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U.S. sanctions Venezuelan oil giant for Iran trade

By Andrew Quinn and Frank Jack Daniel

WASHINGTON/CARACAS (Reuters) - The United States hit Venezuelan state oil company PDVSA with sanctions on Tuesday in a more aggressive bid to starve Iran of fuel, prompting fury and warnings from Venezuelan President Hugo Chavez's government.

The sanctions are largely symbolic because they do not limit the company's sale of oil to the United States and other global markets, or the activities of its U.S.-based CITGO subsidiary. Venezuela's response was inevitably noisy and Chavez's oil minister made a thinly veiled warning against oil shipments.

But during various flare-ups in the turbulent U.S.-Venezuelan relationship since Chavez came to power in 1999, several past threats to stop sending oil north have never been fulfilled.

The sanctions appeared to be the least severe of a range of options available to Washington, meaning PDVSA is barred from access to U.S. government contracts and export financing but avoided tough limits on its use of U.S. markets for financing.

They came after months of pressure from conservatives in Congress to take action against Chavez for his support of Iran, which Washington believes is secretly building a nuclear bomb.

"We're sending a clear message to companies around the world: those who continue to irresponsibly support Iran's energy sector or help facilitate Iran's efforts to evade U.S. sanctions will face significant consequences," said Deputy Secretary of State James Steinberg.

By taking aim at PDVSA and six other oil and shipping companies, Washington hopes to squeeze Iran's supplies, he said.

Chavez, who has inherited from his friend Fidel Castro the mantle of Latin America's most strident U.S. critic, will seek to whip up public anger at the sanctions to fuel patriotic spirit as he prepares a re-election bid for next year.

"'GRINGO IMPERIALIST"

"Sanctions against the Fatherland of Bolivia? Imposed by the Gringo imperialist? Well, welcome Mr. Obama, don't forget we are the children of Bolivar!" Chavez said on his Twitter account.

Simon Bolivar is an independence hero for much of South America.

The State Department said PDVSA delivered at least two cargoes of reformate, a gasoline blending component, to Iran between December 2010 and March 2011 worth about $50 million.

Venezuelan Oil Minister Rafael Ramirez, who also is PDVSA president, was defiant in a news conference broadcast on all Venezuelan TV stations as he celebrated his country's close links with Iran. Ramirez said Washington had no right to dictate who PDVSA traded with.

He guaranteed oil shipments to PDVSA's two U.S. subsidiaries, but said the company was still studying the impact of the sanctions on other U.S. clients.

"We are evaluating how this affects our production capacity and capacity to meet our commitments, above all supplies to the U.S. economy," he said.

During a parliamentary debate, lawmakers in Caracas shouted their outrage at "imperial" meddling.

Though U.S.-Venezuelan diplomatic ties have long been sour and both countries' missions are without ambassadors, intertwined interests mean trade has never been seriously affected.

Venezuela's oil-reliant economy ships roughly 45 percent of its crude to the United States, making up about 10 percent of U.S. imports. U.S. oil majors ExxonMobil and ConocoPhillips fled the country in 2007 after Chavez nationalized their flagship projects as part of his push for a socialist state.

Venezuelan global bonds fell steeply on the news, then recovered some of the losses as traders interpreted the measures as symbolic. The oil market was unfazed by the sanctions.

The move signals concern about Iran's ability to get around sanctions aimed at stifling a suspected nuclear weapons program.

The U.N. nuclear watchdog said in a confidential report obtained by Reuters it has more information on possible military aspects to Iran's nuclear program and that the nation's uranium stockpiles had grown despite sanctions.

MINIMAL IMMEDIATE IMPACT

A senior U.S. official, speaking on background, conceded that in most cases the new U.S. sanctions on Venezuela would have minimal immediate impact on the targeted firms, which have little or no U.S. exposure. But he said they would be a powerful deterrent.

They are also a significant warning to Chavez. The Venezuelan leader has frequently threatened to cut off oil supplies to the United States and refuses to approve Obama's choice of ambassador.

The other companies covered by the new U.S. sanctions are PCCI, the Royal Oyster Group and Speedy Ship of the United Arab Emirates, Tanker Pacific of Singapore, Ofer Brothers Group of Israel and Associated Shipbroking of Monaco.

Separately, the State Department announced sanctions on 16 companies and individuals -- including three in China and a Venezuelan government arms company -- for banned nuclear and weapons proliferation activities, chiefly with Iran.

Republicans who pushed for action against Chavez welcomed the sanctions but said more must be done. "The United States needs to move quickly to cut off Chavez's source of revenue," said U.S. Representative Connie Mack.

The U.S. move could put Chavez in a bind despite the temptation to impose retaliatory measures, according to Simon Wardell, director of oil markets at IHS Global Insight.

"Ultimately I don't think Chavez will be able to do much about the sanctions. He might talk a lot and make a lot of noise but will continue to sell crude to the United States."

Steinberg said the main objective of the sanctions was to encourage Tehran to engage in real negotiations with the major powers over its nuclear program, which Iran says is for peaceful purposes.

Venezuela, once the largest foreign supplier of crude oil to the United States, has seen its U.S.-bound shipments shrink in recent years as its production falls. The South American country, home to the largest known oil reserves outside the Middle East, now ships more of its oil to other destinations including China.

(Additional reporting by Susan Cornwell, Arshad Mohammed, Matt Robinson, Joshua Schneyer and David Sheppard in the United States; Eyanir Chinea, Andrew Cawthorne, Marianna Parraga and Mario Naranjo in Caracas; Editing by Bill Trott)

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