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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Collapse Of Venezuela's Imaginary Oil Currency

Earlier this year, Venezuelan President Nicolas Maduro rolled out his latest scheme to rescue his economy, offer an alternative to the increasingly worthless bolivar, and skirt U.S. sanctions on financial transactions. But Maduro’s cryptocurrency, supposedly backed by Venezuela’s oil reserves, is a very hollow promise.

To be sure, few analysts expected much from the “petro,” Maduro’s hastily launched cryptocurrency. One petro was supposed to be backed by one barrel of oil, and the vast reserves of oil located in a specific part of Venezuela were promised as a backstop for the new cryptocurrency. It was always an odd scheme. After all, what makes the petro any different from the bolivar, Venezuela’s official currency? Isn’t the value of and faith in the bolivar also effectively backed by the country’s oil wealth?

Well, the bolivar is worthless, and Maduro wanted to start anew. Maduro thought the petro would help the government avoid the reach of U.S. sanctions, at least in theory. But the new cryptocurrency has unsurprisingly failed to catch on.

The petro is supposed to be backed by 5 billion barrels of oil located in Atapirire, a small town in Venezuela’s remote savanna in the middle of the country. Reserves in this region are the lynchpin of the petro, and as such, they are intended to underwrite the regime’s plan for economic recovery.

But as Reuters details in a special report, the region is not only lacking in oil production, but there is no visible effort at developing oil in this area at all. The only evidence of an oil presence were old rigs that have clearly been inoperable for a long time, as they are rusted out and covered in weeds. “There is no sign of that petro here,” a local resident told Reuters. Worse, the town suffers from blackouts, hunger, poverty and decrepit infrastructure, an increasingly common plight for the country on the whole.

More broadly, there is “little evidence of a thriving petro trade,” Reuters correspondent Brian Ellsworth concluded, after interviewing dozens of cryptocurrency experts over a period of months. Maduro says that the sale of the petro have translated into $3.3 billion in funds for the government, a claim that is suspect, to say the least. Related: The Bearish Case For Oil

Even a cabinet minister involved in the project told Reuters that “nobody has been able to make use of the petro...nor have any resources been received,” and that the technology for the digital token is still under development. And unlike other initial coin offerings (ICOs) for startup cryptocurrencies, which can point to digital records of transactions, there is little evidence that supports Maduro’s notion that trading activity of the petro is thriving.

Adding to the monetary confusion is the assertion by Maduro that the bolivar is now pegged to the petro. It’s not even clear what that means in practice, and experts say its “unworkable,” according to Reuters. “There is no way to link prices or exchange rates to a token that doesn’t trade, precisely because there is no way to know what it actually sells for,” Alejandro Machado, a Venezuelan computer scientist and cryptocurrency consultant who has closely followed the petro, told Reuters.

It would all be laughable if the economic meltdown in Venezuela wasn’t so dire and the oppression and mismanagement from the Maduro government didn’t exact such massive a human toll.

Meanwhile, Venezuela’s oil production continues to erode at a rapid rate. Output fell to just 1.278 million barrels per day in July, down roughly 50,000 bpd from a month earlier and down more than 500,000 bpd since the fourth quarter of 2017.

There is almost no chance of improvement for the foreseeable future. Argus Media reported last week that Venezuela’s crude exports could fall by a third in September because of a tanker collision at an export terminal run by PDVSA. The terminal’s capacity could be hampered by around 425,000 bpd for the month. “But this assumes that PdV manages to repair and restart the dock operations by 30 September at the latest,” a PDVSA terminal official told Argus.

Thus, the meltdown continues. Maduro is going to need to come up with something better than a hapless and inept attempt at a new cryptocurrency to resolve the country’s deep depression.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Sheik Jerboutii on September 04 2018 said:
    "...Nicolas Maduro rolled out his latest scheme to rescue his economy..." Please stop being such a sucker and stop being a mouthpiece for establishment leftists.
  • John Brown on September 04 2018 said:
    Finally an article exposing the fraud of the Petro. I blogged nearly the same thing when that murdering moron Maduro first announced it. Why would it be better than the Bolivar which is backed by the Venezuelan economy which means oil. If you ever wanted to exchange your Petros for real oil you’d need a shovel & bucket & go get it yourself. I truly hope some morons bought Petros & lost their shirts. It’s too bad for the Venezuelan people that the US is out of the invasion & country rebuilding business. Chavez/Maduro have destroyed Venezuela & impoverished the richest country in Latin America. The sooner Maduro & his corrupt gang of looting thugs go the way of Mussolini the better. Venezuela will only get worse until it has a New Democratic government & grows oil production to restore the country.
  • Myriam Cuevas on September 06 2018 said:
    You are right on the money... If MADURO wants to save his country, he most change his anti-USA policy and develop a business relation with us... That would include jailing the corrupts and taking back their ill begotten riches ... With said fortune placed in the Venezuelan economy, no doubt it will reactivate the economy ....

Leave a comment




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