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Are US and Iran headed for a showdown in Venezuela over gasoline shipments?

Five Iranian tankers carrying gasoline are headed for Venezuela and are forecast to arrive this weekend in a sign of expanding economic chaos in Latin America’s one-time largest oil producer. (Leer en español)
21 May 2020 – 11:15 AM EDT
An Iranian flag flutters on board the Adrian Darya oil tanker, formerly known as Grace 1, off the coast of Gibraltar on August 18, 2019. Crédito: Johnny Bugeja/AFP via Getty Images

Despite U.S. sanctions and diplomatic pressure on both countries, five Iranian oil tankers carrying gasoline are now sailing across the Atlantic towards Venezuela, adding to growing tensions in the region.

The potential showdown has sparked fears for renewed confrontation between two old enemies, Iran’s Islamic Republic and the United States, which might further disrupt oil markets already hit hard by the coronavirus crisis.

Iranian oil tankers have never previously delivered oil to this hemisphere and represent an unprecedented defiance of U.S. dominance in the region, which would be deeply embarrassing to the Trump administration.

“I am surprised it hasn’t happened before as we have pushed both these countries into a corner,” said Fernando Cutz, former White House National Security Council director for South America. “Iran and Venezuela are so isolated from the world that it makes sense they would eventually touch each other. We have already sanctioned them so what have they got to lose,” he added.

US response

Besides military action, Cutz said there was very little the U.S. could do to prevent the tankers from reaching their destination. “ There’s no legal basis in international law for the U.S. to interfere in this,” he said. “The only thing U.S. sanctions do is prevent them from operating in the U.S. or using the U.S. dollar. All they say is, we don’t like you and stay away from us,” he added.

Last month the U.S. Navy deployed a flotilla of destroyers in the Caribbean in what it described as an enhanced counter-narcotics operation.

But it remains highly unlikely that U.S. military personnel would physically confront or attempt to board the Iranian vessels, analysts say.

On Tuesday, Admiral Craig Faller, who heads the U.S. Southern Command in the Caribbean, seemed to play down the possibility of the U.S.’s Caribbean fleet being used to stop the Iranian vessels. “The oil tankers appeared to be an attempt by Iran to “gain positional advantage in our neighborhood in a way that would counter U.S. interests,” he said. “We are tracking that closely and sharing [intelligence] with our partners,” he added.

Instead, U.S. officials are looking at possible sanctions to prevent Iran from making further oil shipments to Venezuela, including targeting companies that were involved in the shipments, as well as the crew of the tankers.

The advisory warned of U.S. sanctions against anyone “knowingly engaged in a significant transaction for the purchase, acquisition, sale, transport or marketing of petroleum.”

The State Department did not immediately respond to a request for comment from Univision.

"Blood gold"

Venezuelan opposition leader, Juan Guaido, who is recognized as the legitimate president by more than 50 countries, including the United States, told a video conference on Wednesday that the Iranian oil purchase was a violation of law and was paid for via illegal gold mining.

“They are paying for this gasoline with 'blood gold,' without being contracted with the approval of the national parliament," he said. “We are concerned about the security of Venezuelans and Latin America due to this attempted Iranian presence on Venezuelan soil," he added.

Guaido said the tankers held an estimated 1.25 million barrels of gasoline, representing about two days of Venezuela’s current daily oil production, or about 10 to 20 days’ supply of gasoline for the country.

However, experts said it was unlikely that the Iran could sustain a steady long term supply of gasoline to Venezuela, especially given the cost of transporting it halfway around the world.

That would require a flotilla of tankers that Iran and Venezuela don’t possess,” said Maximilian Hess, an oil analyst at AKE International, a political risk and security consulting firm in London. “Someone like China would have to be involved to make this a long term sustainable business,” he added.

Gas lines

The fact that Venezuela’s socialist leader Nicolás Maduro is turning to Iran for help is seen by some observers as a further sign of his weakness in the face of a longstanding economic and political crisis.

Gasoline shortages have grown acute in recent months in Venezuela under Washington's "maximum pressure" campaign on Maduro, who is accused of corruption, human rights violations and election fraud.

U.S. sanctions have interrupted the supply of refining products from Russian and Spanish petroleum companies that Venezuela needs to process its heavy form of crude oil.

While Venezuela still exports around 550,000 barrels of oil per day, it is fast running out of cash, which also makes the Iranian oil deal an unlikely long term venture.

I don’t think Venezuela can afford it and the Iranians can’t do it for free. They are in bad shape as well,” said Russell Dallen, an oil expert at Caracas Capital, who is tracking the ships using maritime data.

In another sign of desperation, Venezuela this week launched legal proceedings against the Bank of England to try to force it to release 1 thousand million dollars-worth of Venezuelan gold being held in its vaults. The gold is being retained following British and US sanctions on Venezuela.

Venezuela says it needs the gold reserves to use the funds to fight the spread of coronavirus and it says it has agreed for the money to be sent directly to t
he U.N. to ensure it is not used for other purposes.

The five ships - the Clavel, the Forest, the Faxon, the Fortune and the Petunia - appear to have been loaded from the Persian Gulf Star Refinery near Bandar Abbas, Iran, which makes gasoline. The ships then traveled around the Arabian Peninsula and through the Suez Canal into the Mediterranean Sea, according to Dallen.

For Iran, the oil shipments provide an opportunity to get around U.S. sanctions that have starved the Islamic regime of cash while stirring up anti-U.S. nationalism at home.

Analysts have been warning for months about the growing chance for a renewed confrontation between the U.S. and Iran, even since Trump unilaterally withdrawing America from Tehran’s nuclear deal with world powers in 2018.

In April, the U.S. accused Iran of conducting “dangerous and harassing” maneuvers near American warships in the northern Persian Gulf.

Iran has warned the United States not to interfere with any of its vessels. An Iranian Foreign Ministry spokesman said on Tuesday that “the U.S. will have to suffer the repercussions that arise out of any unthinking measure against the Iranian vessels.”

If the U.S. does intervene, some experts fear Iran might retaliate by trying to block the Strait of Hormuz in the Persian Gulf, one of the world’s principle arteries for oil tankers.

While Iran might like to do that, the straits are protected by close international scrutiny, including maritime patrols by warships and planes. “If they tried they would be prevented pretty quickly from both aerial and naval positions,” said Jessica Leyland, a Middle East political risk analyst at AKE in London.

Iran might make hostile moves in the Gulf playing on these fears, she added, but it knows that “closing the straits is not feasible.”

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