The Wall Street Journal
If the evidence is proven true, the Obama administration may be forced to revise its energy policies.
By MARY ANASTASIA O’GRADY
Evidence surfaced recently showing that the Venezuelan state-owned oil monopoly, known as PdVSA, has been selling “reformate”—used to upgrade the quality of gasoline—to Iran in violation of the Comprehensive Iran Sanctions, Accountability and Divestment Act (Cisada) of 2010. If the documents turn out to be authentic, Hugo Chávez is baiting President Obama. Failure to respond will undermine not only Cisada but U.S. credibility more broadly.
It is far from clear—despite assurances from Secretary of State Hillary Clinton before the House Foreign Affairs Committee last week—that the U.S. will “act” if violations are proved. Mr. Chávez has been warning, off and on for more than a decade, that he is quite ready to disrupt supplies of Venezuelan oil to the U.S. market. Some oil-market observers believe the Obama administration is spooked by that threat. But if so, it is not for the reasons you might think.
Bob Tippee, editor of the Houston-based magazine Oil & Gas Journal, told me last week in a telephone interview, “We can do without [Chávez’s] crude more easily than he can do without his oil revenue.” Many other oil analysts echo that claim, and surely the administration knows it’s true. But to “do without” Venezuelan crude implies changing the current administration energy policy. That, ahead of the 2012 presidential election, risks the wrath of some of Mr. Obama’s strongest supporters.
The U.S. already had the 1996 Iran Sanctions Act in place when, in July 2010, Mr. Obama signed Cisada. The idea was to further tighten the economic screws on the regime so that it would be forced to let go of its dangerous nuclear ambitions. Key ingredients of Cisada include “sanctions with respect to the development of petroleum resources of Iran, production of refined petroleum products in Iran, and exportation of refined petroleum products to Iran.”
Middle East experts say that Cisada has been working to discourage businesses and governments from providing gasoline or the means of refining it. But scanned documents posted by pajamasmedia.com appear to show that PdVSA shipped chemicals used in the production of fuel to Iran in December. One two-page order form, on PdVSA letterhead, shows cargo originating in Bullenbay, Curacao, destined for the port of Fujairah in the United Arab Emirates. The National Iranian Oil Company is the buyer. There is also a bill of lading. (Venezuela denies that it is violating Cisada.)
While it is possible these documents are forgeries, experts in the petroleum industry have told me that they contain enough detail to be verifiable. Testifying before a congressional panel in February, U.S. assistant secretary for Western Hemisphere affairs Arturo Valenzuela said the U.S. is “looking at that issue” and “trying to determine if in fact there is a violation.” Sanctions could be carried out through the financial system, but Mrs. Clinton spoke last week of “a certain evidence standard” that the State Department has to meet in order to satisfy Congress.
So much tiptoeing around Mr. Chávez gives the impression that Washington will go to great lengths to avoid a confrontation with the Venezuelan bad boy, presumably because he has oil. Yet it is Mr. Chávez who ought to worry about a breakup with Uncle Sam.
To get top dollar for its heavy oil, Venezuela must send it to specially equipped refineries on the U.S. Gulf Coast. Otherwise it has to be sold elsewhere, in faraway markets not prepared to handle it. That means the price will be cut to adjust for transportation and higher refining costs. For a military government that relies on oil revenue to buy its legitimacy, this will not be a welcome development.
The U.S., on the other hand, has plenty of options. As Mr. Tippee points out, if Mr. Chávez cuts off the U.S., Washington could always “tap the strategic petroleum reserve and wait him out.” This, he says, is “all hypothetical” but the point is that with U.S. imports from Venezuela in 2010 around 993,000 barrels per day and 727 million barrels now in storage, there is no cause for paralyzing fear.
Mrs. Clinton might also approve the proposal to extend TransCanada’s Keystone XL pipeline to the Gulf Coast. The delay of that decision—due to EPA roadblocks—is costly: According to a recent paper from the Washington-based Energy Policy Research Foundation, “the pipeline extension would permit the shipment of an additional 509,000 barrels per day of Canadian oil to Gulf Coast refiners.” Then, of course, there is the moratorium on deep-water drilling, which has been lifted in name only.
The upshot here is that there is no intrinsic reason why Mr. Chávez should be able to defy the embargo with impunity. The problem lies with the vulnerability created by Mr. Obama’s policy of discouraging domestic fossil-fuel use and development. Americans may not understand this, but the Venezuelan dictator does.
