U.S. sanctions Venezuela's oil giant for Iran trade

Reuters, by Andrew Quinn, WASHINGTON | Tue May 24, 2011

PDVSA's El Palito refinery is seen in Puerto Cabello, 150 miles (241 km)
west of Caracas, September 23, 2009. The banner reads: ''Venezuela
now belongs to all''. (Credit: Reuters/Edwin Montilva)

(Reuters) - The United States took aim at Venezuela's state oil giant on Tuesday in its latest effort to disrupt Iran's fuel supplies, threatening to provoke a fierce response from anti-American President Hugo Chavez.

The U.S. sanctions against PDVSA, Venezuela's state oil company, for engaging in trade with Iran are narrowly targeted, and will not affect the company's vast sales of oil to the United States or the activities of its subsidiaries including U.S.-based CITGO.

Nonetheless, the U.S. move against PDVSA and six other oil and shipping companies was a diplomatic escalation as Washington tries to further stifle Iran's energy sector and convince it to abandon a suspected nuclear weapons program.

PDVSA would be barred from access to U.S. government contracts and import/export financing, and the move marks a significant shot across the bow of Chavez, a frequent and vocal critic of Washington who has in the past threatened to cut off oil supplies to the United States.

PDVSA is one of the top five crude oil suppliers to the United States and Venezuela supplies about 10 percent of U.S. crude imports.

There was no immediate reaction from Chavez.

"By imposing these sanctions we're sending a clear message to companies around the world: those who continue to irresponsibly support Iran's energy sector or help facilitate Iran's efforts to evade U.S. sanctions will face significant consequences," Deputy Secretary of State James Steinberg told a news briefing.

The U.S. measures were aimed at squeezing Iran's gasoline supplies, he said.

Other companies covered by the new U.S. sanctions include PCCI, the Royal Oyster Group and Speedy Ship of the United Arab Emirates, Tanker Pacific of Singapore, Ofer Brothers Group of Israel and Associated Shipbroking of Monaco, as well as PDVSA.

'UNWILLINGNESS TO BREAK ITS TIES'

Senator Richard Lugar, the top Republican on the Senate Foreign Relations Committee, said the sanctions on PDVSA were a result of Venezuela's "unwillingness to break its ties with terrorist organizations and countries that support them."

The U.S. move could put Chavez in a bind despite the temptation to impose retaliatory measures, according to Simon Wardell, director of oil markets at IHS Global Insight.

"Ultimately I don't think Chavez will be able to do much about the sanctions. He might talk a lot and make a lot of noise but will continue to sell crude to the United States," Wardell said.

Steinberg said the main objective of the sanctions was to encourage Tehran to engage in real negotiations with the major powers over its nuclear program, which western nations and Israel fear is aimed at producing nuclear weapons.

He said the sanctions would be calibrated differently for each targeted firm. In some cases they were intended to shut down the company's operations, while in others they simply impose new restrictions.

"All these companies have engaged in activities related to the supply of refined petroleum products to Iran," he said.

Venezuela, which in the past has been the largest foreign supplier of crude oil to the United States, has seen its U.S.-bound shipments shrink in recent years as its production falls and as the South American country, home to the largest known oil reserves outside the Middle East, ships more of its oil to other destinations including China.

The United States remains the largest oil trade partner to Venezuela, which shipped an average of 987,000 barrels per day (bpd) to the United States last year, down from 1.06 million bpd in 2009, according to U.S. data.

In 2009, Venezuela said that PDVSA planned to supply Iran with up to 20,000 barrels per day of gasoline, in an effort to help its import-dependent political ally.

Later, in 2010, Venezuelan Oil Minister Rafael Ramirez said PDVSA had halted supplies of fuel to Iran after the country resolved its fuel shortages. However, bills of lading suggest that PDVSA continued to ship some fuel to Iran from its refinery and oil storage facilities on the Caribbean island of Curacao.

To try to get Tehran to drop its nuclear work, the U.S. Congress passed sanctions last year targeting Iran's energy and banking sectors by threatening to penalize foreign companies that do business with Iran.

As a result, major oil companies have halted business with Iran, which is dependent on gasoline imports due to a lack of refining capacity.

The U.S. prohibitions are separate from U.N. Security Council sanctions imposed on Iran for its refusal to halt uranium enrichment. Those sanctions do not include a ban on gasoline sales.

Steinberg said Iran's response to the latest offer of nuclear talks was inadequate and that the United States and its allies would continue to increase pressure, although there has been little sign that Tehran is willing to change its posture.

Steinberg said the United States was imposing additional sanctions on 16 companies and individuals for activities related to proliferation of technologies related to nuclear arms and other weapons of mass destruction as well as cruise and ballistic missiles.

Most of the companies and individuals -- based in China, North Korea, Iran, Syria, Venezuela and Belarus -- were sanctioned due to dealings with Iran, Steinberg said. The new U.S. move will exclude them from U.S. government contracts, bar certain weapons sales and impose other restrictions.

(Additional reporting by Susan Cornwell, Arshad Mohammed, Matt Robinson, Joshua Schneyer and David Sheppard; Editing by John O'Callaghan, Warren Strobel and Vicki Allen)

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