Oil ministers recently gathered in Baku, Azerbaijan, the epicenter of an oil rush that took place a century ago. They came for the 13th meeting of the ministers of the Organization of the Petroleum Exporting Countries and non-OPEC states.
Before the meeting, all eyes were on Saudi Arabia and Russia, the leading powers of the OPEC and non-OPEC countries respectively. Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid al-Falih had taken two different approaches to oil prices. Saudi Arabia, whose economy is in deep crisis, is eager to see oil prices rise to US$95-$100 per barrel (the benchmark oil price is now at $67 per barrel). Russia, which has a more diversified economy, had planned on a price point at around $40 per barrel. The tension between them was to have stolen the spotlight for the meeting.
As it happened, however, all eyes went toward Venezuela and Iran, which now hope to be bailed out from their perilous situations by China and Russia.
Sanctions in the world of oil
Both Venezuela and Iran are under very punitive US sanctions. The US government – led by national security adviser John Bolton – has been trying to urge all countries to cut oil purchases from both Iran and Venezuela. The pressure has had an impact.
India, which was one of the main purchasers of oil from both Iran and Venezuela, has cut its imports from Iran. At the Baku meeting, Venezuelan Oil Minister Manuel Quevedo said his country would no longer be exporting oil to India. This is a major declaration. US pressure on India, one of the world’s largest importers of oil, will turn the screws against both Iran and Venezuela.
Iran has been under US sanctions for decades. A brief window of opportunity opened with the Iran nuclear deal. US President Donald Trump has annulled that deal and has tightened US sanctions on Iran. Last November, the United States gave waivers to eight countries (including India and China) to continue to buy Iranian oil for six months, namely until this May. It wants Iran’s oil exports to be cut to less than 1 million barrels per day (the current export total is 1.25mbpd). Waivers will likely not be extended by the United States in May.
Venezuelan oil exports have been deeply impacted by the US embargo. The United States was the largest purchaser of Venezuelan oil. That is no longer the case. US sanctions against oil – and now against Venezuelan gold sales – have suffocated the finances of the South American country. It is deeply vulnerable to these cuts given its reliance on oil revenues to finance not only its government but its consumption.
India in the crosshairs
India had long followed established policy to buy oil from as many commercially viable sources as possible. Politics was not to enter the commercial deals made by India’s national oil company. This ended a decade and a half ago when India felt the pressure from the US administration of George W Bush to vote against Iran at the International Atomic Energy Agency in exchange for a promise of nuclear fuel for India’s nuclear reactors.
Nonetheless, over the years, India continued to buy Iranian and Venezuelan oil, regardless of the sanctions. Bolton has been putting considerable pressure on New Delhi to stop buying oil from Iran and from Venezuela.
Since February last year, India has cut its oil imports from Iran by 60%. It now buys only 260,000 barrels per day (the US waiver allows India to buy 300,000bpd). Iranian Oil Minister Bijan Zangeneh said last year that Iran would offer New Delhi free shipping and extended credit to increase Indian oil purchases. But this was to no avail. The cuts continued and will continue further before the May deadline.
In February, Indian Oil Minister Dharmendra Pradhan met with Quevedo in New Delhi to discuss increased oil purchases, including Indian investment in Venezuela’s oilfields. Just a few days ago, there was a serious conversation in New Delhi about India paying Venezuela in rupees for the oil. Bolton was furious. He called Indian national security adviser Ajit Doval to threaten that if India continued to buy Venezuelan oil, this would “not be forgotten.” On March 12, US Secretary of State Mike Pompeo told Indian Foreign Secretary Vijay Gokhale that India should not become an “economic lifeline” for Venezuela.
In February, one of the world’s largest commodity traders, Trafigura, said it would halt trading oil with Venezuela. India had dealt with Trafigura and with Litasco SA to handle the oil deals. The pressure on India increased when freight charges rose, and insurance posed a serious problem.
India is heading into its parliamentary election season, with the result to come in late May. There is uncertainty as to the result of the election, an uncertainty that shapes India’s further oil imports.
Turn to Eurasia
Hesitancy by India is perhaps the reason Venezuela’s oil minister told the Baku conference that his country would not be exporting oil to India any longer. This is very significant news.
Quevedo said Venezuela would now largely export oil to China and Russia. Both China and Russia, powers unwilling to buckle fully to US pressure, have been consistent buyers of both Venezuelan and Iranian oil. They have also both invested heavily in these economies, buying debt and investing in infrastructural projects.
It is important that Venezuelan President Nicolas Maduro moved the headquarters of Venezuela’s European oil subsidiary from Lisbon to Moscow. Quevedo will go to Moscow in April for the inauguration of the office. At Baku, Quevedo said he would meet with Novak and Rosneft head Igor Sechin.
It might be worth recalling that the United States has sanctions in place against Russia and is in the midst of a trade war against China. If a new bill in the US Senate called the Defending American Security from Kremlin Aggression Act (2019) gets any traction, it will only increase tensions between Russia and the United States. There is little appetite in Moscow or Beijing to conform to US policy, particularly if there are commercial advantages for Russia and China.
On March 11, the US Treasury Department sanctioned Evrofinance Mosnarbank, a Russian-Venezuelan commercial bank, for helping the Venezuelan national oil company to get around US financial sanctions. There is no sign that this sort of activity will end. In fact, if Russia increases its oil purchases from Venezuela, it is likely to develop new financial arrangements to allow the two countries – and China – to trade with each other.
One indicator that Russia will not give up on Venezuela is that Rosneft has sent shipments of heavy naphtha to Venezuela despite the US embargo. This naphtha is necessary to extract heavy crude oil. Two Rosneft tankers – Serengeti and Abilani – will take 1 million barrels of naphtha from Europe to Venezuela, which had almost run out of this diluent. Rosneft has lent Venezuela $6.5 billion since 2014, with the Venezuelan oil company in debt to Rosneft to the tune of $2.3 billion. This investment is significant and only deepens the Russian stake in Venezuela.
Neither China nor Russia is willing to see the United States overthrow the government in Venezuela. Both have commercial interests in the country. Both also seek to deepen a more diversified global order, with the United States no longer seen as a viable policeman. The test for their commitment to multipolarity will be in how China and Russia hold the line on the United States’ attempt to squeeze Iran and Venezuela.
If China and Russia are able to withstand the US pressure – and build alternative financial mechanisms – then a multipolar order can come into being. If they fail, then the world will remain under unipolar dominance.
This article was produced byGlobetrotter, a project of the Independent Media Institute