’s Muammar Qaddafi.
While the sanctions will likely serve as fodder for an anti-imperialist tirade from Venezuela’s stridently anti-American President Chavez, the decision is unlikely to disrupt the flow of nearly a million barrels a day of oil shipped between Venezuela and its largest trading partner, the US.
Crucially for commodities markets, the sanctions will not prevent PDVSA from selling oil to the US or any other markets and do not affect PDVSA’s subsidiary, Citgo.
Oil market conditions were considered when tailoring the sanctions against PDVSA, said Deputy Secretary of State James Steinberg during a briefing. The punitive actions will cut off PDVSA’s access to US government contracts and import/export financing.
“Obviously, we consulted closely with the economic agencies, including the DOE,” said Mr. Steinberg, responding to questions on how they arrived at the list of sanctions.
According to US government data, Venezuela sent an average of 987,000 barrels per day to the US last year, down from 1.06 million barrels per day in 2009. Though exports to the US have slipped as Venezuela’s production has fallen and other markets, especially China, have grown in importance, PDVSA remains among the top five oil suppliers to the US.
The sanctions announced Tuesday, which also hit six other companies, including an Israeli firm, are the first to be applied since President Obama amended the Iran Sanctions Act of 1996 in 2010 to include the Comprehensive Iran Sanctions Accountability and Divestment Act (CISADA), which was specifically aimed at cutting off investment into Iran’s energy and banking sectors.
In 2009, Venezuela announced it would supply Iran with up to 20,000 barrels per day of gasoline. PDVSA President and Energy Minister Rafael Ramirez has consistently denied allegations of sanctions busting, saying the shipments occurred before CISADA was tightened in July 2010. However, bills of lading seemed to suggest that PDVSA continued to send gasoline cargoes to Iran from its oil facilities on the island of Curacao.
The State Department says Iran “uses revenues from its energy sector to fund its nuclear program.” During the briefing, Steinberg said CISADA has been effective, forcing four major European oil companies to withdraw from Iran and has resulted in the loss of millions of dollars in potential revenue by forcing it to convert petrochemical plants to produce gasoline.
“By imposing these sanctions, we’re sending a clear message to companies around the world: Those who continue to irresponsibly support Iran’s energy sector or help facilitate Iran’s efforts to evade US sanctions will face significant consequences,” said Steinberg.