As anticipated and expected, OPEC has voted to cut world oil production by more than 2 million barrels of crude a day.
This is not good news for American drivers.
Led by Saudi Arabia, the UAE, Kuwait, Kazakhstan, Algeria, Oman, Iraq, and Russia, OPEC’s move to cut oil production can be seen as a significant blow to the U.S., which is now under considerably more pressure to attain fuel wherever it can get it.
Upon taking office in 2021, President Joe Biden nixed the Keystone XL pipeline with Canada and placed significant caps on oil exploration on American soil.
The U.S., which is the world’s largest consumer of oil, has been producing a record amount of oil but that won’t be enough to satisfy demand, especially given heightened geopolitical uncertainties. In an already-strained oil supply scenario, the U.S. may have to look at countries like Venezuela to help fill next year’s oil importation deficit.
Many analysts believe that the global oil supply shortage was a key driver behind the negotiations with the Venezuelan opposition, reaching an agreement to hold “freer and fairer” presidential elections next year, allowing any opposition leader to compete, implementing deep reforms to the often-criticized electoral system, and allowing international observers to monitor the election and freeing political prisoners.
“From the U.S. government’s point of view, the geopolitical and domestic incentives for such an agreement are multiple, including oil-market risks linked to Russia’s invasion of Ukraine, OPEC’s continuation of production cuts, the uncertainty of whether the Gaza conflict could expand into a broader regional conflict, and the significant increase in Venezuelan refugees crossing the U.S. border,” said Luisa Palacio, senior research scholar at Columbia University’s Center on Global Energy Policy and Francisco Monaldi, fellow and director of the Latin American Energy program at Rice University, in a recent Barron’s commentary.
An additional incentive for Biden’s sanction relief, according to Palacio and Monaldi, was “the perceived need to change U.S. foreign policy to promote democratic change is a key motivation, given the Biden administration’s conviction that the previous administration’s maximum pressure policy against Dictator Nicolas Maduro had failed and made the humanitarian crisis that predated the sanctions worse.”
A recent poll commissioned by Florida International University shows that the majority of Venezuelan-Americans believe the economic sanctions against Venezuela have not been working.
Others have echoed their concerns about the failed U.S. oil sanctions policy against Venezuela.
Elias Ferrer Breda, energy contributor to Forbes, recently wrote that “The Biden administration needs Venezuelan oil on the market—and Europe the natural gas. The consequences of conflicts in Ukraine and Gaza are only reinforcing the strategic significance of Venezuelan oil.”
Oil sanctions relief to Venezuela is also likely to boost shipments of Venezuelan crude to the U.S. and Europe, which means diverting oil from the South American nation to China, currently the top destination for Venezuelan oil.
U.S. Gulf Coast refiners are also expected to benefit, as they were specially designed to process the type of heavy, dense oil that Venezuela produces. Palacios and Monaldi argue that the most significant implication of the oil sanctions relief to Venezuela “is likely to be a redirection of sanctioned Venezuelan oil, which had been flowing to black markets (largely in China,) into the U.S. Gulf Coast refining system.” Before “maximum pressure” sanctions were imposed in 2019, the U.S. imported an average of half a million barrels daily from Venezuela, which was the primary source of oil for Gulf Coast refiners.
The move was welcomed by U.S. refiners. Already after the Biden administration allowed Chevron Corp. to resume oil production in Venezuela late last year, several fuel makers restarted purchases, including top U.S. refiners Valero Energy Corp. and Marathon Petroleum Corp., as well as Phillips 66.
While most American lawmakers in Washington, D.C. take a wait-and-see position with Maduro’s regime, most Republicans agree that the U.S. needs to be energy independent, but may need to look at other options in the short term.
Texas Congressman Brian Babin, whose district is nestled in southeast Texas, opposes buying foreign oil but acknowledges that refineries in his district need to produce.
“We are a blessed nation with the resources to be energy independent,” said Congressman Brian Babin (TX-36) in a statement to Texas Politics. “Shamefully, the president’s all-out assault on fossil fuels is making us needlessly dependent on foreign dictators and their dirty petroleum products. Not to mention benefitting adversaries like Communist China. My district is the energy epicenter of Texas and the country, and my refinery constituents want to do their job and supply energy to America, which will lower costs and strengthen our national security.”
Florida Rep. Gus Bilirakis (R) has also taken a hardline position in support of energy independence.
“The Biden Administration dangerously and outrageously drained down our Strategic Petroleum Reserve by selling oil to China. The Administration’s war on domestic energy has jeopardized our national security, threatened our global competitiveness, and burdened all American families with the high price of fuel. I'll keep pressing to remove barriers, boost energy production, and restore American energy independence,” said Congressman Bilirakis.
Fellow Florida Rep. Cory Mills has in the past said that the U.S. needs to be at the table and take a cautious approach with Venezuela, but did support entertaining lifting the failed oil sanctions.
“The current sanctions against Venezuela’s criminal Maduro regime need to be reassessed as our adversaries (China/Russia) continue to undermine U.S. foreign policy throughout Latin America by helping them skirt those sanctions and furthering their economic and diplomatic relations," stated Rep. Mills.
Rep. Thomas Massie (R-KY) recently said that he is against any economic sanctions, specifically against sanctions on Venezuela because they have only “punished the people in the country, not the government.”
“I’m not for any sanctions. I don’t vote for any sanctions, so if there are sanctions, I'd get rid of them unconditionally,” said Rep. Massie. He added, “Are the sanctions contributing to the crisis? Well, that's my whole position on sanctions. I think they punish the people in the country, not the government, so I’d get rid of the sanctions.”
Monaldi offered that it’s in the U.S.’ best interest to have a reliable supply of oil, telling The Floridian and Texas Politics that, “For the U.S. and the world economy and the Europeans, it’s important to have a significant reliable supply. And that includes the US and Canada being relevant players given that the concerns of other supplies particularly, of course, Russia, and Iran."
Monaldi warned that the U.S. was very vulnerable to OPEC’s production cuts and pricing tactics.
“And the fact that this makes the US very vulnerable to OPEC, and particularly to Saudi Arabia as oil policy and the Saudis as you know, have been trying to prop up the oil price,” added Monaldi. “You would like to have more sources of supply.”
Monaldi also commented that he does not foresee that Venezuela will be adding any significant number of barrels to global supply in the short term. However, U.S. oil refiners along the Gulf Coast stand to benefit.
“It will benefit refiners, but it will have a very limited impact on the price for consumers. Perhaps a little bit on the price of diesel but very unlikely to have any significant impact on the price of gasoline. So short term it's not gonna help significantly but you know, it will help some US refiners,” concluded Monaldi.