Venezuela is increasingly relying on the USDT stablecoin for oil exports - but it is also subject to sanctions

According to an exclusive report by Reuters, Venezuela is increasingly planning to trade oil exports for cryptocurrencies. Three people familiar with the matter told the news agency. The reason for this is that the US sanctions are back in full force. By switching to cryptocurrencies - in particular the stablecoin USDT - the state-owned oil company PDVSA wants to minimize the risk of further foreign accounts being frozen, according to the Reuters sources.

It was only in October last year that the USA eased sanctions on the country with the largest oil and gas reserves. However, the USA did not extend this agreement on April 18, as President Nicolás Maduro has not kept his promises for free and fair elections this year. Maduro is refusing to allow his main rival to register for the presidential election in July.

Last week, the US Treasury Department accordingly granted PDVSA's customers and suppliers a deadline of 31 May to process transactions under a general license. Companies will then have to wait for individual US approvals to do business with Venezuela. In the past, the state-owned company relied on middlemen to handle oil transactions with important partners such as China. However, the US sanctions have also destroyed important trade relations for the country.

The South American country is one of the most dependent on the oil industry and the US dollar, also known as the petrodollar, is the world's most popular currency on the oil market.

The state-owned oil company PDVSA has been using the US dollar stablecoin USDT for cross-border payments since 2023. This alternative is now to be further promoted in order to be able to continue trading more independently in a currency that is denominated in US dollars despite sanctions.

PDVSA also requires that every new customer who wants to process oil transactions has access to cryptocurrencies, reports Reuters. According to a source from the news agency, the Venezuelan oil company has even enforced the requirement in some old contracts that did not explicitly provide for the use of USDT. PDVSA is also said to already require a down payment of half the purchase price in USDT.

However, USDT transactions such as those demanded by PDVSA are not approved by the compliance departments of some oil traders, which is why they are currently processing the transactions via middlemen, as one of the traders explained to Reuters news agency. Whether and to what extent other cryptocurrencies apart from USDT will also be used is still unclear.

"We have different currencies depending on what is in the contracts," Venezuelan Oil Minister Pedro Tellechea told Reuters last week, adding that digital currencies could be the preferred payment method in some contracts.

Tether, the company behind the stablecoin USDT, is known for complying with US sanctions orders. In general, the US also has the stablecoin issuer on its radar when it comes to enforcing sanctions.

In addition, we have observed that Russia is increasingly turning to alternative payment mechanisms- including the stablecoin Tether - to attempt to circumvent our sanctions and further fund the war machine.
_{Recent press release from the US Treasury Department}

A spokesperson for the stablecoin issuer has previously emphasized to Cointelegraph that Tether remains committed to stopping payments related to OFAC-sanctioned entities, such as Venezuela.

Tether respects the OFAC SDN list and is committed to freezing sanctioned addresses immediately.
_{A Tether spokesperson told Cointelegraph}

Accordingly, it would probably make sense in the medium to long term for countries facing sanctions risks to switch to Bitcoin. Bitcoin transactions cannot be censored due to its decentralized nature, nor can third parties confiscate Bitcoin if users hold it in their own custody. Bitcoin would also probably be liquid enough by now for large transactions to be processed without complications. A disadvantage for trading, however, is the still high volatility of the asset, which is only 15 years old.

Matthew Ferranti, a doctoral student at Harvard's Faculty of Economics, published an academic paper a few months ago in which he recommended that central banks diversify some of their reserves into Bitcoin. According to the paper, this is already advantageous under normal circumstances, but especially if the country is affected by sanction risks.

In 2020, an investigative report by a Venezuelan media outlet also stated that, according to sources at the Central Bank of Venezuela, payments to companies from allied countries such as Iran and Turkey are being processed in Bitcoin. It remains to be seen whether Bitcoin will soon play a greater role for the Venezuelan economy in the context of the sanctions, which are likely to continue for some time to come.