New Sanctions Unlikely to Affect Flow of Venezuelan Oil to U.S.

May 24, 2011 5:47pm

ABC's Kirit Radia (@kiritradia_abc) reports:

Today the Obama administration slapped new sanctions on Venezuela’s state-run oil company PDVSA, even though Venezuela ranks fourth among countries which export petroleum to the United States.

U.S. officials stress that the sanctions are specifically designed to allow oil shipments to the United States and world markets to continue while making it harder for Venezuela to support Iran’s energy sector. The new measures are also unlikely to lead Venezuelan President Hugo Chavez to retaliate by cutting off petroleum sales to the United States, according to government officials and oil analysts.

The new sanctions on PDVSA and six other foreign companies penalize them for doing business with Iran’s energy sector in violation of U.S. law. PDVSA owns Citgo, however the sanctions do not prohibit petroleum exports to the United States and deals conducted by any of subsidies. Rather, the sanctions prohibit dealings with the United States government and aim to make it harder for Iran to import the refined petroleum products it needs.

Venezuela is on average the fourth largest source of petroleum imported to the United States, according to the Department of Energy, and while it might seem that Venezuela could hold that over the United States’ head, State Department officials say the United States is one of the few countries that can use and process the type of heavy crude that Venezuela produces.

As much as the United States needs Venezuela’s oil, Venezuela’s leaders need the revenue from massive petroleum sales to the United States.

If Chavez were to cut off oil from the U.S., the administration believes he would be hard-pressed to find another buyer elsewhere, and certainly not one large enough to make up for the loss, according to a State Department official involved in the drafting of the sanctions.

Since Chavez relies on oil revenues to fund social programs that he uses to maintain political support, the Obama administration feels he would be shooting himself in the foot by cutting the flow of oil to the United States, the official said.

In announcing the sanctions today, the State Department said the government’s analysis believes it will not have an effect on oil prices.

So far, that prediction appears to be holding.

“If it was going to really effect the U.S. supply of oil, we’d see the markets going crazy – that’s not happening,” said Andy Lipow, a Houston-based oil market analyst for Lipow Oil Associates.

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