By Mircely Guanipa, Deisy Buitrago and Marianna Parraga

PUNTO FIJO/CARACAS/HOUSTON, March 12 (Reuters) - Iran

and Venezuela are trying to patch together an oil alliance that

began to fray last year, according to six people familiar with

the matter, after the South American country fell behind on oil

swaps that had boosted crude exports and helped stem domestic

fuel shortages.

The expected April return of U.S. sanctions on Venezuela's

oil industry will make the Iran alliance critical to keeping its

lagging energy sector afloat. Washington last year temporarily

relaxed sanctions on Venezuela's promise to allow a competitive

presidential election, something that has not happened.

The situation is growing dire. A review of shipping data and

documents from Venezuela's oil company PDVSA show that Venezuela

fell behind in payments to Iran, a shortfall that worsened when

the U.S. began to issue licenses in late 2022. Those

authorizations prompted the state firm to reassign cargoes

originally planned for Iran to cash-paying customers.

To salvage the partnership, Venezuela is rushing to fulfill

terms of a three-year-old alliance that has involved hundreds of

millions of dollars in oil swaps and contracts. The nation is

trying to settle pending debt by accelerating deliveries of

heavy crude and fuel cargoes to Iran.

Venezuela also is striving to renegotiate dozens of

unfinished projects from agriculture to car manufacturing before

Iranian President Ebrahim Raisi visits Caracas in the coming

months, the people said.

Two prior Iranian delegations that traveled to Venezuela

since mid-2023 left without significant agreements announced, on

the promise that Venezuela would catch up on payments.

"Despite encountering challenges, particularly in terms of

payments by Venezuela, both nations remain resolute in their

commitment to fortify their relationship and enhance their

energy partnership in the face of American pressure," said a

senior Iranian official.

Venezuela's oil minister Pedro Tellechea in February

acknowledged the tattered relationship, saying PDVSA would

conduct its own maintenance for refineries and petrochemical

plants this year, something that was a key part of the 20-year

deal with Iran.

"We are completing the maintenance programs with our

workers," he said at a briefing at a fuel distribution plant in

central Carabobo state.

The home-grown work follows the completion of a

110-million-euro overhaul by Iranian technicians at Venezuela's

smallest refinery that was to be replicated last year at the

country's largest refining complex, Paraguana. That would have

brought in much needed new processing equipment from Iran and

China to replace aged, U.S.-made gear.

Venezuela's and Iran's Foreign Affairs ministries and PDVSA

did not reply to requests for details on the status of the

relationship between the countries.

CASH OVER OIL SWAPS

Minister Tellechea also said last month PDVSA has learned to

deal with U.S. sanctions and is better prepared to handle any

scenario with a stable of qualified workers and improved

operational facilities.

PDVSA's lack of vessels, frequent export terminal power

outages and poor-quality crude oil had left Venezuela struggling

to complete its side of the Iran bargain at the planned pace.

More recently, the easing of U.S. sanctions has increasingly led

Caracas to prioritize selling its oil to other nations, cutting

into its swaps with Iran.

The original agreement from 2021 required PDVSA to deliver

to Iranian state companies at least two barrels of oil for every

one received. Iran last May stopped sending cargoes to

Venezuela, according to a review of PDVSA's shipment documents,

after PDVSA fell behind. Caracas has since committed to sending

at least one-cargo a month to Iran to reduce the shortfall.

Iran's supply of crude and condensate to Venezuela between

2022 and 2023 fell 44% to some 41,300 barrels per day (bpd),

while Venezuela's crude and fuel supply to Iran, which was

supposed to be twice as much as it received, fell a larger 56%

to 39,400 bpd, according to a Reuters review of PDVSA's

documents detailing cargoes from mid-2021 through February 2024.

The total volume exchanges fell by half last year as

Venezuela struggled to recover lost oil output, solve quality

and infrastructure issues, and fulfill supply commitments with

all of its customers.

Since the second half last year, PDVSA has slowly amortized

debt by delivering one large cargo of heavy crude per month. But

Iran has not resumed its supply, forcing the state company to

look for other sources of oil including Russia, shipping data

and the PDVSA's documents showed.

The Venezuela-Iran agreement had also included giving

Iranian state-owned refiner NIORDC responsibility for a revamp

of PDVSA's massive 955,000-barrel-per-day Paraguana Refining

Center, set to involve worker training in Iran, the construction

of temporary housing for Iranian technicians in Venezuela and

joint budget planning for equipment imports.

But the project never progressed beyond the initial stages

as PDVSA's insufficient payment capacity and the deep

deterioration of infrastructure found in inspections created new

obstacles to overcome an already weakened relationship. PDVSA is

now considering other companies, including from Brazil, for

later refinery repairs, leaving the planned NIORDC-led overhaul

in a drawer, two of the sources said.

NIORDC did not comment on the matter.

COOPERATION CUT SHORT

The Iran-Venezuela pact projected up to $25 billion in trade

and investment since 2022 in key areas for both countries.

Even though top officials have traveled in recent months in

an effort to reinvigorate joint businesses, the value of ongoing

business represents less than $10 billion in total, one of the

sources said.

"We have lost time," said another source, referring to an

audit in October showing a 168-day delay in key projects

involving 18 companies that have yet to be completed.

"The revisions that parties are now making of everything are

mandatory," the person said, referring to project inspections by

Venezuelan and Iranian workers and officials ahead of the

Iranian President's visit.

"Everything related to Iran has faded. We only see companies

authorized by the U.S. to do business in Venezuela. Some

imported spare parts are arriving, but they are American," a

refinery worker said.