Chavez May Curb Oil Sales to U.S. in Response to Iran Sanctions

Venezuela said it may not be able to guarantee all future oil shipments to the U.S. after President Barack Obama imposed sanctions on South America’s biggest oil producer for doing business with Iran.

The U.S. yesterday imposed economic sanctions on state oil company Petroleos de Venezuela SA’s and six other foreign companies for working with Iran’s energy industry in ways that might bolster the country’s “illicit” nuclear program. PDVSA, as the company is known, delivered at least two cargos of a gasoline additive worth $50 million to Iran between December and March, the U.S. State Department said in a statement.

Venezuelan Oil Minister Rafael Ramirez told reporters yesterday that his government would provide an “adequate” response to the sanctions after analyzing their impact on PDVSA’s production and exports. President Hugo Chavez, an anti- American ally of Iranian President Mahmoud Ahmadinejad, said his country won’t back down in the face of U.S. “aggression.”

“The true impact of this new gringo aggression will be to strengthen the nationalist and patriotic morale of Venezuela,” Chavez said in a message posted on his Twitter account. The yield on 8.5 percent dollar-denominated PDVSA bonds due 2017 jumped 51 basis points, or 0.51 percentage point, to 15.74 percent yesterday, according to prices compiled by Bloomberg. The price fell 1.66 cents on the dollar to 71.33 cents.

Citgo

The sanctions prohibit PDVSA from competing for U.S. government procurement contracts, receiving financing from the U.S. Export-Import Bank and from obtaining U.S. export licenses. They don’t prohibit the export of crude oil to the U.S. The sanctions won’t affect the operations of CITGO Petroleum Corporation, the U.S. unit of PDVSA, said Paul Biszko, an emerging-market strategist at Royal Bank of Canada in Toronto.

For now, Venezuela won’t cut its oil dispatches to the U.S. of 1.2 million barrels per day, though it may in the future stop sending oil to some U.S. companies, Ramirez said.

“They are trying to sanction Venezuela for our profound co-operation with a founding member of OPEC,” Ramirez told reporters in Caracas. “It’s a right from which we will not back down.”

Symbolic Move

The relative leniency of the sanctions and the fact that PDVSA was targeted alongside other companies signals the U.S. doesn’t want to pick a fight with Chavez, said Eric Farnsworth, vice president of the Council of the Americas in Washington.

“It’s a very clear signal that deeper connections between Venezuela and Iranian regime will have consequences in Washington,” Farnsworth said. “It’s symbolic, but it’s not going to impact PDVSA’s bottom line.”

Chavez has led other nations in Latin America including Brazil and Bolivia that have expanded ties with Iran in recent years.

In 2006, he announced the establishment of regular air service between Caracas and Tehran. In 2009, during a visit by Ahmadinejad in which he praised the Iranian leader as a fellow “gladiator of anti-imperialist battles,” he said the U.S. should eliminate its arsenal of atomic weapons before taking Iran to task for its nuclear program.

Iran’s nuclear program has drawn four sets of United Nations sanctions because of concern by the U.S. and other countries that it is being used to develop weapons. Iran says it’s enriching uranium to fuel nuclear reactors.

The U.S. has applied sanctions on Venezuela before. In 2006, President George W. Bush ended all commercial arms sales to the country because Chavez wasn’t co-operating sufficiently in the fight against terrorism.

U.S. Congressman Connie Mack, a Republican from Florida and chairman of the House subcommittee overseeing relations with Latin America, said the new U.S. sanctions don’t go far enough.

“While the State Department’s actions today are welcome, the slow and inadequate response has been frustrating,” Mack said in a statement. “The U.S. needs to move quickly to cut off Chavez’s source of revenue, and bring an end to both his influence in Latin America and his dangerous relationship with the terrorist-supporting Iranian regime before it’s too late.”

To contact the reporter responsible for this story: Charlie Devereux at cdevereux3@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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