After the US banned imports of Russian oil, gas and coal in its latest move against Russia's war on Ukraine, the country has turned to Iran and Venezuela, its long-sanctioned foes, for alternative oil supply sources.
However, experts say Iran is the better option because it has not ceased production.
As the US and some Western countries have targeted the Russian energy sector, intensifying supply concerns on global oil markets, and resulting in price rises, the move has exhibited the need to look for alternative suppliers.
During the week ending March 11, the oil market was highly volatile due to supply worries after the US announced a ban on Russian energy imports in retaliation against Russia’s war on Ukraine.
International benchmark Brent crude recorded a 13% rise to $139 a barrel on Monday, before relapsing to $109 a barrel on Thursday.
Such price hikes have prompted the US to step up its search for alternative oil sources in the country that is already fighting rising inflation rates. The most immediate alternatives were deemed Iran and Venezuela, both of which have been suffering from US sanctions on their economies and oil exports.
Iran, once known as one of the largest OPEC producers, was only able to pump 2.4 million barrels per day (bpd) of crude oil last year, lowering its ranking to the fifth-biggest worldwide. And of this output, almost all was consumed domestically and not exported due to sanctions.
According to the International Energy Agency, Iranian crude production in January held steady at 2.5 million bpd, with oil exports hovering around 800,000 bpd. However, Tehran has been steadily preparing its oil network, allowing it to ramp up relatively quickly once sanctions are lifted.
By the end of this year, crude production could rise towards a sustainable capacity of 3.8 million bpd, up roughly 1.3 million bpd from current levels.
Due to the recently accelerated Iran nuclear negotiations and US high-level talks with Venezuela after a long hiatus, the lifting of sanctions against these countries by the Biden administration is considered the key option for alternative supplies.
Iran has been increasing its oil storage in tankers in preparation for a positive outcome in talks in Vienna to enable the country to quickly ramp up production. The country is estimated to hold about 80 million barrels of crude oil and condensate stored in tankers, which, according to the IEA, Iran will move to clear as quickly as possible.
As for Venezuela, the country's production declined to as low as 350,000 bpd in 2020 but recovered to over 700,000 bpd last year.
Although Venezuela is thought to have supply potential, the capacity is not enough to fully substitute Russian exports.
Experts say the country is unable to sustain levels over 1 million bpd unless major investments are made in the sector.
The US has started its first diplomatic talks with Venezuela on Wednesday since it closed its embassy in the country and withdrew diplomats in 2019 in response to allegations that President Nicolas Maduro's re-election was the result of fraud.
Later, White House Press Secretary Jen Psaki told reporters that 'the purpose of the trip that was taken by administration officials was to discuss a range of issues including certainly energy and energy security.'
- 'Russian oil is too big to ignore'
Fereydoun Barkeshli, the founder of Vienna Energy Research Group, told Anadolu Agency that the US move to restore relations with Venezuela is not surprising when oil is on the agenda.
'As we all know famously in international relations: No friendship is forever, and no enmity is forever. The national interest of countries is forever,' Barkeshli said.
Barkeshli recalled that the last time the market was without oil to such huge a magnitude was 30 years ago when Saddam Hussein invaded Kuwait and some 5.4 million bpd of oil simply evaporated from the market.
However, he said, 'time changes and Russia is too big to be ignored. As such we shouldn’t be surprised if the US reached out to Venezuela or Iran for supply.'
He explained that the international oil market dynamics are based on perception rather than physical oil, which he said is plentiful although the market has a negative perception of supply.
'The market is not currently without oil. No buyer is turned away because of a shortage of supply. Oil is currently plentiful but the sentiment in the market looks at the half-empty side of the glass. The perception is negative and we should expect the worse to come,' he said.
He explained that this has been borne out by the fact that Russian oil is plentiful on the market but the country is desperately searching for buyers.
'Oil seems to have been politicized and perhaps worse it’s weaponized. As such prices have no way to go but up,' he said.
- Extra barrels from Iran and Venezuela to ease market but not to fully replace Russian supplies
Barkeshli affirmed that additional output from Iran and Venezuela will certainly ease the market but said it is not enough to compensate for Russian oil.
'Iran is currently exporting around 1.1 million bpd through unofficial means and the grey zone. Besides, Iran holds around 120 million barrels of oil around the world, and near consumption markets and the ports in Iran,' he noted.
He believes that Iran can comfortably add 1 million bpd 'within weeks if not days.'
He recalled that when Iran was sanctioned by former US President Donald Trump, it reduced its production but still continued pumping oil.
'As such the country doesn't have major difficulties. However, for the next 1 million, we would probably have to wait for some months. I would say 5-6 months,' he added.
He underlined that the situation is more difficult for Venezuela and could take one to two years to restore production to production levels of 2017.
This is because Venezuela faces huge and chronic underdevelopment in its oil industry.
“Venezuelan heavy and extra heavy grades are usually used as oil cocktails to be mixed with other grades. The US was the biggest consumer of Venezuelan oil,' he said, adding that the country has a 1 million bpd refinery in the US that was confiscated by the Trump administration.
- US could be ready market for Venezuelan crude
Doug Sheridan, the manager, director and founder of US-based Energy Point Research, voiced his expectation that any lifting of sanctions would result in the flooding of as much as 1.5 million bpd onto the market by the fourth quarter of the year.
'When it comes to Iran, I expect the additional barrels are there. Venezuela will likely require time to ramp up both production and exports,' he said, adding that the US could be a ready market for Venezuelan crude.
'There is a concern as to the signal the lifting of the sanctions sends - that sanctions are apparently lifted when another country, in this case, an ally, takes actions that deserve their own sanctions,' he said.
Nonetheless, Sheridan said the lifting of sanctions could boost the image of the US with the citizens of both countries.
By Firdevs Yuksel and Sibel Morrow
Anadolu Agency
energy@aa.com.tr