Iran and Venezuela Low Profit Grey Market Oil

Iran and Venezuela have been kept out of the regular oil markets for years with US and European sanctions. Iran and Venezuela, each used to export a couple million barrels of oil per day or more if you look further back in time. Venezuela had a longer twenty-year decline because they wrecked their economy and society.

Iran Oil Situation in 2021

In 2020, Iran produced less than 2 million barrels per day (b/d) of crude oil, an almost 40-year low in Iran’s production levels according to EIA (US Energy Information Administration) analysis, which they updated in July, 2021. The global COVID 19 economic decline and international sanctions on Iran’s crude oil limited Iran crude oil exports.

The crude oil and condensate that Iran exported in 2020, more than half went to China. According to analysis from ClipperData, much of the oil that was shipped from Iran to China was relabeled as coming from countries such as Malaysia, Singapore, the United Arab Emirates, Iraq, and Oman.

Iran had planned to export 2.3 million barrels of crude per day in 2021 but is getting about one-third of the target (650,000 bpd) based on estimates. The price for one barrel of crude has climbed from $40 in 2020 to $80 this year. Bloomberg and Reuters also reported this year that Iran exports most of its oil through intermediaries to be delivered to China. Intermediaries get most of the profits.

Iran is seeing about 50% inflation and the value of the rial has dropped about 50%.

Iran has won approval to join the Shanghai Cooperation Organization. It took 14 years for that process to reach this stage. It will likely take 2 year to formalize and become official.

Venezuela Oil Situation in 2021

In August, the production of PDVSA and partners in the Orinoco Belt remained at an average of 290,000 b/d, or 250,000 b/d below the target set by the company. Venezuela does not diluents which are chemicals needed to transport and upgrade extra-heavy crude. Venezuela has heavy oil which flows like semi-hot asphalt.

Overall, Venezuela’s production is at about 510,000 barrels per day.

Venezuela does not have the money or experienced oil staff to fix broken oil infrastructure.

Bloomberg reported in September that China’s top oil producer was sending people to Venezuela to fix critical equipment. China hopes to get Venezuela up to 1 million barrels per day for oil that would be exported to China only.

Venezuela and Iran Hope to Be Better Flunky’s for China

Venezuela and Iran hope to sell more oil to China but these oil sales would be at steep discounts and middlemen would also take a large cut.

SOURCES – SPGlobal, Bloomberg, Foreign policy, EIA
Written by Brian Wang,