How the Three Seas Crisis Redrew Oil and Gas Flows?

Listen to the article The audio text is automatically generated by a machine system

Summary The G7 countries agreed last Friday to release 100 million barrels of diesel and crude oil from commercial stocks, following U.S. pressure to ease prices linked to the crisis in the three seas: the Gulf, the Red Sea, and the Black Sea.

Diesel refining yields in the United States have risen to their highest historical level, and U.S. diesel exports have surged to record levels, while Russian diesel exports have completely halted.

This coincided with U.S. production reaching near-record levels, with production in the western part of the Permian Basin in New Mexico hitting its highest historical level, while the strategic oil reserve has declined to its lowest recorded level.

In this context, the G7 countries agreed to withdraw 100 million barrels from the strategic reserve, part of which will include petroleum products, primarily diesel.

The G7 countries agreed to release diesel and oil stocks after American pressure. Last Friday, the G7 countries agreed to release 100 million barrels of diesel and crude oil from commercial stocks, following American pressure to calm prices linked to the crisis in the three seas: the Gulf, the Red Sea, and the Black Sea. The release, which will be managed by the International Energy Agency, will begin immediately and continue for four months. Trump had requested Germany and France to draw from their stocks, or else they would face an American ban on diesel exports. However, the impact of this decision is limited, if it exists at all, for several reasons, the most important of which are:

First, it was supposed that these quantities would be drawn at the beginning of the crisis, but it turned out that European countries did not draw them and left the burden on the United States and Japan. In other words, these quantities, or most of them, are not in addition to the 400 million barrels announced last March.

Second, the draw is optional and not mandatory.

Third, even if these quantities are fully drawn, their weekly volume is limited, and therefore their impact on prices remains weak.

Fourth, even if they are fully drawn, they come as compensation for the loss of Chinese oil products, following Beijing's decision to halt exports in October, as Russia also announced an extension of the ban on diesel exports until the end of the same month.

Fifth, it is unclear whether companies will buy these quantities or borrow them from governments, following the sharp decline in withdrawals from the U.S. strategic stockpile.

U.S. imports of Venezuelan oil exceed 700,000 barrels per day. Historically, most Venezuelan oil was directed to three countries: the United States, China, and India. After U.S. sanctions during Trump's first presidential term in 2018, most of it shifted to China and India. When President Biden granted a waiver to Chevron, oil began to flow back to the United States, but the flows stopped when the U.S. arrested Venezuelan President Nicolas Maduro during a special operation on January 3 of last year. After the sanctions were suspended, exports sharply increased, particularly to the United States.

The effects of rising Venezuelan exports in oil markets, both in recent months and in the future, are significant even assuming delays occur. This increase falls within the context of U.S. trade wars, energy dominance, and artificial intelligence hegemony. Looking at historical data, the following points become clear:

First, there are opportunities to increase Venezuelan crude exports, especially if they return to their old levels, which are more than three times the current levels.

Second, the countries that have been significantly harmed by U.S. sanctions are Spain, India, and some South American countries.

Thirdly, the countries that benefited from the increase in Venezuelan oil exports since the Hormuz crisis are the United States, India, and Spain, while the country that lost Venezuelan oil is China.

Fourthly, the increase in American oil imports from Venezuela came at the expense of oil imports from other countries, primarily Iraq, and any future increases will come at the expense of Canadian oil.

China no longer receives Venezuelan oil, and the United States has replaced it as the main importer. Looking at the sequence of events, another point becomes clear: the United States has accumulated Venezuelan crude in the Gulf of Mexico, and after the closure of Hormuz, it replaced Iraqi imports with this crude. For American refineries, both types, Venezuelan and Iraqi, serve as substitutes despite their actual differences. Therefore, the impact has indeed been felt; without Venezuelan crude, the United States would have been more adversely affected by the Hormuz crisis, and this crude has mitigated the impact of losing Iraqi crude.

Quoted from "Independent Arabic"