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Commodities 2021: Biden's softer stance on international sanctions unlikely to trigger big waves in oil markets


Iran pushing for immediate nuclear deal in January

Venezuela woes compounded by devastating humanitarian crisis

Any sanctions changes unlikely until H2 2021

  • Author
  • Jordan Blum
  • Editor
  • Gary Gentile
  • Commodity
  • Energy Oil
  • Topic
  • US Policy US Sanctions on Venezuela's PDVSA Iran Sanctions

President-elect Joe Biden could take a more lenient approach to heavily sanctioned nations such as Iran and Venezuela, but the timing and impacted volumes of crude are unlikely to have big impacts on the oil markets that will remain dominated by the ongoing coronavirus pandemic.

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Outgoing President Donald Trump took a hard-line stance on sanctions, undoing the US-Iran nuclear accord and adding new sanctions to the already economically unraveling Venezuela, while recognizing an opposition administration against President Nicolás Maduro. However, Maduro is consolidating more power heading into 2021, including through boycotted elections on Dec. 6, while Biden could reinstate a similar Iran deal negotiated under former President Barack Obama.

Any Iran deal though is unlikely until the back half of 2021, analysts argued, while Venezuela lacks for now the means and workforce to quickly turn around its plummeting oil industry even if Biden adopts a softer stance for humanitarian purposes.

Biden's planned appointees for secretary of State, Antony Blinken; Treasury secretary, Janet Yellen; and climate envoy, John Kerry, all served in the Obama administration in key roles and are unlikely to diverge greatly from those previous geopolitical policies toward the two OPEC allies, experts said.

Regardless, the major focus for 2021 is on the COVID-19 crude demand crunch and how quickly vaccines can help unwind economic lockdowns that have picked up in the late fall around much of North America and Europe, said Tristan Abbey, president of Comarus Analytics and a recent senior staffer on the US Senate Committee on Energy and Natural Resources.

"The result for global oil markets is status quo for at least the first half of 2021. Iranian and Venezuelan barrels are drops in the ocean," Abbey said. "In terms of significance, vaccines outweigh Venezuela, immunity outweighs Iran, and modern medicine outweighs Maduro and the mullahs."

And Trump's sanctions have never halted Iran's and Venezuela's crude flows as much as they were intended, especially courtesy of continuing exports to China, which has its own ongoing trade war with the US, said Samir Madani, co-founder of

"Venezuelan exports are being facilitated mostly by the Chinese and Russians, with oil going to China," Madani said. "A lot of the vessels we see picking up that oil also head over to Iran to do the same, and Iran too delivers heavy sour crude to the same destination as Venezuela."

The crises have pushed the two sanctioned nations together. In fact, Iran is even shipping more fuel to Venezuela, which has ongoing refinery problems, and helping to export some Venezuelan crude. Some of those fuel barrels were intercepted and auctioned off by the US this summer.

By the numbers

Iran. which historically has the capacity to produce more than 4 million b/d, has seen its production fall from an average of 3.55 million b/d in 2018 down to 1.96 million b/d in October, according to OPEC secondary sources, with exports of nearly 1 million b/d, including condensate.

For context on the timing, the US implemented stricter new sanctions on Iran in May 2018 after abandoning the nuclear deal.

S&P Global Platts Analytics expects any Iranian sanctions relief is unlikely until late 2021. So the projection is for Iran to add about 100,000 b/d in 2021 and much more notable growth of 750,000 b/d in 2022 when global demand is expected to be stronger.

However, Platts Analytics noted that, in the run-up to the Jan. 20 Biden inauguration, the Trump administration likely will continue its maximum pressure campaign on Iran and may attempt to reclassify sanctions as terrorism charges. The market impact still is likely to be limited, as oil volumes have already bottomed out and Biden may overturn any additional sanctions by executive order.

As for Venezuela the numbers are more dire.

Venezuela's crude production has plunged from nearly 2.5 million b/d five years ago down to just 320,000 b/d in October, according to the US Energy Information Administration. That's the lowest level since EIA started recording production in 1973.

S&P Global Platts Analytics expects production to fall to 275,000 b/d in November and December, with only a very modest tick back up in 2021.

The state-run oil company, PDVSA, will need much more time and financial resources to bring back its workforce and get much of its infrastructure up and running again.

Tricky diplomacy

The Trump administration has continued to tack on more sanctions and, in November, already-poor relations with Iran were further exacerbated by the assassination of Iran's chief nuclear scientist, Mohsen Fakhrizadeh. Iran has blamed US ally Israel, which hasn't taken credit.

The Iranian Parliament in response is giving the US two months to lift some sanctions or face Iran investing more in its uranium enrichment program. Of course, that deadline would fall in the early days of the Biden administration.

Ethan Bellamy, an energy strategist at East Daley Capital, said a more dovish policy on Iran could lead to the Iranians taking US market share in global oil production.

But Matt Reed, vice president of Foreign Reports, a Washington-based consulting firm focused on Mideast oil politics, doesn't expect the Biden administration to be in any rush to act.

Potentially straightforward policy negotiations that would allow Iran to produce and export more oil are much more complicated politically, he said.

"Biden can't be seen as a pushover, and he'll face bipartisan resistance on the Hill," Reed said. "Meanwhile, the Iranians never want to appear too desperate, and they've categorically rejected the kind of grand bargain Biden says he wants to achieve, including non-nuclear issues."

Similar challenges persist with Venezuela, especially since Biden also recognized the opposition leader, Juan Guaidó, last year and Biden favors multilateral sanctions over US ones, Reed said. "That's hardly an encouraging sign when Venezuela's oil industry is bleeding out."

"One thing Biden has been consistent on is the need to fine-tune sanctions for humanitarian reasons, which is possible at the margins," Reed said of both Venezuela and Iran. "But lifting oil sanctions means putting money in the pockets of these regimes. Any relief he offers will be framed as a bailout for bad guys. They have to reciprocate in meaningful ways if he's going to make a move."