The Implications of Venezuela’s Use of Crypto, Particularly USDT, to Avoid US Sanctions

Venezuela’s state-owned oil and gas company PDVSA has been in the news for its reported plans to accelerate the use of cryptocurrency, particularly USDT, to bypass US sanctions. This strategy, which began in 2023, includes integrating USDT for oil sales and mandating new customers to have a digital wallet holding cryptocurrency. The decision to ramp up the use of USDT comes after the United States refused to renew a general license that temporarily lifted sanctions on Venezuela’s oil and gas sector.

With the recent imposition of sanctions, Venezuela is facing challenges in exporting oil due to the impending deadline for conducting transactions by May 31. By shifting towards USDT for transactions, PDVSA aims to mitigate the risk of profits getting frozen in foreign bank accounts. This move reflects a strategic shift towards crypto to circumvent sanctions and maintain its oil exports in the face of financial restrictions imposed by the US government.

While the use of USDT may offer a temporary solution for PDVSA to continue its oil exports, there are inherent challenges and risks associated with this strategy. Crypto transactions in the oil sector are uncommon, with the US dollar traditionally dominating global markets. The reliance on intermediaries for crypto transactions may result in reduced oil proceeds for PDVSA, limiting the company’s financial gains and complicating its operations.

This is not the first time Venezuela has turned to cryptocurrency to navigate around US sanctions. In 2018, the government introduced the Petro, a state-owned, oil-backed cryptocurrency. However, the Petro faced criticism and lacked widespread adoption, leading to its discontinuation in January 2024. The failed attempt with Petro underscores the challenges of creating and maintaining a state-backed cryptocurrency in the face of international pressures and scrutiny.

Venezuela’s decision to accelerate the use of USDT for oil transactions to bypass US sanctions signals a strategic shift towards crypto in the oil and gas sector. While this approach may offer short-term relief from financial restrictions, it also poses risks and challenges, including potential revenue loss and regulatory hurdles. The evolving landscape of cryptocurrency in international trade highlights the complex interplay between geopolitics, finance, and technology in the era of digital globalization.