Venezuela accelerates shift to cryptocurrency amid return of oil sanctions

Venezuela's state-owned oil company, PDVSA, is set to increase the use of digital currencies in its crude and fuel exports as the United States reinstates oil sanctions on the country, Reuters reported citing sources familiar with the matter.

Following the US Treasury Department's decision not to renew a general license due to a lack of electoral reforms, PDVSA's customers and providers have until May 31 to conclude transactions, setting the stage for a major shift in payment methods.

The reappearance of oil sanctions complicates Venezuela's efforts to strengthen oil output and exports, prompting PDVSA to accelerate its transition to digital currencies, particularly USDT, to mitigate the risk of frozen proceeds in foreign bank accounts.

Venezuelan Oil Minister Pedro Tellechea confirmed the adoption of various currencies, including digital ones, in accordance with contractual agreements.

PDVSA's gradual transition to digital currencies gained momentum last year, with a particular focus on USDT, a stablecoin tied to the value of the US dollar.

The recent escalation of sanctions hastens this transition, as PDVSA seeks to safeguard its revenue streams from possible disruptions caused by restrictive measures imposed by the US.

Notably, the move towards digital currencies aims to address concerns stemming from a corruption scandal that rocked PDVSA last year, involving unaccounted receivables amounting to $21 billion, partly associated with transactions involving other cryptocurrencies.

Under Minister Tellechea's leadership, Venezuela's oil exports saw a resurgence, reaching about 900,000 barrels per day in March, the highest level in four years.

In order to move in line with the market dynamics and regulatory requirements, PDVSA implemented a contractual model demanding prepayment in USDT for half of each cargo's value, transitioning away from traditional spot oil deals.

Moreover, new customers seeking to engage in oil transactions with PDVSA are mandated to hold cryptocurrency in a digital wallet, a requirement enforced even in existing contracts that do not explicitly specify the use of USDT.

While such measures aim to align with evolving payment preferences, traders have voiced challenges in complying with PDVSA's USDT transaction demands, often requiring the involvement of intermediaries to facilitate transactions.

The reliance on intermediaries for oil transactions, particularly along with US sanctions, offers PDVSA a means to sidestep restrictive measures, albeit at the cost of reduced proceeds from oil sales.

Minister Tellechea remains optimistic about Venezuela's resilience in the face of renewed sanctions, expressing confidence in PDVSA's trading capabilities and its preparedness to navigate challenging market conditions.

However, oil analysts expect that Venezuela's oil output, exports, and revenue may encounter limitations, notwithstanding potential individual authorisations issued by the US.

(With inputs from Reuters)