Deal or no deal: Trump, Iran, Venezuela, and a million barrels of oil

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Jeff Mower:

Hello and welcome to the Oil Markets podcast by S&P Global Commodity Insights, where today, we will be discussing the Trump administration's strategy on Iran and Venezuela and what that means for oil markets.

I am Jeff Mower, Director of Americas Oil News. I'm joined today by senior policy editor Kate Winston, oil futures editor Chris van Moessner, and Americas crude pricing manager Pat Harrington. Welcome, everyone.

US President Donald Trump has resumed a maximum pressure campaign against Iran in an attempt to force the Mideast oil producer and OPEC member into halting its nuclear weapons program. Trump is confronting a weakened Iran, whose leaders are faced with rising inflation and recently power shortages. Add to that, Iran's leaders can no longer rely on the country's proxies in the region, namely Hamas and Gaza, Hezbollah and Lebanon, and Bashar al-Assad's regime in Syria.

Trump, however, has so far taken a less abrasive approach to Venezuela, showing some initial signs of diplomacy. Let's start with Iran. Kate, Trump directed the Treasury Department on February 4th to resume this maximum pressure campaign on Iran. What is Trump's goal here, and how did Iran react to that rhetoric?

Kate Winston:

Yeah, so Trump's ultimate goal here is a nuclear peace deal with Iran. The February four memo to his cabinet is a means to that end. Actually, Trump said he was pretty torn about signing that memo. At the signing, he said he hoped the US wouldn't have to use it very much, because he would rather come to a nuclear deal with Iran. His goal, sort of a secondary goal to that, to get to that end, is he says this memo, he wants it to push Iran's crude exports down to zero.

Of course, Iran was not very happy about that, as you can imagine. The day after Trump set that memo to his cabinet, the Iranian president called for OPEC to coordinate a response, and saying that if the OPEC members act united, the US would not be able to pressure one member with sanctions like this.

Jeff Mower:

Yeah, Iran's oil exports have dropped quite a bit. I guess that was during the first Trump term. They fell from 2.8 million barrels a day to only, what was it, 260,000 barrels a day in September, 2019. They've since rebounded to around 1.8 or a million barrels a day, but actually by January, they had already fallen by 1.2 million barrels a day.

I thought it was interesting, there's been some reaction internationally since Trump has come in with the Shandong ports in China saying they weren't going to take in sanctioned crude. I don't think they really named Iran, but that seemed to be the main country they were targeting there. What power does Iran have to respond in or around this command and said, "Hey, we're going to act forcefully?"

Kate Winston:

Yeah, the OPEC call for cooperation, that's the only thing I've seen so far, whether there's other stuff going on behind the scenes. Yes, China has already reduced its imports from Iran sort of in anticipation of this sort of thing from the US, and people are in disagreement on how big of an impact this maximum pressure policy will have this time around.

Iran and other countries have gotten so much better at evading sanctions. Some say it'll impact only a few hundred thousand barrels a day of Iranian crude. Others say as much as a million barrels a day of crude if the sanctions really go hard against Iran and the Chinese buyers of Iranian oil.

Jeff Mower:

I guess China's maybe wanting to play ball to some extent, just because they're concerned about tariffs, although that hasn't seemed to stop Trump from imposing additional tariffs on China.

Kate Winston:

Yeah, I imagine that's all part of the conversation.

Jeff Mower:

Yeah, exactly. Like you said, it's kind of hard to tell exactly what's going on behind the scenes, right?

Kate Winston:

Yeah.

Jeff Mower:

Now, Chris, when it comes to the law market reaction to that, oil prices have actually fallen a bit from say a couple of weeks ago. High gasoline prices are always a concern for presidents. Why isn't this kind of rhetoric boosting prices more, and is Trump doing something else to sort of keep prices lower?

Chris van Moessner:

Yeah, it's a great question. When I try to think about that, I think about day one of the Trump administration, he is inaugurating these signs, is unleashing American Energy Executive Order, declares this national energy emergency ,and then lets it sit. Prices are down, US prices are down about five bucks or 6% from their pre-inauguration peak.

As far as market's concerned, just seems like it set the tone for his administration, so that as you look at these moves against Iran or in another realm, the tariff actions, the driving force that Trump set on day one as he wants lower prices. I think his markets weigh the impacts of these actions against his stated thesis of lower prices. They're waiting for the other shoe to drop in terms of why prices should be higher.

Jeff Mower:

What I think is interesting, even though he's made recent statements about Gaza, right, he's said that the US would take over Gaza, rebuild it, and Israel recently, I think it was today, approved Trump's plan to evacuate Gaza if some Israeli hostages are not released by February 15th. Even that isn't really, you tell me, is that really boosting prices, or are prices still kind of held back?

Chris van Moessner:

Yeah, that's a developing situation. As you said, even today, there's some statements about the longevity of the ceasefire, but for now, the ceasefire is holding, right? As far as the kind of pervasive risks that we saw last year, those are lessened now. Your ship's transiting to Red Sea again. The Houthis have stood down. In the north, the Hezbollah's ceasefire is holding in Lebanon with the Assad's ouster.

Hezbollah is feeling more isolated. Those risks have kind of faded in the immediate term. We'll see what this latest round of rhetoric means for the ceasefire, but as it is now, those risks are kind of gone. The bottom line, I think, from markets, is that when you're looking at OPEC and OPEC+ group, there's ample spare capacity. Even if you're losing a million barrels a day of Iranian crude, there's 5 million barrels per day spare OPEC capacity out there. These barrels are sort of seemingly easily replaced.

Jeff Mower:

No, fair enough. When it comes to Venezuela, Kate, what has Trump's approach been so far with Venezuela in contrast to Iran?

Kate Winston:

Yeah, so in the last Trump administration, he had maximum pressure sanctions on Venezuela as well, and he has not returned to that so far. It seems like he is sort of taking a different approach or a slower approach in an effort to get some sort of deal on migration. He hasn't imposed new sanctions, and he hasn't removed the company-specific licenses allowing companies to operate in the oil sector there.

At the same time, his envoy, Rick Grinnell, traveled to Venezuela to meet with Venezuelan president, Nicolas Maduro, at the end of January, and he secured the release of some Americans that were being held there. Also, Maduro agreed to accept the return of members of the Tren de Aragua gang that are in the US custody. It does appear that that migration was that top priority of discussion, and maybe he's maintaining the licenses to keep those tax going.

Jeff Mower:

Yeah. Do you think, like Trump said, I believe it was when he first came into the office, that the US would probably stop buying crude from Venezuela. Do you think that was just sort of a setup for further negotiations?

Kate Winston:

Yeah, I think it could have been. The people I talked to saw that as a negotiating tactic, and then just not that many days later, that was a day one comment, and then by the end of January, here's this special envoy meeting with Maduro. That might've been one outcome he was looking for with that comment. On the other hand, the Trump administration also just seized one of Maduro's jets for violating sanctions, so he's still willing to ruffle some feathers.

Jeff Mower:

How many jets does he have left? Do we know?

Kate Winston:

I don't know. Biden took one, too. He's down at least two jets.

Jeff Mower:

If Trump were to halt the export, to halt the imports of crude from Venezuela, Pat, what kind of impact would that have do you think, on US spot crude markets?

Patrick Harrington:

Well, I think it's important just to think about the scope. If you're talking about cutting out Venezuela, really, you're only talking about 200,000 barrels per day or 250,000 barrels per day of crude that's coming into the US from Venezuela. That's not nothing. It would have a supportive effect, especially on heavy Canadian prices.

Mexico's Maya would get some support, and potentially the heavy crudes from Colombia, they're trying to make their way into the US Gulf Coast, especially in the wake of Canada's Trans-Mountain pipeline that has sort of displaced some of the Latin American crude from the US west coast into the Gulf coast. It would have a supportive effect. I don't think it would be a huge price spike, but it would definitely be supportive.

I think you also have to, when you're talking about prices and the general global price environment, you do have to kind of draw a line between the lighter crudes and the heavier crudes. Right now, we're seeing the lighter crudes, the WTIs of the world, are coming under more price pressure, because there's more of a glut there; whereas the heavy crudes, which is what the US refiners really want, the balances are tighter.

That also ties into the political pressure a lot, because they don't want to influence those tighter balances. It's more delicate, so there's less heavy crude in the marketplace, which makes it difficult to do sanctions on Venezuela, in my humble estimation.

Jeff Mower:

No, no, that makes sense. I think that's why Trump also pulled back on the... Well, initially, he was saying that he had put a 25% tariff on all imports from Canada, but then later said it would only be 10% on energy, including the crude that we get from Canada, which as you're saying, is heavier and would compete with the Venezuelan crude or is a good fit.

Patrick Harrington:

Yeah, it's really quite interesting. If you look at the US imports of Venezuelan crude, there was nothing until the end of 2023, and then it started creeping up to 200,000 barrels per day at the end of 2024, and now it's maybe 250,000 barrels per day that the US is importing from Venezuela. You saw that reluctance under Biden to cut that off. I think that reluctance has sort of carried over, because no one wants to be seen as increasing inflation or pushing prices higher.

Jeff Mower:

Especially a few, I think with Trump, just covering him so far is how he sort of comes out with a statement that's very dramatic and meant to kind of shake people off. It's like sort of his first offer, right? It's like with Canada saying, "You're going to be our 51st state," and he keeps returning to that. "We are going to be our 51st state." There was a story, I think the Journal had recently on Trudeau up in Canada, saying, "Trump is serious about this and what Trump wants is our resources," right?

You get the impression that that's the first offer, and that Trump will later come back and say, "Well, okay, we don't really want the 51st state. We'll drop that, but what else can we get?" It makes me wonder how that's going to work out with Iran going down the road, how it's going to work out with Venezuela. I've read a few pieces on regime change talk. There have been some protests recently. It was in Paris, but there was a rally over the last weekend on February 8th, held by this National Council of Resistance of Iran, which drew thousands of opponents.

You've got a supreme leader there, Ali Khamenei, who's 85 years old. What happens when he dies? As we talked about earlier, Iran is in a weakened state. I don't think Trump has really talked about regime change, but I don't know. I'm really curious how this will play out this year, whether we will see a shift in Iran's policies.

Patrick Harrington:

Yeah, there are so many variables involved, but again, from our perspective or from the oil prices perspective, the focus is always on that. Do you really want to remove 2 billion barrels per day from the global balances and push prices out? That's really what underpins it all.

Jeff Mower:

No, definitely. Definitely. Well, as you can tell, there's going to be a lot to cover here going forward, so stay tuned. Thank you Kate, Chris, and Pat for joining me. Thanks again to our listeners for tuning in to. CERAWeek registration is underway right now, so register by going to the link in our show notes. I'll be at CERAWeek, and a lot of us will be at CERAWeek this year. It starts March 10th, and I hope to see you there. This Oil Markets episode was produced by Jennifer Pedrick in Houston.