Iran, Venezuela Reportedly Reach Deal to Swap Oil for Condensate in Circumvention of US Sanctions

The two countries, both suffering from American sanctions for years, have already carried out exchanges of oil and oil-related products in the past, despite attempts by the US to thwart them and Washington's claims of intercepting some shipments.

Tehran and Caracas have reached an agreement to carry out regular swaps of Venezuelan heavy tar-like oil from the Orinoco Belt for Iranian oil condensate, Reuters reported, citing the accounts of five anonymous sources allegedly close to the deal.

The said condensate can be used by Caracas to dilute its heavy oil into lighter blends, which are normally in greater demand on the market. Reuters also suggested that it will allow Venezuela to use a small amount of lighter oil extracted in the country to make petroleum, instead of spending it on diluting heavy oil for export – the country's main source of income even under US sanctions, according to reports.

A sculpture is seen outside a building of Venezuela's state oil company PDVSA in Caracas, Venezuela June 14, 2016.

© REUTERS / Ivan Alvarado

The agreement was reportedly signed between state-run Petroleos de Venezuela (PDVSA) and the Tehran-operated National Iranian Oil Company (NIOC). The sides shook hands on a six-month-long deal, but it could be extended, Reuters said.

Neither Iranian nor Venezuelan officials commented on Reuters report. The respective countries' state-owned oil companies also did not reply to the news agency's request for comment.

Oil Swap Starts Despite Alleged Threat of US Sanctions

The first swap has already started: very large crude carrier the Felicity, carrying 1.9 million barrels of Venezuelan heavy oil, was sent to Iran earlier this week, according to the news agency. The shipment will serve as partial payment for two million barrels of Iranian condensate, which arrived in Venezuela on 23 September.

The exchange did not escape the gaze of the US government, which is already considering sanctions action against the two states, Reuters said, citing an anonymous source "familiar with the matter". According to the source, the White House is concerned that the shipments might help Venezuelan President Nicolas Maduro stay in power, despite US efforts to pressure him to resign.

Both Venezuela and Iran are suffering under US sanctions against their oil trade and, for both of them, crude exports serve as a major source of income. Multiple media reports have suggested that despite the US sanctions succeeding in cutting the countries off from a majority of their clients, both Caracas and Tehran have allegedly found ways to sell some oil on the side. The American sanctions sent the already stagnating Venezuelan economy into a deeper crisis, and resulted in the oil-rich country suffering from gasoline shortages. Washington had hoped that by leaving Maduro out of money, his presidency would end quickly, but that never happened.

Caracas has found ways to partially alleviate the negative impact of the US sanctions – it introduced cryptocurrency to covertly sell its oil and agreed on shipments of materials from Iran needed to refine domestic heavy oil into gasoline. Iran has also weathered the pressure from the sanctions, even managing to continue the expansive policy of modernising its domestic defence industry. Tehran also plans to negotiate for the removal of sanctions with the new US administration of Joe Biden.

The latter has so far refrained from hunting foreign vessels sailing under non-Iranian flags that purportedly carry Iranian export oil – a practice employed under President Donald Trump. It is unclear if that approach will persist if Iran and Venezuela start swapping their oil and oil-related products under the reported deal.