Venezuela has told oil traders it will no longer accept or offer U.S. dollars in payment for crude oil and fuels, the Wall Street Journal reports, citing sources familiar with the developments. As a result, traders have started converting dollars into euros, and PDVSA’s foreign partners operating in the country may have to switch to euros as well.
At the same time, Reuters reports, Venezuela yesterday suspended the sale of U.S. currency through its Dicom auction system that President Nicolas Maduro said the government will use to switch from dollars to a basket of other currencies.
The decision comes on the heels of fresh U.S. sanctions that effectively aim to tie Caracas’ hands with the issue and sale of new debt, which increases the danger of it defaulting on existing loans. As a counter move, Caracas is moving to a combination of yuans, Russian rubles, and euros to cushion itself against the sanctions. PDVSA, according to the plan, will do half its oil and fuel trades in currencies other than the greenback.
Venezuela’s Energy Minister Eulogio del Pino said PDVSA is about to start invoicing oil sales to India in rupees, and to China in yuans. Although Russia was not mentioned, an official from the energy ministry said the state oil company does hope to sell Russia oil for rubles.
According to a source from the financial industry who spoke to Argus Media, Maduro’s plan to cut off the ties between Venezuela’s oil industry and the greenback is doomed. According to him, while Venezuela’s clients in India and China could benefit from the invoices in rupees and yuans, Venezuela may well lose money in the conversion to dollars, in which it announces PDVSA’s revenues.
Venezuela’s central bank has currency reserves of about US$9.8 billion. This fall, Caracas has pending loan payments of about US$4 billion.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.