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Current Affairs

US to ease curbs on Iran and Venezuela to boost oil supply

Date: 14 March 2022 Tags: World Economy

Issue

To counter sharp increase in crude oil prices due to sanctions on Russia, the US is planning to ease curbs on Venezuela and Iran.

 

Background

Following Russia’s invasion of Ukraine, the US and its allies in Europe have imposed sanctions on Russia and its industries.

 

Details

  • Russia is the third biggest producer of crude oil behind United States and Saudi Arabia. It is the second largest exporter of the commodity.

  • If Russian oil is removed from global oil supply chains, there would not be a replacement. It could result in spiraling of crude prices.

 

Responses from allies

  • European allies, including Germany, have indicated that there would not be wider sanctions on Russian crude oil due to shortages.

  • The United Kingdom has also refused to sanction Russian crude but has instead announced that it would phase out purchases by the end of 2022.

  • Buyers are however fearful of reputational damage caused by engaging with Russia. There is also an issue of payment process due to ban on SWIFT.

 

Plan of increasing oil from Venezuela and Iran

  • Iran and US are in the midst of reviving 2015 Iran nuclear deal. It will put a hold on nuclear programme in exchange for relaxations in economic sanctions, including oil export.

  • The talks have stalled following Russia’s demand for status quo of economic ties with Iran notwithstanding the sanctions.

  • Lifting sanctions will allow Iran to increase its crude oil production from 1.5 million barrels per day to 4 million barrels per day over a few months.

  • Venezuela has also indicated that it is looking forward to ramp up its crude oil production if sanctions on it are lifted.

 

India’s response

  • India has supported the move to lift restrictions on Venezuela and Iran as it would help control price of crude in the market.

  • Considering it imports 85% of its needs, the price of crude oil will have large impact on domestic economy.

 

Significance

  • The move signals that US is ready to work for the best interests of other countries by keeping its own issues apart.

  • The US has seen domestic inflation hit 7% and it would not want it to climb further due to increase in prices of fuel.

  • The move would signal the market to cool down following assurance of supply of crude oil to fulfill demands of the clients.