Venezuela Fast-Tracks Crypto Adoption in Oil Trade as US Sanctions Loom

Venezuela's state-run oil company, PDVSA, plans to increase the use of cryptocurrency in its crude and fuel exports to mitigate the impact of reinstated U.S. sanctions. The move aims to reduce the risk of sale proceeds being frozen in foreign bank accounts due to the sanctions and has been accelerated by the political turmoil surrounding the presidential election. PDVSA is reportedly requiring new customers to hold cryptocurrency in a digital wallet and has moved many spot oil deals to a contract model that demands prepayment in the USDT stablecoin.

Venezuela Accelerates Cryptocurrency Adoption in Oil Trading Amidst Revived U.S. Sanctions

Washington, D.C. - The United States is poised to reimpose sanctions on Venezuela's oil industry after a six-month suspension, prompting the South American nation to expedite its embrace of cryptocurrencies in oil trading, according to industry sources.

The move to reintroduce sanctions stems from the Venezuelan government's decision to bar opposition candidate Maria Corina Machado from running in the upcoming presidential election, violating General License 44 issued by the U.S. Treasury Department, which authorized transactions related to oil and gas operations in the country.

Faced with impending sanctions, Venezuela's state-owned oil company, PDVSA, is implementing measures to mitigate the impact on its crude and fuel exports. Reuters has reported that PDVSA plans to enhance its utilization of digital currencies in oil transactions to minimize the risk of revenue being frozen in foreign bank accounts due to the renewed sanctions.

Cryptocurrency adoption has been an ongoing strategy for Venezuela, with President Nicolás Maduro acknowledging its use in the past. Reuters indicates that PDVSA has shifted a significant portion of its spot oil deals to a contract model requiring prepayment of half of each cargo's value in the USDT stablecoin. This strategy has been in place during the sanctions pause but is being further escalated in light of the impending sanctions.

Additionally, PDVSA is reportedly mandating new customers engaging in oil transactions to establish cryptocurrency wallets.

The shift to cryptocurrency may be driven by practical considerations, as Tether, the blockchain platform underpinning USDT, has a record of freezing crypto addresses identified by law enforcement as belonging to sanctioned individuals. Tether has voluntarily blocked 1,426 USDT addresses, freezing over $1 billion in funds, according to Dune Analytics.

Venezuela's initial forays into cryptocurrency included plans to launch its native digital currency, known as the Petro, in early 2018. Initially proposed to operate on the Ethereum blockchain, the token was intended to be censorship-resistant and easily tradable. However, the government later transitioned to a private blockchain, which was subsequently targeted and sanctioned by the U.S., hindering its global adoption. The coin ultimately failed in 2024 amidst a corruption scandal leading to the arrest of the oil minister and the cryptocurrency superintendent, both wanted by the U.S. government on corruption charges.

Despite the challenges, Venezuela's oil exports have witnessed an uptick during the sanctions pause. The nation's oil ministry has confirmed daily exports of nearly 1 million barrels, the highest level in four years.

President Maduro has expressed defiance in the face of the impending sanctions, tweeting, "Even with sanctions, blocks, and threats, we will move forward in the country's development and our people's peace."

The shift towards cryptocurrency in oil trades represents a significant move for Venezuela as it seeks to preserve its oil exports amidst international sanctions. However, relying on intermediaries for transactions raises concerns that a portion of oil revenue could end up in PDVSA's coffers. A recent corruption scandal involving PDVSA executives revealed that $21 billion had been concealed from the government through cryptocurrency transactions.

Venezuelan oil minister Pedro Tellechea has stated that the country anticipates continuing to negotiate contracts and expand crude and gas projects during the 45-day wind-down period set by the U.S., after which it will request specific licenses from potential clients.

By leveraging cryptocurrency in oil trading, Venezuela aims to mitigate the impact of sanctions on its critical oil industry. However, the efficacy of this strategy remains uncertain, particularly in light of Tether's history of freezing sanctioned addresses and the potential for corruption within PDVSA.