Venezuela, Iran Firm Oil Swap Contract To Fight US Blockade

The public oil company Venezuela's Oil (PDVSA) signed a contract with Iran’s National Oil Company (NIOC) to swap its heavy oil with Iranian crude condensate. This policy seeks to counteract the effects of U.S. economic sanctions against both countries.

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The Venezuelan company plans to mix condensate oil with extra-heavy oil to produce diluted crude oil, a product that Asian refineries highly demand but cannot buy since late 2019. The Iranian condensate would also allowed PDVSA to produce motor fuel.

So far, this Latin American country has received 2 million barrels of NIOC condensed oil and sent 1.9 million oil barrels as part of the new agreement. PDVSA has boosted oil swaps to minimize cash payments since 2019, when the U.S. Treasury Department blocked the Bolivarian company from using U.S. dollars.

Since last year, PDVSA has imported two cargoes of Iranian condensate in one-off swap deals to meet specific needs for diluents, and it has exchanged its country’s jet fuel for Iranian gasoline.

In 2020, former President Donald Trump's tightening of sanctions contributed to a 38 percent fall in Venezuela's oil exports and curtailed sources of fuel imports, which worsened gasoline shortages in this South American country.

The U.S. sanctions not only forbid U.S. Americans from doing business with the oil sectors of Iran and Venezuela. They also threaten to impose "secondary sanctions" against any non-U.S. person or institution that carries out transactions with either countries' oil company.

These secondary sanctions range from cutting off companies' access to the U.S. financial system to freezing the assets they own in U.S. territory.