PDVSA, Venezuela's state-owned oil company, will increase digital currency use in its fuel and crude oil exports as the US imposes another round of oil sanctions on the South American country, insiders told Reuters. Does this mean another crypto oil token?
Last week, the US Treasury Department gave PDVSA's providers and customers until May 31 to end transactions under an expired general license. Companies will now have to wait for individual authorizations to trade with Venezuela, making it harder for the country to increase oil output and exports.
Renewed efforts after the failed petro
Venezuela has experience with crypto oil tokens. The so-called petro was backed by the country's petrol reserves, which are the biggest in the world, and priced at $60 per unit when it launched in February 2018.Ultimately, it never took off. However, PDVSA has been moving oil sales to Tether (USDT) since last year. The return of oil sanctions is accelerating the shift, which aims to reduce the likelihood of sales revenue getting frozen in bank accounts abroad due to the sanctions.
According to Pedro Tellechea, Venezuela's minister of oil, the country has different currencies in different contracts, and crypto oil tokens might be the preferred payment method in some. As it stands, the US dollar is the preferred currency for global oil market transactions. Payments in crypto oil tokens and crypto in general do occur in some countries, but they are not frequent.
The controversy
A corruption scandal rocked PDVSA in 2023: authorities discovered unaccounted oil export receivables of $21 billion, partially linked to previous transactions involving other cryptocurrencies. The company is trying to put this behind it. In March 2024, exports reached 900,000 barrels per day, a four-year record after a rough February. The company moved many spot oil transactions to a model where prepayment in USDT was required for half of each shipment's value in the first quarter of 2024.
PDVSA mandates new customers applying to carry out oil transactions to hold cryptocurrency in a digital wallet, too, which might signal the emergence of a new crypto oil token. Most entities started using mediators to meet the digital token requirement in October when the US made it possible to resume transactions with Venezuela under a new six-month license. Reuters quoted a trader as saying USDT transactions were incompliant with trading rules, so using a go-between was the only way to make it work.
It is still unusual to use crypto oil tokens or pay for oil in crypto such as USDT, not to mention the risks associated with the biggest stablecoin by market cap. A recent report by Bankless Times found that it has become the stablecoin of choice for moving illegal funds in and out of Cambodia.
Skirting sanctions via crypto oil tokens
Increasingly relying on intermediaries for transactions could help PDVSA evade sanctions, but it will also lower its profit. According to analysts, Venezuela's oil revenue, export, and output will soon hit the ceiling, assuming the US issues individual authorizations promptly. Tellechea begs to differ, insisting that PDVSA is strong in trading and well-prepared to address the renewed sanctions.
Cryptocurrencies and volatility
One study examined the connection between cryptocurrencies, in part crypto oil tokens, and the spot prices of crude oil. More specifically, it looked at how volatility modulated the connection. Cryptocurrency markets are often perceived as commodity markets, and they are linked to other commodity markets as such. Using scientific tests, researchers found evidence of a one-way volatility spillover effect of the crude oil market on Bitcoin Cash.
There was also significant one-way volatility spillover from Ethereum and XRP to crude oil markets. They found proof of the brief hedging potential of crude oil on Ethereum.
Crypto oil tokens in history
The short-lived Venezuelan petro is not the only crypto oil token in history. There have been others, including OilCoin, Blur Energy, and the PetroDollar (XPD). These crypto oil tokens have not shown much progress. XPD is the only crypto oil token with a reported market cap, but it's less than $1 million, suggesting that it enjoys little investor appeal.
Will there ever be a successful crypto oil token, Venezuelan or otherwise? The concept at the core of crypto oil tokens may be marketable, but other issues were to blame. These include little support from investors and institutions, a lack of clear use cases, inadequate initial liquidity, and poor marketing and listing plans.
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