Oil – sanctions – BFF. How does Russia establish relations with sanctioned Venezuela and Iran?

While the United States imposes sanctions on its oil competitors, the Russian Federation establishes a friendship with them. Recently, the Russian Federation has shown an increasing interest in the fate of rebellious Venezuela. And since May 2019, after the United States returned sanctions for those who buy oil in Iran, Russia received 8 more potential “friends”, of whom the closest are Turkey and India. Russia has been in contact with Iran for a long time.

Searching for friends. In OPEC.

Where do the search for oil friends should start, if not in OPEC. The OPEC+ countries, where the plus sign implies Russia, cover almost 45% of world oil production. This often gives them an advantage in geopolitical disputes: “We have oil, better enter our position”. Often they understand their position, and against the background of oil supplies, their point of view begins to seem quite hard-headed.

At least it was before, while the United States also had to make concessions. But thanks to its shale revolution, the United States has evolved from an oil importer into an exporter and may be less accommodating to the position of oil countries whose political behavior they don’t like. And they are actively imposing sanctions on their “objectionable” oil rivals.

In 2015, in the United States, the ban on the export of oil, which had been valid for 40 years, was lifted. In 2018, the United States for the first time in 75 years became a net exporter, having exported an average of 2 million barrels of oil and petroleum products per day.

OPEC has its own  “family troubles” inside, Saudi Arabia clashed with Qatar, until it announced its withdrawal from the cartel in January 2019, in Venezuela, the socio-economic crisis, the bottom of which is only deepening, Iran cannot fully be realized because of US sanctions, Iraq and Libya are very slowly recovering from military conflicts and a coup. The United Arab Emirates and Saudi Arabia may be called the most “successful”. They are trying to please both the United States and the wards in OPEC – they want to raise oil prices by cutting production and supplies, while the United States voices against, and do not want to reduce production volumes.

The members of the cartel/alliance (as you like) are between a rock and a hard place and not everyone can choose with friends. Some – because they cannot decide, or do not want to quarrel with anyone, and others – because they have no choice, as the United States does not want to be friends with them.

If the United States cooperates in OPEC with successful Saudi Arabia and the United Arab Emirates, then Russia is against the United States. And builds relationships with the “rejected”.

In December, OPEC + countries agreed to reduce oil production by 1.2 million barrels. And at the end of June 2019 (it was previously planned that at the end of May) they will meet to agree (or not) on the extension of this decision.

IRAN. HIS FRIENDS AND ACQUAINTANCES

Sanctions – as a chain reaction, are primarily imposed on one country, but in the end to all who interact with it.

The main such “toxic” country is Iran. But if you are like Russia, already under sanctions, then this toxicity is not a hindrance, but on the contrary, a unifying common feature.

Iran has been on the “no friends” list of the US for a long time, since the 1970s (international economic sanctions were imposed after the Islamic revolution). But since February 2017, the situation has escalated. The United States withdrew from the agreement reached after the negotiations of the Six (USA, Russia, Great Britain, China, France and Germany) with Iran in 2015, which partially lifted economic sanctions in response to the reduction of the Islamic state’s nuclear program. In the United States, with the arrival of the President Trump, it was decided that Iran’s “nuclear concessions” were insufficient, and from November 5, 2018, the restored sanctions applied to the banking and oil and gas sectors of Iran and to countries that buy oil from Iran. But for 8 “allied countries” (India, China, Taiwan, Turkey, South Korea, Japan, Greece and Italy), the States made an exception, giving them half a year of transition period. On May 2, 2019 the term of expiration dried up and the United States said that the sanctions would work against those companies that buy oil from Iran.

Few supported the United States in their decision to isolate Iran again. The European Union, for example, expressed concern about the final entry into force of US restrictive measures, as they could endanger Iran’s implementation of atomic agreements. There is a chance that this will happen.

On May 8, 2019 (on the anniversary of the unilateral US withdrawal from the nuclear deal), Iran sent letters to the rest of the Six participants – Russia, China, Britain, France and Germany, in which it was said that Iran had suspended the execution of two points of agreement. Iran refused to limit the reserves of enriched uranium and heavy water, which is used in nuclear reactors. Iranian authorities also set a 60-day period to reach the new terms of the agreement, otherwise they promise to resume uranium enrichment activities after that. In response, the United States imposed sanctions on the metallurgical industry of Iran – the production and procurement of aluminum, steel, iron and copper from the country. The United States is committed to “maintain and expand economic pressure” on Iran, as “they are confident that Tehran is connected with terrorist organizations and the absence of a legal state in the Islamic Republic”.

It is clear that Iran will seek to sidestep sanctions. But Iran is not the only one.  

American sanctions have blocked Iran’s legal opportunities to trade oil, the production of which keeps the country's economy. Such a situation favors other oil-producing states that may take a suddenly free place at the market.

If Iran’s exports are really reduced to zero, it will create a deficit of 1.7 million barrels of oil per day on the world market, which will be covered by Saudi Arabia and the Russian Federation.

Now Iran has mobilized all resources to sell its oil at the “gray market” bypassing US sanctions. And it does not consider such activity as smuggling: “This is not smuggling. This is opposition to sanctions that we do not consider fair or legal”, said Iranian Deputy Minister of Oil Amir Hossein Zamaninia.

Who is the gray market? It is China, for example (which grayly trades coal even with North Korea). Last week, the Financial Times reported that in the last month before the United States returned the sanctions, the PRC increased purchases of crude oil from Iran by 20%.

In April, China imported 3.24 million tons of crude oil from Iran, which is 46% more than in March. In general, in 2018, Iran had 6% of oil imports into the PRC, but experts note that China is not going to avoid Iran’s services. Against the background of a worsening trade war between countries, serious doubts arise that the Chinese will act as the States want.

“We can observe a decline in the volume of oil supplies, albeit a large one, but China will not completely abandon them, officially or unofficially imports will continue”, analysts with whom the FT communicated says.

China called its trade relations with Iran “reasonable and legitimate”.

And for the Iranian side, the export of crude oil to China under current conditions looks like a lifeline. In connection with the fall in oil production in the country, there is a serious economic downturn, and inflation is rapidly growing to 35%. Iran will have a hope to survive with sanctions if China continues to buy oil, albeit in smaller volumes than before. At the same time, the Iranian Ministry of Oil does not intend to disclose details of how they will circumvent oil sanctions even to internal employees, fearing that this information could get to the United States.

Turkey is also suspected of “gray deals” with Iran. Firstly, the Head of the Turkish Foreign Ministry, Mevlüt Çavuşoğlu, called on the United States to reconsider the decision on the resumption of sanctions. One of the reasons is that Turkey cannot find alternative sources of oil supplies in such a short time, the Minister said. Secondly, the United States is already conducting an inspection of the Turkish shipping company Palmali Maritime Shipping, which is suspected of delivering Iranian oil to Syria, bypassing US sanctions. Supplies were supposed to be made through the port of Fujairah in the UAE. According to the data, the US Treasury has been investigating the company's activities for at least three years.

The grayest market is Syria, which concurrently is the unifying factor of Iran with the Russian Federation. Countries together support the Assad regime in Syria. Oilfield wealth, sanctions, nuclear ambitions and regime similarities are other common features of Iran and the Russian Federation.

The United States imposed sanctions on the Russian Federation for the supply of oil from Iran to Syria. Three companies Mir Business Bank, Global Vision Group and Promsyrieimport and their top management got into the sanction list.

Russia and Iran have long been considered allies. Although some call their cooperation forced, and suspect that their relationship is becoming more and more strained. At least, because of the sanctions against Iran, Russia receives some advantages.

For example, despite the fact that the State Department’s statement says that the United States and its allies, Saudi Arabia and the United Arab Emirates, will provide an adequate replacement for Iranian supplies on the world market, Russia has been the main beneficiary of Iranian oil sanctions: Russian oil is close to Iranian oil composition and Russian oil companies have become the main alternative suppliers for Iran’s former customers in Europe and Asia.

In addition to the oil benefits of the Russian Federation, for example, it expands trade (including arms), with Saudi Arabia and Israel, Tehran’s worst enemies. It is also not in favor of friendship with Iran.

At the same time, after the sanctions came into force, the Russian Federation stated that there are mutually beneficial and legitimate cooperation with Iran, to which the anger of the States is like “I don't care neither snow, nor rain, nor heat”:

“No the threat of new sanctions will not stop our legitimate and mutually beneficial cooperation with Iran. We have been living for a long time in terms of the reconciliation of the US sanctions against Russia”, said Russian Deputy Foreign Minister Sergey Ryabkov.

“We perceive threats of this kind calmly, we do not succumb to blackmail and we will systematically expand and develop our cooperation with the Islamic Republic of Iran, including in the atomic energy sector in full compliance with international law and the national legislation of our countries”.

Atomic relations

About atomic energy – the remark is interesting. Atomic generation unites the Russian Federation with eight countries, which should find a new supplier for itself instead of Iran.

Firstly, there is one power unit in Iran, created under the Soviet project VVER-1000, which construction began in 1975, but the launch took place only in 2010 with the help of Rosatom. In 2016, the beginning of the second stage was announced – Busher-2 NPP, which will consist of two power units. They will also be built by Rosatom. It is in a country that is suspected of enriching uranium.

Help in power supply due to powerful, stable and “carbon-free” nuclear technology is an important point in building the “friendship” of countries with the Russian Federation.

For example, the Russian Federation brought a “peaceful” atom to India and to Turkey, and even to China, which has its own atomic technology.

In India, where electricity in large volumes is highly valued, Russia is building the Kudankulam NPP. Two 1000 MW power units are already in operation. In October 2017, a new phase of construction has begun – two more nuclear power units. And in October, 2018 countries agreed to build 6 more power units. Total more than 10 GW of electricity may be generated using Russian technologies.  

With such a beaten track, the Russian Federation has nothing to do to begin replacing Iranian oil by Indian. All the more Russia already helps India with the supply of oil from Venezuela.

Turkey also builds nuclear power plants with Russia for a long time and long-suffering. The agreement on the construction of the Akkuyu NPP was signed in May 2010 and envisaged the construction of 4 power units with VVER-1200 reactors. The total cost of the project is $22 billion, which is very expensive for Turkey.

The alienating of relations between Russia and Turkey after the incident with the Su-24 at the end of 2015 (the Russian military aircraft Su-24 was shot down by Turkish troops on the border with Syria) jeopardized the future of the nuclear power plant, but in 2016 the parties returned to the project. The first concrete at the base of the first power unit were solemnly poured in April 2018 in the presence of Putin and Erdogan.

In China, Russia is also building power units, both “classic” with a capacity of 1200 MW (3+ generation) and a fast neutron reactor (600 MW). 4 nuclear power units with a capacity of 1000 MW are already operating at the Taiwan NPP, and in 2018 an agreement on the construction of two more power units of 1200 MW was signed. Also in May of this year, an agreement on the construction of two 1200 MW power units at the Syuydapu nuclear power plant was reached.

The United States by not allowing working with Iran has provided the Russian Federation with new friends. Given that with some of them Russia already has a relationship, they can be strengthened by such an advantageous for the Russian Federation, the oil vector. And energy dependence, as it is known, is one of the strongest – not only economically, but also psychologically.

VENEZUELA AND ITS LONE TOXICITY

If Iran has a couple of partners in the world market, caused by at least a more “interesting" geographical position, Venezuela, by its poverty, repels more strongly.

Venezuela recently experienced an unsuccessful coup attempt. There are two presidents in the country, and one of them – Juan Guaido (according to the Russian version, self-proclaimed, according to the United States – elected) – tried to incline the army to the side of the opposition. He did not succeed (although the history of Venezuela knows many more successful stories of apostasy from the oath). During the collision, 5 people were killed, 300 were injured, including from gunshot wounds, 273 were detained.

The army remained on the side of the current President Nicolas Maduro, the Russian Federation, China, Mexico, Bolivia, Cuba, Turkey, Iran and Syria consider him legitimate. Juan Guaido was recognized as interim president almost all Latin American countries (with the exception of Bolivia, Cuba and Mexico), USA, Canada, Australia, Israel, Georgia, the EU countries. Guaido threatens to invite American troops, Maduro – to call for help neighboring Cuba, which the United States, in case of more active actions, is threatened with sanctions and a “complete embargo”.

Russia is very actively covering the situation in Venezuela. So active that the plots about Venezuela were “the key one” even on that Sunday, when a disaster struck Sheremetyevo with the Sukhoi Superjet 100. The Russian Federation is interested in this poor but oil-rich country. And the RF helps in a difficult moment.

“In Venezuela, there have never been good or bad governments, only low or high oil prices”, popular Venezuelan writer Willy McKay.

In 1973, when Venezuela was the richest country in South America, oil prices plummeted, but the government decided not to respond to this by reducing social benefits so as not to lose popularity. Hope relied on the fact that oil prices will increase again, but it did not happen – the country got into huge debts, and social programs had to be reduced, the revolution began, 300 people were killed. As a result, all these peripteries brought Hugo Chávez to power, who remained in office from 1999 until 2013.

In 2015, oil prices fell by 70%, and this brought Venezuela down once again. Since then, the economic situation in all pairs rushes to the bottom.

There were a lot of difficult minutes in the history of Venezuela, but the last one came on January 28, 2019, when the United States announced the introduction of sanctions against Venezuelan oil state company Petroleos de Venezuela SA (PDVSA) due to corruption schemes. Thus, the accounts of the American branch of the Venezuelan oil company, CITGO, were frozen, and because of this, it lost all profits. The amount of blocked assets is estimated at $7 billion. All operations with Venezuela were also banned. Yesterday (June 4), Citgo received a court inquiry from the US Department of Justice in connection with an investigation into a corruption case involving PDVSA. The company expressed its willingness to “fully cooperate” with the investigation, it is now conducting more than 20 internal investigations.

The fact is that Venezuela does not depend so much on oil itself, but on the United States. Firstly, the US is the main buyer of raw materials, and secondly, only they have plants for processing heavy Venezuelan crude oil.

Due to the inability to supply oil to the US, Venezuela began to look for ways to deepen cooperation with other countries, primarily with neighboring Cuba and geographically distant, but close in sanctional spirit, Russia.

In May, PDVSA increased the volume of oil shipped to Cuba by 4 times – to 1.4 million barrels. Of this volume, 646 thousand barrels of diluted oil were supplied to the Cuban company Cubametales. Earlier, in April, the United States imposed sanctions on two companies that supply oil from Venezuela to Cuba.

The situation of friendship with Russia is more interesting because the possibilities of the Russian Federation are larger than those of Cuba. For example, in 2008, countries signed a memorandum of cooperation in the implementation of joint strategic projects. After that, the joint oil company PetroMiranda, operating in Venezuela, Venezuela’s account in the Russian bank Eurofinance Mosnarbank (the bank experienced the toughest US sanctions this spring for helping PDVSA to bypass the sanction mode using the El Petro cryptocurrency) and even “classical” agreement on the construction of nuclear power plants, signed in 2010, but never moved into implementation were founded.

Currently, the Russian Federation helps Venezuela not only in the “white”, but it may also be said in the gray plane. Firstly, Venezuela is increasing its oil supplies to the Russian Federation to compensate for shortfalls in the United States.

In March, PDVSA announced that it would redirect oil destined for deliveries to the United States, to Russia. Venezuela’s oil Minister and part-time PDVSA president Manuel Quevedo said that Venezuela will independently decide where to supply its oil, and one of its priorities is to strengthen ties with Moscow.

Secondly, Venezuela can use Rosneft to circumvent sanctions for oil supplies to India, China and Syria (countries that have lost the opportunity to receive oil from Iran). The scheme that allows the country to continue receiving money from the sale of oil, in April, Reuters said. Agency sources point out that the state owned PDVSA transmits to Rosneft its invoices for the sale of oil. The Russian state owned company pays for oil from Venezuela at a discount, and then receives its full value from the final buyer. Payment of bills occurs almost instantly.

The Indian company Reliance Industries, which buys oil from Venezuela for cash, also participated in the scheme: “Reliance Industries paid Russian and Chinese companies for oil supplies from Venezuela. A company spokesman noted that they “are discussing these deals with the US State Department for compliance with US sanctions”.

There is another interesting point. While Venezuela is suffering from the fact that it was rejected by the United States, the Russian Federation is increasing its oil supplies to the States.

In late May, it was reported that over the past six months, the Russian Federation sharply increased oil supplies to the United States. In the first half of the year, 13 Russian ships delivered 5 million barrels of oil and petroleum products to the United States. There are forecasts according to which American refineries may further increase Russian oil intake threefold.

This is due to a twofold decrease in oil production in Venezuela because of the sanctions against PDVSA, as well as due to a decrease in the volume of production by OPEC members.

The level of Russian oil supplies to the United States in March was the highest since 2011. “Ironically, Russians benefit from the collapse of Venezuela: one hostile sanction country replaces another hostile sanction country in supplies to the United States,” said Caracas Capital Market partner Russe Dellen in his commentary for RBC. Do Russians supply their oil to the United States or Venezuelan? It is difficult to say, but any chemical analysis can dispel all doubts.

 

The Russian Federation has a lot in common with the “humiliated and offended” oil countries – oil (a lot of oil), which does not have a positive effect on the standard of living of the population, a dictatorial or close political regime. But the attitude is “not a small, but a proud bird”, but a great power that will gather all the proud and unjustifiably written off of the oil proud birds and teach them to fly with a predatory hawk. 

Kosatka.Media

Tags: oil, sanctions, foreign affairs

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