Venezuela Hastens Crypto Adoption in Wake of Returning Oil Sanctions

Amidst the returning of oil sanctions by the United States (US), Venezuela's state-run oil company PDVSA is set to bolster the use of digital currencies in its crude and fuel exports, according to insights from three informed sources.

The recent directive from the US Treasury Department mandates PDVSA's clients and suppliers to conclude transactions by 31 May under a general license that remains unrenewed, citing the absence of electoral reforms.

This decision is poised to pose challenges to Venezuela's efforts to enhance oil production and exports, with companies now required to await individual US authorisations for business dealings with the nation.

Venezuelan Oil Minister Pedro Tellechea has affirmed the adoption of diverse currencies, including digital ones, in alignment with contractual obligations.

PDVSA Plans to Expedite Digital Payment Rollout

PDVSA has initiated its transition to digital currency, a process that began last year with the gradual shift of oil sales to USDT, a stablecoin tethered to the US dollar.

The resurgence of oil sanctions is expediting this transition, aiming to mitigate the risk of sale proceeds being frozen in foreign accounts.

Pedro disclosed that various currencies, including digital ones, are considered in contracts, indicating a potential preference for digital payments in some instances.

While the global oil market predominantly operates in US dollars, cryptocurrency payments are gradually gaining traction.

However, PDVSA faced challenges, including a corruption scandal in 2023 involving unaccounted receivables totalling $21 billion from oil exports, partly linked to previous transactions involving cryptocurrencies.

Despite these hurdles, under Pedro's leadership, oil exports surged to 900,000 barrels per day in March, the highest in four years, buoyed by US licenses permitting sales.

Venezuela Expects to Continue Contract Signing

Towards the end of the first quarter, PDVSA transitioned numerous spot oil transactions, excluding swaps, to a contractual framework necessitating prepayment of half the cargo value in USDT.

Additionally, PDVSA mandates that any prospective customer engaging in oil transactions must possess cryptocurrency in a digital wallet, a condition sometimes applied retroactively to existing contracts lacking explicit USDT provisions.

Since facing secondary sanctions from the US in 2020, PDVSA has increasingly relied on intermediaries for its oil sales, particularly to China, due to disrupted relations with major trading partners.

While this reliance on intermediaries may offer a workaround to sanctions, it may also result in a diminished share of oil proceeds for PDVSA.

Pedro recently affirmed Venezuela's intent to continue signing contracts and expanding crude and gas projects during the 45-day wind-down period stipulated by the US, with plans to request specific licenses from potential clients thereafter.

However, he pointed out that with the reimposed sanctions, crude oil prices will skyrocket.

Despite concerns among oil analysts about the potential impact on Venezuela's oil output, exports, and revenue, he remains optimistic, asserting PDVSA's robust trading capabilities and readiness to navigate the resurgence of US sanctions.