What’s driving the US decision to lift sanctions on Venezuela’s oil sector?

After years of frost and friction, relations between the US and Venezuela appear to be taking a turn for the better. On October 16, Washington was reported to be gearing up to offer Caracas some relief on the sanctions that have kept most investors away from the Venezuelan oil industry since early 2019.

Then on October 17, it took a concrete step in the direction of sanctions relief. On that day, US officials were in Barbados to witness the signing of an agreement between Venezuela’s political opposition and government on guarantees for the country’s next presidential election. According to the provisions of that document, that election will take place in the second half of 2024 and will be open to opposition candidates, each chosen freely according to the rules of their own parties. It will also be monitored by international observers.

The US government has not responded to the signing of this agreement with a pledge to lift sanctions immediately – or even a statement on how it might reward Venezuela for its actions. Assuming that Caracas upholds the document’s provisions, though, it will have met many of the conditions that Washington has set for the elimination of existing trade restrictions. As such, it will be eligible for some degree of sanctions relief.

In some respects, this deal represents the culmination of ongoing efforts by the administration of US President Joe Biden to reach an accommodation with Caracas. Ever since Biden took office in early 2021, US officials have been signalling that Washington was not going to be as confrontational with Venezuela as it was under former President Donald Trump. Instead, they have focused more intently on diplomacy and negotiation.

But in other respects, the new deal is not just a product of a new policy approach; instead, it has also been driven by emergent shifts on the geopolitical scene and in the energy sector. bnl/IntelliNews has identified three such shifts and will discuss each of them briefly.

Russia: The outbreak of war between Russia and Ukraine in February 2022 rocked global petroleum markets. Initially, it caused oil prices to skyrocket, due to uncertainty about Russian crude exports to Europe. This price surge eventually eased, but it was followed by significant shifts in trade flows. After its oil was embargoed in the US, the UK, the EU and other developed countries, Russia began directing a much larger portion of its exports to China, India and other Asian destinations.

This shift raised enough questions about the global supply/demand balance that the US began looking at options for making more oil available to markets that had traditionally depended on Russian supplies, including the EU. One of those options was Venezuela, which possesses some of the largest crude reserves in the world – and which was anxious to monetise larger volumes of its crude after seeing production and exports decline following the imposition of US sanctions in 2019.

These considerations led the Biden administration to start loosening the restraints on Venezuela’s oil industry last year. In the second quarter of 2022, Washington gave Spain’s Repsol and Italy’s Eni a green light to resume exports of Venezuelan oil. The two European companies duly carried out their first shipments in June and July of the same year.

Then in the fourth quarter of 2022, it gave Chevron, a US major, permission to restart oil production and in Venezuela. Chevron responded by using crude that it had put into storage prior to the launch of the sanctions regime to launch exports in January 2023. Then a few months later, it resumed upstream production in cooperation with Venezuela’s national oil company (NOC) PdVSA.

This shift in policy has helped boost Venezuelan oil production – a welcome development for the US, given that the war in Ukraine continues and trade in Russian crude remains proscribed in some regions and (theoretically) subject to the G7 price cap elsewhere. But it remains to be seen how much it has diminished Russia’s overall influence – especially in Venezuela, which has maintained close relations with the Kremlin in recent years. Indeed, Moscow and Caracas signed a package of 16 co-operation agreements on October 16, the same day that the Washington Post broke news that sanctions relief was in the works.

Iran: Russia is not the only country of concern for the US. Iran has also been the target of US sanctions for 43 years; indeed, the sanctions regime that targets Tehran is considerably older than the one currently targeting Moscow, but now the latter has suddenly leaped to the most sanctioned state on earth. However, US worries about Iranian influence – both in Venezuela and elsewhere – have probably heightened considerably since Hamas’ murderous charge through the Gaza Envelope in southern Israel on October 7.

The US government has made its support for Israel clear, as the latter carries out bombing attacks and prepares for a ground invasion of Gaza with the intent of rooting out Hamas once and for all. At the same time, the Iranian government previously supported Hamas. It is not yet known how much, if any, support Tehran provided for the surprise attack on Israel. However, there is concern among US officials – and presumably among Israeli officials as well – about the carnage that might follow if Iran’s government were to instruct or encourage another one of its clients to attack Israel.

This concern is not theoretical in nature. Iran does have such a partner: Hezbollah, the Shi'ite militia group that controls a significant amount of territory in southern Lebanon. And since October 7 Hezbollah has been on alert on Lebanon's southern border, firing on Israel in a low-level tit-for-tat exchange. Meanwhile, Syria, which is an ally of both Iran and Russia, has been ramping up the number of its troops deployed along the disputed border in the Golan Heights, raising concerns about the possibility of conflict in Israel’s north-east.

Altogether, these factors represent threats that are smaller in scale than Hamas and its rule over Gaza. However, they have raised the decidedly unwelcome spectre of a grinding, bloody three-front war for Israel.

Under such conditions, the US has more incentive than ever to look for ways to diminish Iranian influence in Venezuela – and that influence is considerable in the oil industry. Iran has been one of the few countries willing to defy US sanctions in order to continue cooperating with Venezuela in the oil sector. It has not only handled Venezuelan oil exports but has also provided PdVSA with the diluents it needs to refine its extra-heavy crude and the expertise, parts and equipment it needs to repair the refineries and infrastructure that have broken down due to lack of repair and maintenance. Iranian engineering firms, including MAPNA Industrial Group and several partner companies, have signed several deals with Venezuela in recent years to boost overseas operations after successful expansion campaigns at home.

In theory, one way to lessen Tehran’s influence in Caracas would be to lift the sanctions that have isolated PdVSA and its subsidiaries from most other partners, leaving it few choices but to cooperate with Iranian tanker operators, Iranian oil companies, Iranian refining experts and so on. It has yet to be seen, though, how Tehran will react to a lightening of US sanctions – or whether it will attempt to preserve the leverage it has built up in Caracas.

Migration: In the meantime, there is yet another factor that may be driving a shift in US policy – namely, a surge in migration.

As bnl/IntelliNews has reported previously, the number of migrants moving northward through the Darien Gap, the forested wilderness separating Panama and Colombia, has risen significantly this year. Moreover, Venezuelan nationals have been the largest cohort among the migrants, nearly all of whom are heading northward through Central America toward the US-Mexico border with the goal of either seeking asylum in the US or entering it illegally.

This swelling tide of migration is provoking political tensions within the US and also putting a number of Central American communities, many of which are already hard-pressed to provide basic services to their residents, under serious strain. It has also put US authorities in the position of having to decide what to do with a large number of undocumented Venezuelan migrants who do not qualify for asylum. Washington has not been able to deport all of the migrants who fall into this category due to tensions with Caracas, but US officials announced earlier this month that they would be resuming direct deportation flights to Venezuela in the near future. On October 16, the Washington Post described this development as “another sign of thawing relations.”

To be sure, the US government has not confirmed that the three factors listed here are among the considerations driving its policy shift toward Venezuela. Rather, news reports on the upcoming deal have hinged on the progress of talks between the Maduro administration and the Venezuelan political opposition.

It does seem likely, though, that geopolitical developments have been influencing the Biden administration’s policy toward Venezuela at least since Russia’s unprovoked attack on Ukraine in February 2022. As such, it seems just as likely that this year’s uptick in migration and the recent outbreak of war in the Middle East have made the lifting of sanctions seem more urgent than ever.