Iran-Venezuela ties under US scrutiny

Iran's Mahmoud Ahmadinejad this week pledged to 'expand ties' with Venezuela, which is under US scrutiny for shipping oil allegedly in violation of sanctions.

All the attention Libya's Muammar Qaddafi has received in recent weeks from Venezuela’s Hugo Chávez seems to have left his other best friend forever, Iran’s Mahmoud Ahmadinejad, feeling a bit left out.

This week the Iranian president met with Venezuela’s ambassador in Tehran to stress his eagerness for even closer relations, according to Iran’s Fars News Agency.

“Expansion of Iran-Venezuela ties in all domains helps peace, stability, and security in the world,” said Mr. Ahmadinejad.

The two “brother” nations promised to strengthen their state-run news coverage of each other but did not mention, at least publicly, the billions of dollars worth of energy agreements inked last year that are now under scrutiny by the US State Department.

Secretary of State Hillary Clinton recently told the US House of Representatives Foreign Affairs Committee that the US would consider punitive actions if it was determined that Venezuela, America's fifth-largest oil supplier, had violated sanctions against Iran.

Venezuelan exports to Iran in question

Ms. Clinton’s comments were in response to documents submitted by Rep. Connie Mack (R) of Florida that allege Venezuelan national oil company PDVSA is sending gasoline to Iran in violation of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA).

Mr. Mack is among America's most vocal critics of Venezuela. Earlier this year, he referred to President Chávez as a “thugocrat,” calling for nothing less than a “full-scale economic embargo.”

Venezuela did export millions of barrels of gasoline and gasoline blending components in 2009 and 2010 to Iran. But PDVSA President and Energy Minister Rafael Ramirez has consistently denied the allegations of sanctions busting, saying the shipments occurred before CISADA was tightened in July 2010 to prohibit activities supporting the development, production, and exportation of Iran’s petroleum and refined petroleum resources.

What then to make of Chávez’s ninth visit to Iran last October? Of the 11 agreements signed during the visit, one laid out plans to set up a joint oil shipping company, construct two petrochemical plants, and tap Iran’s South Pars natural gas field.

The agreements were more symbolic than substantive, some analysts say, and so do not violate sanctions. No action has been taken, and Chávez has a history of failing of follow through on similar accords.

Look out for Obama's reaction to Chávez

“We believe the State Department’s response so far suggests an effort to buy time and use diplomatic channels rather than such a blunt tool as sanctions to limit any Venezuelan support for the Iranian regime – which at this point seems more symbolic than substantive in our view,” JP Morgan Research wrote in a recent note to investors.

Clinton said the US would require a relatively high burden of proof to take action, which some say the documents presented by the Republican-chaired Foreign Relations Committee fail to meet.

“[The documents] don’t appear to be genuine or are at least old, prior to sanctions,” says Russ Dallen, a bond trader at Caracas-based BBO Financial Services. “Doesn’t mean it hasn’t happened, just looks like these are not the smoking guns needed to prove it.”

The less-than-airtight evidence is unlikely to deter Chávez’s most vehement critics north of Havana. And with US elections rapidly approaching, the pressure to censure him could grow.

JP Morgan told its investors not to rule out some sort of move against Venezuela as the administration courts Latino voters in sourthern Florida where opposing Cuba's Fidel Castro, and his ideological heir Chávez, is a way of life.

“...With US elections also approaching (and with Florida still an important battleground state), we believe the Republican-controlled House of Representatives will likely continue to press the administration for being 'too soft' on the Chávez administration, and we can not rule out some carefully crafted reaction by the Obama administration before 2012.”