Trump scares, but oil is not afraid: how did the events in Venezuela and Iran affect the market?

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to Forbes on the impact of current events in Venezuela and Iran on the Russian oil industry.

Trump has made it very clear that the money Venezuela receives for selling its oil remains the country's property, but is stored in the United States and is protected from prosecution and lawsuits, Alexey Gromov explains.

"This means that all the money that Venezuela received on credit from Russia and China is frozen in the United States and cannot be returned, he says. The United States has set a legal precedent when there was no formal asset confiscation, but, in fact, Russia and China lost the invested money."

Gromov notes that so far, the American business has no particular enthusiasm to implement large-scale projects in Venezuela and invest significant funds in them. Therefore, according to him, Trump is solving the "minimum task" by redirecting the flow of Venezuelan oil to the United States without promises of large-scale investments, since "he [Trump] has not yet fully worked out this issue." But, according to the expert, the American president may resort to "soft coercion" of American companies.

"As a carrot, ExxonMobil may be offered a portion of the revenues from the export of Venezuelan oil due to losses during nationalization, he says. But the condition for compensation may be the requirement to invest in Venezuelan oil production."

All statements that Venezuela will be able to radically increase its production in the shortest possible time are very optimistic, Gromov believes.

If something like Venezuela happens to Iran or the Iranian political system collapses, the impact on the markets may be completely unpredictable, Gromov says. Iran has a special relationship with China, with which it has signed a 25-year strategic partnership agreement, he recalls. The peculiarity of this document is that Iran undertakes to supply its oil to China at a significant discount, and China invests the money earned for it in the development of Iranian infrastructure, industry, housing and communal services and construction, the expert notes. But these funds are received by Chinese contracting companies, so China is categorically not interested in the fall of the existing regime, the analyst believes.

Gromov believes that the United States is not interested in the fall of the Iranian regime either, as this could lead to a halt in the Iranian oil industry and exports, even if only temporarily. But the biggest danger, he said, is the risks of tankers passing through the Strait of Hormuz, located between Iran, the United Arab Emirates and Oman, through which a significant portion of the world's oil is transported.

"If something happens to at least a few tankers in the strait, the freight rates for ships going to the Persian Gulf will skyrocket," he says. "And this will have an immediate impact on global oil prices."