Prompted by renewed US oil sanctions, Venezuela’s state-controlled oil company PDVSA is increasing its use of digital currencies in crude oil and fuel exports in order to avoid frozen accounts due to the sanctions. This development comes after the Biden administration refused to renew a license easing restrictions on Venezuela’s oil industry, forcing companies to wind down transactions by May 31. Venezuelan oil minister Pedro Tellechea confirmed the country’s openness to using various currencies, including virtual assets, in oil contracts.
The oil market historically operates around the US dollar, with prices universally quoted and invoiced in dollars. Venezuela’s oil exports have rebounded under new oil minister Tellechea, reaching a four-year high of 900,000 barrels per day in March. This growth comes despite a corruption scandal at PDVSA uncovered last year involving $21 billion in oil export receivables and past crypto transactions. PDVSA has adopted a new contract model for spot oil deals, requiring half the value of each cargo to be prepaid in Tether (USDT) to mitigate risk from potential future sanctions.
Venezuela is not only accepting Tether for oil sales but is also mandating new customers to have a digital wallet holding crypto for oil deals. This requirement is also being enforced on some existing contracts that did not previously specify the use of USDT, indicating a broader strategic shift towards digital currencies in the oil trade. Earlier this month, former Vice President Tareck El Aissami was arrested for allegedly being the mastermind behind a scheme to embezzle funds from oil sales using crypto. El Aissami had been evading capture for a year after allegedly converting cash into cryptocurrencies and potentially transferring them to the crypto exchange Kraken in a corruption case known as the “PDVSA-crypto incident.”
The reimposed US oil sanctions on Venezuela are a response to President Nicolas Maduro’s failure to fulfill commitments made after an election deal. The sanctions make it harder for Venezuela to export oil and have forced PDVSA to seek alternative payment methods such as digital currencies like Tether. This shift indicates a move away from traditional payment systems due to the restrictions imposed by the sanctions. Venezuela’s openness to using various currencies, including virtual assets, shows a willingness to adapt to changing geopolitical circumstances in the oil market.
The dominance of the US dollar in the oil market stems from the petrodollar arrangement established in the 1970s, with oil prices universally quoted and invoiced in dollars. Despite this historical reliance on the dollar, Venezuela’s increased use of digital currencies for oil exports represents a significant shift in the industry. The use of Tether and other virtual assets for oil sales signals a departure from traditional payment methods and a move towards embracing new technologies to navigate the challenges posed by sanctions and geopolitical tensions.
Overall, Venezuela’s growing reliance on digital currencies in oil exports reflects the country’s efforts to adapt to changing geopolitical dynamics and economic challenges. The use of Tether and mandates for digital wallets in oil deals demonstrate a strategic shift towards embracing new payment methods to circumvent sanctions and ensure the smooth flow of oil exports. Despite the challenges posed by corruption scandals and sanctions, Venezuela’s innovative approach to utilizing digital currencies in the oil trade showcases a willingness to explore alternative avenues for economic growth and stability in the face of adversity.
