Is lifting US sanctions on Iran and Venezuela worth it to replace Russian oil?

The US and its European allies may ban imports of Russian oil in response to the war in Ukraine, US secretary of State Antony Blinken said yesterday (March 6). US officials are now exploring alternatives to Russian oil that could help offset the effects of an import ban, and lifting sanctions on Iran and Venezuela is one option.

But it’s not clear that easing sanctions on either country would make enough oil available to offset the loss in Russian exports, and some analysts argue the US would be better served by boosting domestic production instead.

The US could ease sanctions on Iran, Venezuela

US officials met with Venezuelan officials in Caracas over the weekend to discuss easing sanctions in the hopes of replacing some of the Russian oil US Gulf Coast refiners rely on with Venezuelan crude. Lifting sanctions on Venezuela could also help weaken its ties to Russia, which has been the top buyer of Venezuelan crude oil since 2019, when it was hit by US sanctions over president Nicolás Maduro’s leadership.

Separately, the US has been part of talks with Iran to revive an agreement over its nuclear program in exchange for sanctions relief, and Tehran said today (March 7) it believes a deal can be reached quickly.

Potential impact of lifting US sanctions

The US imported an average 672,000 barrels per day (bpd) of Russian oil and refined products in 2021, or about 8% of its total imports. Iran could help make up for this supply, according to Goldman Sachs’ Damien Courvalin, who told The Economist lifting sanctions has the potential to boost exports by around half a million bpd within six months, and double that within a year. Lifting sanctions on Venezuela would be less impactful, Courvalin said, with the potential to raise extra exports by half a million within a year.

“In theory, more heavy crude from Venezuela could help Gulf Coast refiners looking to substitute for Russian heavy,” Ben Cahill, a senior fellow at the Center for Strategic and International Studies, wrote in an email to Quartz. “But the fastest way to boost output is from shale,” a source of natural gas that’s typically extracted through fracking. Cahill said shale companies have a “strong market incentives to ramp up production in the next 6-12 months,” and the Biden administration can use this opportunity to enlist them and their investors in an emergency response.

Lifting US sanctions is unlikely to make a dent in the global oil market, as Russia exports an estimated 7 million bpd, 60% of which goes to Europe. Some of the US’s European partners are reluctant to cut off energy supples from Russia, and German chancellor Olaf Scholz — whose country gets two thirds of its natural gas from Russia — has officially nixed the idea for the near-term future. The US may move to ban oil imports even if its European allies aren’t yet on board, Reuters reported today.

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