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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Venezuela’s Secret Weapon: A “Dark Fleet” Of Oil Tankers

  • The rise of the "dark fleet," vessels that hide their locations to transport illegal oil cargoes, has enabled Venezuela to continue exporting oil in defiance of U.S. sanctions, contributing to its economic recovery.
  • PDVSA, Venezuela's national oil company, has leased numerous tankers, many in poor condition, to facilitate the clandestine shipment of oil, with Iran providing critical aid to rebuild Venezuela's oil infrastructure.
  • The expansion of the "dark fleet" enables PDVSA to export increasing amounts of oil undetected, which is crucial for the growth of Venezuela's economy; as a result, the IMF predicts a 5% expansion in Venezuela's GDP for 2023.
Tanker Venezuela

Dark fleet is a term used to describe the assortment of tanker vessels which conceal their locations so as to enable the transportation of illicit cargoes of crude oil and derivative products. This is done using a variety of deceptive techniques to prevent the tanker from being identified or tracked. These include turning off the vessel’s ID system, spoofing its location and using multiple flags of convenience over short periods. While this has been a long-running practice that emerged to cloak the transportation and sale of U.S.-sanctioned oil from Venezuela and Iraq it exploded after Russia’s invasion of Ukraine. To penalize Moscow for the attack on Ukraine, the U.S. and its allies sanctioned Russia’s economically crucial petroleum exports. This caused the volume of vessels evading identification to surge. A substantially larger dark fleet is extremely beneficial for Nicolas Maduro’s Venezuela, which only two years ago was a near-failed state on the verge of collapse but has since seen its economy return to growth.

The dark fleet first emerged as U.S. sanctions against Iran and Venezuela were ratcheted up to prevent those pariah states from exporting their crude oil to key markets without incurring hefty penalties. The volume of tankers clandestinely shipping petroleum to Iran and Venezuela has surged over the last three years. According to a Reuters investigation, there was a fleet of 300 vessels clandestinely shipping Iranian crude oil by March 2023 compared to 70 in November 2020. The news agency also stated earlier this year that Venezuela’s national oil company PDVSA had leased 41 tankers in 2022 to ship Venezuela crude oil, paying roughly double the market rate. In an earlier Reuters article, it was estimated that there were more than 200 tankers, including over 80 supertankers, shipping Iranian and Venezuelan crude oil.

Latest estimates from a variety of sources put the number of vessels in the dark fleet at a far higher number. According to maritime AI company Windward there are 1,100 vessels in the dark fleet, with around 32% crude oil tankers, another 20% being oil product vessels, and the remainder comprised of chemical as well as other types of tankers. Analysts from other data broker firms put the number of vessels at around 700, but given the fleet’s opaque nature, it is difficult to determine the correct number. While PDVSA has its own fleet of 22 tankers, a recent internal report claimed that at least half of them are in such poor condition, they are unfit to ship crude oil. It is for that reason, along with growing oil production, that a larger dark fleet will be beneficial for Venezuela. Related: Bitcoin Sinks As Crypto Companies Grapple With SEC Lawsuits

A combination of endemic corruption and malfeasance, sharply weaker oil prices, a lack of skilled labor and strict U.S. sanctions saw Venezuela’s economic backbone, its petroleum industry, almost collapse. Against all odds, with the assistance of Russia, China and Iran, the national oil company PDVSA was able to rebuild some corroded energy infrastructure and bolster oil production. According to data supplied by Caracas to OPEC, Venezuela pumped an average of 810,000 barrels per day during April 2023, which was not only 7% higher than a month prior but 4.5% greater year over year. This is nearly triple the record low of 390,000 barrels per day during July 2020, when petroleum production plunged because of sharply weaker prices and the COVID-19 pandemic.

The reconstruction of Venezuela’s heavily corroded oil industry is crucial to returning the economy to growth. Every year from 2014 until 2021, Venezuela’s gross domestic product contracted, plunging by 80% or $171 billion. This has been labeled as the modern world’s worst economic collapse to occur outside of war which saw over seven million Venezuelans flee the country, which was once the wealthiest in Latin America. Surprisingly, for 2021 Venezuela’s economy had returned to growth, expanding by 0.5% that year and then by a notable 8% in 2022. Key to this remarkable development was Venezuela restoring oil production and securing access to crucial energy export markets, which is where access to the dark fleet is pivotal. While U.S. sanctions had constrained Venezuela’s economy for some time, it wasn’t until President Donald Trump enacted his policy of maximum pressure that cut Caracas off from global energy and capital markets that it crashed.

It was Teheran that provided the skilled technicians, critical parts and crucial condensate that were essential to rebuilding heavily corroded oil infrastructure and thereby boosting petroleum production. Ongoing reliable supplies of condensate are especially important to PDVSA, particularly since U.S. supplies ended with Trump’s January 2019 sanctions. The very-light high API hydrocarbon is a vital ingredient for processing and upgrading Venezuela’s heavy and ultra-heavy crude oil to exportable grades. It was the provision of a reliable supply from Iran that was key to PDVA growing oil production.

While Iran’s condensate is still crucial to PDVSA’s operations, energy supermajor Chevron, which was permitted by the U.S. Treasury to recommence lifting petroleum in Venezuela in November 2022, is sourcing U.S.-supplied naphtha for heavy oil upgrading. Chevron is required to do this because of U.S. sanctions on Iranian crude oil and related products because U.S. sanctions block Chevron from making any payments to Caracas. As a result, all petroleum lifted by the U.S. energy supermajor will be utilized in an oil-for debt swap, with Chevron seeking to recover $3 billion in outstanding debt with PDVSA by the end of 2025.

This emphasizes just how important the dark fleet, including Iranian tankers, is to PDVSA to ship oil to global energy markets in order to receive urgently required cash payments. Asia is the main destination for Venezuelan crude oil, with China believed to be receiving the bulk of those exports. A larger dark fleet makes it easier for PDVSA to not only ship oil to buyers undetected, in contravention of U.S. sanctions but also to ramp up export volumes which are vital for boosting income and sustaining Venezuela’s economy’s return to growth. In fact, higher oil production and exports saw the IMF predict that Venezuela’s GDP will expand by 5% in 2023.

By Matthew Smith for Oilprice.com

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  • Mamdouh Salameh on June 08 2023 said:
    Does our esteemed author expect Venezuela to sit on its hands while waiting for the country that imposed sanctions on it without the slightest worry about the hardships, miseries and starvation its sanctions have inflicted on its people, to lift the sanctions against it?

    Venezuela employed the only means available to it to export its crude oil, namely a dark fleet of tankers. This has been highly successful with Iran and also Russia and I am sure it will prove equally successful with Venezuela.

    Not a single barrel of Venezuelan crude with the exception of an oil-for debt swap with American oil giant Chevron seeking to recover $3 bn in outstanding debt with PDVSA by the end of 2025) will ne exported to the United States until the sanctions are lifted.

    These shadow tankers aren't only successfully managing to nullify the impact of sanctions on Russia, Iran and Venezuela but they are also inflicting serious losses on Western shipping and insurance companies.

    Against all odds and with help from Russia, China and Iran, Venezuela was able to rebuild some corroded energy infrastructure and bolster oil production. According to data supplied by Caracas to OPEC, Venezuela pumped an average of 810,000 barrels a day (b/d) during April 2023, 4.5% greater than in 2022. Moreover, Venezuela’s economy had returned to growth expanding by a notable 8% in 2022.

    The story of Venezuela with the United States is simply a story of ugly capitalism casting envious eyes on the world’s largest oil reserves and the proud descendants of the Venezuelan revolutionary leader Bolivar who liberated South America from the Spanish oppression, refusing defiantly to bend the knee to a sinister hegemon.AuBrKW

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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