The US must rethink its use of oil and other sanctions after the economic pressure has pushed China, Iran, Russia and Venezuela into strong trading partnerships with each other rather than isolating the countries as Washington intended, a Wilson Center panel of international experts said June 29.
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James Bosworth, author of the Latin America Risk Report, said the US has inadvertently created an "axis of the sanctioned."
"We've pushed together the sanctioned countries and given them a reason to create an alliance and form financial ties ... that allow them to evade those sanctions," he said. "Any individual country being sanctioned could be punished, but together they have the ability to conduct back trading."
The Biden administration is potentially on the verge of removing US sanctions on Iran's oil, petrochemical and shipping sectors if it reaches a deal with Tehran to rejoin the Joint Comprehensive Plan of Action. Doubts the parties can reach a deal have started to emerge as the talks enter a fourth month.
S&P Global Platts Analytics expects the US to remove sanctions on Iran's oil, petrochemical, shipping, and other sectors by September, allowing the country to boost crude and condensate exports to 1.5 million b/d by December, from 600,000 b/d in May.
US sanctions on Venezuela might also be eased under the Biden administration, at least the diesel-for-crude swaps that allow Indian, Spanish and Italian refiners to supply diesel needed for power generation and agriculture in exchange for payment in Venezuelan crude.
An easing of some sanctions would only return Venezuelan oil production to around 700,000 b/d by end-2022, while any major recovery would depend on the removal of US sanctions against state-owned PDVSA, according to Platts Analytics.
Bosworth, one of the co-authors of the Wilson Center's "Venezuela's Authoritarian Allies: The Ties That Bind" book published ahead of the panel event, said Iran, China and Russia have drawn Venezuela into this alliance for their own different reasons.
Iran likely views its relationship with Venezuela as leverage in the nuclear talks. But Bosworth predicts the US will be able to achieve only one of its two main aims with these sanctions: stopping Iran from developing nuclear weapons or overthrowing the Maduro regime in Venezuela.
"Iran is getting benefits from this, and so is Venezuela," Bosworth said. "If they weren't benefiting financially, they probably would work together far less."
The panel had different takes on how Russia views its relationship with Venezuela and the ongoing oil sanctions.
Vladimir Rouvinski, director of the Center for Inter-Disciplinary Studies at Colombia's Icesi University, said Moscow might be willing to help negotiate a political transition in Caracas.
"I think Russia is very much interested in finding a solution to this dead end," he said. "We may see some new developments in the second part of this year -- I wouldn't be surprised."
Rouvinski said Venezuela is "like a suitcase without a handle" for Russia.
"Russia has invested too much in Venezuela," he said. "They can't simply leave Venezuela, but they are very much aware that the cost of keeping the Maduro government will be higher and higher for Russia."
Brian Fonseca, director of Florida International University's Jack D. Gordon Institute for Public Policy, sees Russia benefiting from continued sanctions on Venezuela, as Moscow's exports of heavy crude are more valuable.
Russian crude exports are "largely benefiting from the fact that Venezuela's oil is being tied up in the ground," Fonseca said.
US imports of Russian oil hit a 10-year high of 740,000 b/d in March, including 197,000 b/d of crude oil and 543,000 b/d of refined products, according to the latest data from the US Energy Information Administration. US imports of Russian oil were last higher in August 2010 at 786,000 b/d.
US refiners have increasingly used Russian oil to replace Venezuelan supplies they imported before the US sanctioned PDVSA in January 2019.
India's economic ties
India has been an economic lifeline to the Maduro regime but would view any new Venezuelan government on the same economic terms, said Hari Seshasayee, a trade adviser at ProColombia.
Seshasayee estimates India has bought from Venezuela $26 billion worth of oil in the past five years, serving as the largest source of hard foreign currency for the Maduro regime, while sales to China largely pay down debt rather than generate cash.
If the US eases any sanctions on Venezuela, "India will be back in business," Seshasayee said.
India has complied with US sanctions on Iran and Venezuela, although its Reliance Industries continues to lobby the Biden administration to allow diesel-for-crude swaps to resume.
US crude exports to India have increased during the Venezuela sanctions and would likely fall back if the Biden administration eases sanctions, Seshasayee said.
"I have a feeling the Biden administration may remove at least these diesel swaps if not the entire sanctions," he added.