Venezuela’s Oil Exports Turn to Cryptocurrency to Dodge Sanctions

As a response to the renewed U.S. sanctions, Venezuela has intensified the use of digital currencies in oil transactions. PDVSA, the state oil company of the country, has been integrating cryptocurrency into its payment options for crude oil and fuel exports more and more in recent years with the goal of avoiding the freezing of export proceeds due to trade sanctions.

Venezuela’s Shift to Digital Currency

Subsequent to the non-renewal of a general license that enabled wider trade with Venezuela, the U.S. Treasury has given businesses until May 31 to reorient their transactions with PDVSA. These alterations are happening at a time when the U.S. has been pressing for electoral reforms in Venezuela that have not been implemented. 

Therefore, PDVSA’s transition to digital currency transaction, that is, USDT (Tether), has been accelerated. USDT is a stablecoin whose value is backed by the U.S. dollar, providing a lower risk alternative for international transactions.

🚨🇻🇪

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 pic.twitter.com/SnA85Ms85I

— Alex Barnicoat (@mrbarnicoat) April 22, 2024

This strategic turn took off in 2023 but has rapidly gained momentum following the reintroduction of sanctions. Through the transition to a digital model, PDVSA aims to circumvent the complexities of conventional banking systems where assets could be confiscated or restrained, thus securing a better flow of revenue from its oil sales.

Operational Changes and Challenges

PDVSA has had to adjust its operational practices to the cryptocurrency changeover. For new contracts and spot oil deals, not including swaps, PDVSA has now set a prepayment of 50% for the value of each cargo in USDT. This alteration also includes new clients, who are required to have the cryptocurrency in a digital wallet for transactions with the Venezuelan oil company.

However, such actions encounter challenges. USDT and other digital currencies in oil trading are a rather rare phenomenon in the global market where the dollar still prevails. As a result of their non-traditional nature and the possible regulatory risks, most traders and their compliance departments are cautious with regard to cryptocurrency transactions.

Thus, PDVSA frequently depends on intermediaries who are instrumental in ensuring that these transactions happen, especially when dealing with large markets like China.

Market Response and Outlook

As PDVSA steers these operational changes, the world oil market is closely observing. The adoption of cryptocurrency in oil trading is not wide, but Venezuela’s decision might set an example for other countries subjected to similar economic sanctions.

Nevertheless, the initiative is only successful to the extent that digital currency is accepted in international trade, especially in the big oil consumer countries.

The Venezuelan oil minister, Pedro Tellechea, is optimistic regarding the country’s trading potential and ability to cope with renewed sanctions. He has indicated that Venezuela will continue to sign contracts and expand crude and gas projects during the wind-down period specified by the U.S. and will seek individual licenses for oil transactions thereafter.

Read Also: MoonPay and Ledger Roll-Out Enhanced Crypto Trading Features