Venezuela's Bold Crypto Pivot Amid Sanctions

Venezuela is moving some of the dealings with its oil company PDVSA to cryptocurrency, particularly Tether (USDT), due to new US sanctions.

That strategic shift aims to keep the country's proceeds of oil sales from being frozen in foreign bank accounts. It further compounded the urgency as the US Treasury Department clamped down on the oil-rich nation over unmet demands for reforms.

What Obstacles Venezuela's Switch to USDT Will Face?

The US Treasury said it would not renew a general license for PDVSA but issued a fresh 7-day one instead, Reuters reported. The US Treasury set May 31 as the deadline for PDVSA to unwind operations.

Washington's decision comes as part of the bigger pressure over Venezuela for a political change further aggravating its already compromised effort to increase oil production and export levels. That forced PDVSA to close traditional banking avenues and turn to USDT, in a move that mirrors a growing trend of integrating cryptocurrency into global oil trading, although it remains in very early stages.

"We have different currencies, according to what is stated in contracts," said Venezuelan Oil Minister Pedro Tellechea.

Tellechea added, "The supervisor's ability to select the receiving wallet and amount allows an unprecedented flexibility in PDVSA payment systems." The move to cryptocurrencies represents a striking departure for the global oil market, which operates almost entirely on US dollars.

PDVSA's gradual move to cryptocurrency had started the previous year but then gained steam with the reimposition of US sanctions. By the end of the first quarter, accordingly, PDVSA had moved to USDT half prepayment cryptocurrency for good part of its spot oil deals.

Further, the oil firm also required a new client, transacting using cryptocurrency. PDVSA is also applying this retroactively to a number of existing contracts.

But that comes with its set of problems, however. After all, USDT usage for big transactions, like in the sale of oil, even then, was still mostly rare and skeptical from within the trading areas.

"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 working with an intermediary," said an oil trader.

But, with this would be the need to fulfill the digital transaction requirements; dependency on intermediaries introduces another added weakness, that of ensuring that the smaller slice of the pie, by way of oil proceeds, reached PDVSA accounts when the middlemen take their cut.

Now, questions are being raised about whether it is really effective or safe to work with cryptocurrencies, such as USDT, in bypassing the imposed sanctions.

Tether has taken a number of such accounts out of action, suggesting its compliance posture is in line with US regulations. Traceability also means that blockchain transactions add one more layer of complexity and potential exposure.

For Guillermo Fernandes, the founder of Blockpliance, a company doing blockchain analysis, this use of cryptocurrency seemed unlikely for an immediate adoption. "I do understand cryptos present a lot of benefits to international oil trade. However, it is hard to justify that Venezuela plunges itself into the crypto system without having previously installed a local regulatory framework and a national reconciling body that can answer and publish an effective balance of payments for national crude sales," Fernandes told BeInCrypto. Minister Tellechea, meanwhile, remains optimistic about Venezuela's ability to navigate the sanctions and expand its oil and gas projects.