Iran’s 100-day revamp of Venezuela’s largest refinery complex signals a commitment by Venezuela to end reliance on U.S. refinery technology whilst strengthening ties with Iran. Additionally, it provides Maduro with the opportunity to boost his domestic popularity by bringing the nation out of economic despair. 

The €460 million contract will see Petroleos de Venezuela (PDVSA) and the National Iranian Oil Refining and Distribution Company (NIORDIC) working together to revamp the Paraguana refinery complex on the coast of western Venezuela in an effort to restore its crude distillation capacity and boost fuel output. Also included in the revamp is a project aimed at restoring the complex’s power supply. Technicians from the Islamic Republic are considering adding upgraded crude from the Petromangas project, a PDVSA joint venture with Russian state-owned company Roszarubezhneft. NIORDIC will outsource work and hire contractors to repair five of the nine distillation units, which do the primary refining of crude oil. Iran will be procuring the parts, overseeing the installation and handling the inspection before PDVSA oversees the refinery’s operations. In May, a €110 million contract was signed to repair Venezuela’s smallest refinery, El Palito, situated in the centre of the country, a project which is currently underway. 

Despite having the largest crude reserves in the world, Venezuela has struggled producing oil products like gasoline due to a lack of investment, refinery outages, and U.S. sanctions. Since 2020, long lines at gasoline stations have been common. The relationship between Iran and Venezuela began under President Chavez when Iran established a plant to produce Iranian bicycles in Venezuela. Iran and Venezuela’s alliance has strengthened in recent years in order to overcome U.S. sanctions. Both nations are seen by the U.S. as sponsors of terrorism and human rights violators. NIORDIC has been sanctioned by the U.S. due to its use of oil to support the Islamic Revolutionary Guard Corps. Prior to the 2017 sanctions, Venezuela’s oil output was 1.9 million bpd before falling to 350,000 bpd in the second half of 2020.

Source: Hart Energy

Iran has provided Venezuela with crude and condensate as well as parts and feedstock for its ageing 1.3 million barrel per day (b/d) oil refining network. Additionally, Iran has also sent multiple fuel tankers to Venezuela to help them cope with the lack of gasoline; Maduro has used gold to pay for Tehran’s services. The Islamic Republic has been of fundamental importance in helping Venezuela boost its severely weakened petrochemical industry and wider economy. Relations between the countries extend beyond commodities as there has been an increase in military cooperation over the years. Qassem Soleimani, late commander of the Islamic Revolutionary Guard Corps, visited Caracas in 2019 to help with the establishment of revolutionary militias and the country’s military industrialisation.

The revamp of Venezuela’s largest refinery complex will see the use of Chinese and Iranian parts and equipment in refineries originally built with US technology. Difficulties may arise with the integration of old and new components. The distillation plants must be online for the refinery to work but Venezuela will have to consider the need for chemical products that the plants require, like catalysts and antifoaming agents, which are manufactured in the United States, in order to carry out modifications and replacement of parts in the distillation units. In the last year, technicians from Iran have inspected the refineries several times in preparation for the 400 Iranian workers who are set to work alongside 1,000-1,500 local Venezuelan staff and contractors. PDVSA sent home hundreds of Venezuelan workers to make way for Iranian technicians during the El Palito revamp which triggered protests, indicating that discontent among Venezuelan workers will be a likely source of contention again. 

International actors view Iran and Venezuela’s alliance as a hindrance to Western values and many see the Latin American nation as simply a base to develop operations to access international markets due to its privileged geographical location. Maduro wants Venezuela to have a relationship with the United States whilst also becoming a partner of the Russians and Iranians, in the process learning how to avoid U.S. sanctions. This seems unlikely, especially given Western hostility towards Russia amidst the invasion of Ukraine and due to the firm relationship Venezuela has built up with Iran over the years. The most likely scenario is that the U.S. will push back against warmer relations with Venezuela due to its growing relationship with Western adversaries Iran and Russia. Since 2017, Venezuela has faced over 350 sanctions from the U.S. and it is probable that more will follow thanks to growing authoritarianism and a lack of political concessions. 

Domestically, if challenges are mitigated, a successful revamp will yield the results that Venezuela is in dire need of. Following the mid-June restart of the 150,000 b/d crude upgrader operated by PDVSA and Roszarubezhneft which turns extra heavy oil into exportable grades, Venezuelan exports have surpassed 700,000 b/d. Exports have primarily gone to China with Iran receiving 131,000 b/d of crude and fuel oil last month and Cuba receiving 75,000 b/d last month. Consequently, Chevron’s exports fell slightly to 134,000 b/d compared to 150,000 b/d in May. If the Paraguana refinery complex is able to start producing fuels again, this will build upon the success of the Petromangas project. Venezuela will be able to boost its fuel output and export diesel and gasoline at higher levels. Exports will go to the United States as part of a 6-month deal with Chevron, and to allies China, Iran, and Cuba. This will have ramifications for the international market as it will increase the fuel supply, much to the benefit of Western countries that have faced shortages in the fallout of Russia’s invasion of Ukraine. The refinery’s return will bring additional wealth to the Latin American nation, but if lavish spending at the hands of Maduro continues, and minimal efforts are made to alleviate the effects of sanctions, domestic discontent will grow, and the President will see his popularity plunge.