Undeterred by possible additional US sanctions, Venezuela has struck a new deal with Iran whereby the South American country will swap its heavy oil for Iranian condensate, which it can use to improve the quality of its tar-like crude. The first shipments are scheduled this week, according to Reuters citing well-informed sources.

An enemy’s enemy is a friend; Iran and Venezuela unite

Venezuela’s oil exports are flagging due to the US sanctions, according to the sources, thus came the deal between state-run firms Petroleos de Venezuela (PDVSA) and National Iranian Oil Company (NIOC), which consecrates the cooperation between two of Washington's foes and defies the imposed sanctions. 

One of the sources said that the first phase of the swap agreement is planned to last for six months, but could be extended. Reuters did not provide further details of the pact.

The Venezuelan and Iranian oil ministers, as well as the state-run PDVSA and NIOC, did not reply to requests by Reuters for comment.

The deal could constitute a “breach” of US sanctions imposed on both nations, according to an email by the Treasury Department to Reuters.

The shameless US sanctions 

The US sanctions programs not only forbid Americans from doing business with the oil sectors of Iran and Venezuela but also threaten to impose "secondary sanctions" against any non-US person or entity that carries out transactions with either countries' oil companies.

Secondary sanctions can carry a range of penalties against those targeted, including cutting off access to the US financial system, fines, or the freezing of US assets.

Any "transactions with (Iran’s) NIOC by non-US persons are generally subject to secondary sanctions," the Treasury Department said in response to a question about the deal. It also said that it "retains authority to impose sanctions on any person that is determined to operate in the oil sector of the Venezuelan economy," without determining whether the oil exports deal is a “breach”.

It is worth mentioning that Trump's tightening of sanctions contributed last year to a 38% fall in Venezuela's oil exports to their lowest level in 77 years, curtailing sources of fuel imports and worsening gasoline shortages.

So as sanctions on both nations crimped their oil sales in recent years, NIOC rushed to support Venezuela, including through shipping services and fuel swaps.

Iran, Venezuela swap arrangement casts its shadows on the US

A US source familiar with the swap arrangement between Venezuela and Iran said that US officials are concerned that Iranian diluent shipments could help provide President Nicolas Maduro with a financial lifeline amid his negotiations with the Venezuelan opposition towards elections, which is something the US is not very fond of.

For better, for worse

In a meeting at the UN General Assembly in New York, the foreign ministers of Venezuela and Iran publicly stated their commitment to stronger bilateral trade, despite the US attempts to block it.

The swap contract would provide PDVSA with a steady supply of condensate, which it needs to dilute its output of extra-heavy oil from the Orinoco Belt, its largest producing region, the sources said.

In return, Iran will receive shipments of Venezuelan heavy oil that it can market in Asia, said the people, who declined to be identified as they were not authorized to speak publicly.