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The Sobering Insanity of Oil Sanctions

“Insanity is doing the same thing over and over again and expecting different results.”

Although this household witticism is largely attributed to Albert Einstein, its usage has been traced back as far as 1944 by novelist Rita Mae Brown. 

To this day, I’m genuinely shocked at how many times we see this quote aptly fit a situation. 

Right now, it’s a perfect fit for the global oil markets. 

Don’t worry, dear reader, you’ll have your chance to see it again on February 5, 2023. 

Why, you ask? Because that’s the day the next round of sanctions on Russia’s oil and gas industry will take place. 

And it’s clear that we haven’t learned from our mistakes in the past. 

Fortunately for us, this bout of oil insanity is going to lead to a wild ride for individual investors like us in 2023.

The Sobering Insanity of Oil Sanctions

Most of my readers can probably remember a time when oil sanctions failed miserably. 

Perhaps Venezuela comes to mind? 

Back in 2017, the U.S. Treasury Department shut PDVSA, Venezuela’s state-run oil company, out of financial markets after forbidding it to renegotiate or issue new bonds. Nearly a year later, former President Trump prevented any U.S. company from dealing with PDVSA.

Over the next several years, we slapped restriction after restriction on Venezuela’s oil industry, including the oil embargo in 2018 and a general economic embargo in 2019. 

While the crackdown on PDVSA clearly pushed output lower, the cold, bitter pill to swallow here is that Venezuela’s real troubles began more than a decade earlier, when Hugo Chavez nationalized every oil asset in the country in his May Day takeover. 

You see, output had already been declining by that point, having reached 3.5 million barrels per day in 1998. 

Today, the country’s oil output has fallen to around 656,000 barrels per day. 

 

Granted, we’ll have to ignore the fact that Chevron was recently given the green light to resume production in Venezuela and export that crude oil to the United States. 

The problem is that Venezuela was an easy target, and both the EU and U.S. might find Russia to be a little more resilient.

And here’s why…

 

Although Venezuela’s oil output was effectively crippled while under sanctions, the heart of the problem was rooted in other areas. Decades of corruption and a lack of expertise were far greater contributors to PDVSA’s downfall. 

When the new sanctions are placed on Russia’s oil industry on February 5, 2023, Putin won’t even bat an eye.

He doesn’t have to!

The reason is simple: Russia will just find a new buyer. 

Actually, it already has. 

For months now I’ve been telling you about the consequences of China’s reopening. That event alone should be enough to turn the bears bullish as oil demand surges higher.

I want you to forget China.

Russia has found a new home for its formerly EU-bound crude supplies — India. 

Last November, India imported nearly 1 million barrels of oil per day from Russia. Indian demand is at record levels, and demand for products like gasoline and diesel is going through the roof. 

Last week, I told you that a new world energy order is forming in our post-COVID world. 

Well, we just got one step closer. 

 

Until next time,

Keith Kohl Signature

Keith Kohl

– Energy and Capital



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