Why the US might lift its oil export ban on Iran and Venezuela

Iran's current production is lower than its peak production, which amounted to 3.7 million barrels per day in the last quarter of 2018.

Global oil markets

Given these production numbers in Iran and Venezuela, there is no guarantee that easing sanctions on their oil sectors – or even completely lifting the ban – will lead to a significant increase in production, which would have a major impact on global oil markets or cause significant disruption in the short or medium term.

This is particularly true given the deterioration and neglect of oil infrastructure in both countries, as well as the time needed to restore investments by international oil companies.

Some analysis suggests that the easing of sanctions has brought production back to its highest levels since the bans began five years ago.

Iran supplies most of its oil to China (1.5 million barrels per day), the world's largest importer. As for Venezuela, production has not yet reached a level that would allow a significant increase in exports.

Volatile times

Iran, Libya, and Venezuela - all members of OPEC - are exempt from production cut quotas.

Iran may have the best chance of increasing production, although the increase in Iranian oil exports comes at a time when global oil markets are fragile, industrial activity is declining, economic growth in China is weak, and fuel demand is falling.

However, the lifting of sanctions on oil exports from Venezuela and Iran could subject them to production cut quotas again, a matter currently under review by OPEC.

Iran may see an increase in exports as soon as the sanctions are lifted, but this will not necessarily be reflected in production figures.

There are oil stockpiles floating on tankers estimated at 80 million barrels, in addition to onshore oil reserves. Most of these barrels are likely to be directed to China through a bartering system, in which goods and industrial products are exchanged outside of the global financial system.

This will continue until sanctions on Iranian oil exports are officially lifted, which would allow global banks to facilitate financial transactions.

Logistical nightmare

Years of sanctions on oil exports have increased logistical challenges significantly due to restrictions born of the international banking system.

As a result, there have been difficulties in maintaining and upgrading the oil tanker fleet, not to mention the inability to secure said tankers and their shipments.

This led to a dilapidated and worn-out tanker fleet whose suitability to return to the seas and oceans could not be determined – the so-called "Dark Fleet" or "Crippled Fleet."

Consequently, ports and import facilities in consuming countries struggle to trust such vessels and their cargoes.

American goals

The current US Democratic administration, which initiated one of the largest drawdowns of strategic petroleum reserves in history, has alternative options to produce more oil domestically – or to rely on its allies such as Canada and Mexico, the largest oil suppliers to America.

The lifting of the ban on oil exports from Venezuela and Iran, if made official, could serve one primary (and political) goal – lowering oil prices in advance of the upcoming election.

However, it's still uncertain whether tight monetary policies will continue to exert downward pressure on oil prices.

It's also unclear how increased crude oil supplies from Iran and Venezuela, should they manage to reach significant levels, will affect the balance of global oil markets.

The price question

Ironically, a few American administrations in the past have attempted to exert downward pressure on oil prices to influence fuel prices, though this hasn't proven effective.

The market dynamics changed significantly after the Covid-19 pandemic. For example, America experienced a decline in gasoline prices in the summer of 2022, not due to political pressures, but due to a decline in domestic consumption.

The central question remains: Can investments from international oil companies return to Iran and Venezuela despite the possibility of a changing US administration and the reimposition of economic sanctions?