Venezuela’s state-run oil company, PDVSA, is making a bold pivot towards cryptocurrency, specifically Tether (USDT), as a mechanism to circumvent the impact of renewed US sanctions. This strategic maneuver is primarily aimed at preserving the country’s oil sale revenues from the threat of being frozen in international bank accounts, a concern that has heightened as the US Treasury Department intensifies its regulatory grip in response to Venezuela’s failure to implement demanded electoral reforms.
Recently, the US Treasury declared its decision to not renew a general license for PDVSA, setting a strict deadline of May 31 for the company to conclude its operations. This is a part of a wider strategy by Washington aimed at coercing Venezuela into adopting political reforms. With the traditional banking routes becoming increasingly untenable, PDVSA’s shift towards USDT is indicative of a broader, albeit emerging, trend of integrating digital currencies into the global oil trading framework.
Venezuelan Oil Minister Pedro Tellechea has emphasized the adaptability of PDVSA’s payment systems, stating that they now involve various currencies as stipulated in contracts. This shift is a significant departure from the global oil market’s standard practice of transacting in US dollars.
The transition towards cryptocurrency began in earnest last year but has accelerated following the reimposition of US sanctions. By the end of the first quarter, PDVSA had modified many of its spot oil deal structures to require a prepayment of half the cargo’s value in USDT. Moreover, PDVSA has started demanding that new clients involved in oil transactions possess cryptocurrency and is also applying this requirement retroactively to some existing contracts.
Despite these changes, the adoption of USDT for large-scale transactions like oil sales is still uncommon and is met with skepticism within the trading community. According to one oil trader, “USDT transactions, as PDVSA is demanding them to be, don’t pass any trader’s compliance department, so the only way to make it work is by working with an intermediary.” This necessity for intermediaries could potentially reduce the amount of oil proceeds that end up in PDVSA’s accounts, as middlemen take their shares.
The effectiveness and security of using cryptocurrencies such as USDT to sidestep sanctions are also under close examination. Tether has actively frozen accounts linked to OFAC violations, demonstrating a compliance stance that aligns with US regulations. Additionally, the inherent traceability of blockchain transactions introduces a layer of complexity that could potentially reveal unlawful activities.
Guillermo Fernandes, the founder of the blockchain analysis firm Blockpliance, has expressed reservations about the swift adoption of cryptocurrency for such critical transactions without the establishment of a robust local regulatory framework and a national reconciling body to manage and report on the country’s crude sales effectively. Despite these challenges, Minister Tellechea remains optimistic about Venezuela’s capability to navigate through the sanctions and expand its oil and gas ventures.
