Venezuela’s Oil Exports Turn to Cryptocurrency to Dodge Sanctions

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In reaction to fresh U.S. sanctions, Venezuela has ramped up the application of digital currencies in oil deals. PDVSA, the national oil company, has progressively incorporated cryptocurrency as a payment method for crude oil and fuel exports over the past few years. This move aims to bypass the freezing of export earnings due to trade restrictions.

Venezuela’s Shift to Digital Currency

After the expiration of a broad trade permit between the U.S. and Venezuela, the U.S. Treasury is requiring businesses to adjust their dealings with PDVSA by May 31st. This shift comes as the U.S. continues to advocate for democratic elections reforms in Venezuela, which have yet to materialize.

PDVSA’s shift towards using digital currency for transactions, specifically USDT (Tether), has gained momentum. USDT is a type of digital coin with a value stable against the U.S. dollar, making it an attractive and less risky choice for international money transfers.

VENEZUELA will ditch the US DOLLAR and they will use CRYPTO for all of their oil sales

We’re watching the collapse of the dollar in real time, and the affects are going to be huge

— Alex Barnicoat (@mrbarnicoat) April 22, 2024

In 2023, this strategic move for PDVSA began, but it picked up speed significantly after sanctions were reinstated. By shifting to a digital model, PDVSA intends to avoid the complications of traditional banking systems, where assets could be seized or frozen, thereby ensuring a smoother income stream from oil sales.

Operational Changes and Challenges

PDVSA has had to modify its business operations to accommodate the shift towards cryptocurrencies. For all new deals and oil sales excluding swaps, PDVSA now requires a prepayment of 50% in USDT (Tether) for each cargo’s value. This change also applies to new clients who must possess the cryptocurrency in a digital wallet to transact with PDVSA.

Yet, engaging in such activities comes with obstacles. The use of USDT and other digital currencies in oil trading is uncommon in the dominantly dollar-driven global market. Consequently, many traders and their regulatory bodies approach cryptocurrency deals with apprehension due to their non-standard character and potential regulatory uncertainties.

In other words, PDVSA often relies on third parties to facilitate its deals, particularly when interacting with major markets such as China.

Market Response and Outlook

PDVSA’s implementation of operational changes is being watched closely by the global oil market. Although the use of cryptocurrency in oil trading is not commonplace yet, Venezuela’s move could serve as a precedent for countries facing comparable economic restrictions.

Despite its success, the initiative can only reach its full potential if digital currency becomes a valid form of payment in global commerce, particularly in major oil-consuming nations.

Pedro Tellechea, Venezuela’s oil minister, remains hopeful about his country’s trading capabilities and resilience in the face of renewed sanctions. He intends to carry on signing contracts and increasing crude and gas projects during the designated transition period set by the U.S., followed by pursuing individual licenses for oil deals once that period ends.

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2024-04-23 02:07