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Could Iran and Venezuela act together to cut off oil supplies to the U.S.? And, could such an action generate an oil crisis in the United States?

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Hugo Chavez, Ahmadinejad and U.S. Oil Imports

Could Iran and Venezuela act together to cut off oil supplies to the U.S.? And, could such an action generate an oil crisis in the United States?

In the strongest indication yet of official U.S. concern, Secretary of Homeland Security Michael Certoff, spoke about the growing alliance between the two countries. He said that such an alliance could have “considerable implications” for U.S. national security. The Fox News story added: “some reports have indicated that Chavez won’t hesitate to cut off his country’s oil supply to the United States if it launches an air strike or any military action against Iran”. Certoff is quoted as saying: “We are very mindful of that threat”.

Venezuelan President Hugo Chavez has visited Iran three times during the last 15 months and has repeatedly said that Venezuela “will be next to Iran at all times and under any circumstances”. “Together”, he has added, “we will defeat the Empire. Any U.S. attack on Iran will find an immediate response from Venezuela”.

The oil strategy being followed by Hugo Chavez has often included such a threat, as well as the use of Citgo as a political tool within the U.S. and the forming of an axis with Iran within OPEC to promote lower oil production and increase oil prices. The hawkish posture by Venezuela within OPEC has been kept in check by Saudi Arabia, the real oil production powerhouse in the organization.

Could Iran and Venezuela act together to cut off oil supplies to the U.S.? And, could such an action generate an oil crisis in the United States?

Venezuela and Iran oil exports amount to about 3.7 million barrels of oil per day. Of this total only 1.3 million barrels come to the United States, all from Venezuela. Less than 300,000 barrels per day are gasoline imports. Iran plays no direct role as an oil supplier to the U.S. In fact, Iran is currently having its own oil shortages and needs to import up to 40% of its gasoline requirements, as a consequence of serious under-investment in its domestic refinery sector.

Although Venezuela still is a significant oil supplier to the U.S. its relative importance has been decreasing during the last 5 years, going from second to fourth place among U.S. import sources. This is due to the loss of production capacity of the Venezuelan oil industry, a decline brought about by the politicization of the state-owned petroleum company under Chavez. Not only has production capacity declined but also half of the Venezuelan oil exports to the U.S. can only be refined in the United States due to its physical properties. This means that Chavez cannot easily sell this oil to alternative clients such as China or India. For this to be possible these countries would have to build refineries capable of processing Venezuelan oil, something that would take at least three to four years to accomplish, even if they started today.

In parallel with this lack of flexibility Venezuela is facing a decline in its international monetary reserves since Chavez keeps raiding them. These monetary reserves only represent some six to seven months of imports at the current level since Venezuela is now importing close to $40 billion per year, mostly in food. Therefore, an interruption of oil income derived from the cut off of oil supplies to the United States would most probably cause the Chavez’s regime to collapse in less than a year as the result of internal protests, no outside intervention required.

It would be dangerous to assume that Chavez would decide to act in a rational manner. Islamic Ahmadinejad and fascist Chavez have no ideology in common beyond an intense hate of the United States. This means that a major aggressive move by Chavez in the hope of generating a geopolitical crisis is a scenario that cannot be discarded.

Allowing Chavez enough time to secure alternative outlets for Venezuelan oil would almost certainly mean that he would follow through on his threat to cut off U.S. oil supplies. Leaving the initiative in Chavez’s hands could be very dangerous for the United States in the short to medium term.

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Written By

Gustavo Coronel is a petroleum geologist, author and public policy expert, who was elected to the Venezuelan Congress in 1998 before it was dissolved in 1999 following the election of Hugo Chavez as president. Coronel is currently designated as an "enemy" of the Chavez regime.

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