When a nation acts out on the international stage, world powers can apply punitive pressure by leveling sanctions against the offender.
The current Venezuelan government knows this dynamic well, as corruption and a humanitarian crisis under Venezuelan President Nicolás Maduro has led the U.S. and others to hit his administration with biting economic restrictions in recent years.
These sanctions seem locked in for the long haul, so Maduro’s admin improvised in December 2017 by announcing his regime’s plans to launch a national cryptocurrency, the oil-backed Petro, as a means to provide his government with more financial freedom.
At the time Maduro said the crypto, which launched in early 2018, would eventually be backed by 5 billion barrels’ worth of oil that had not yet been derived from domestic crude reserves.
Those 5 billion barrels never ended up materializing, and the Petro has since failed to gain widespread traction despite the Venezuelan government’s efforts to turn it into a local and international medium of exchange.
But President Maduro isn’t folding and rather has doubled down on backing the Petro, with his latest bid being to improve confidence in the crypto.
Maduro Says He Has Millions of Barrels Lined Up
A national cryptocurrency from a rogue nation is a quagmire of its own. An oil-backed cryptocurrency named after “petroleum” that isn’t actually pegged to any oil reserves is another level of ridiculousness entirely, and one that’s doomed to fail quickly because no one wants it.
The Venezuelan government is presumably aware of this reality, as President Maduro announced this week during a televised address to the nation that his regime planned to promptly roll out 30 million barrels of oil from state reserves in order to finally firm up the Petro’s backing.
Specifically, Maduro said:
“I will deliver these 30 million of barrels as a liquid, physical, material backing for the petro … The inventories of crude and products in storage tanks are available for immediate commercialization … to sustain and back the operations of the sovereign Venezuelan crypto-asset, the petro.”
Of course, it remains to be seen if these 30 million barrels will materialize themselves. If they do, the reserves will pale in size compared to the originally planned 5 billion barrels. The country reportedly has approximately 39 million barrels of oil in state inventories.
The announcement comes after the Trump administration notably sanctioned the Petro last March, barring Americans from legally interacting with the coin. In August 2018, President Maduro decreed an official exchange rate between Venezeula’s hyperinflated fiat currency, the bolívar, and the Petro. That decree came as a monetary blow, as it immediately devalued the bolívar another 96 percent.
After that announcement, one Petro was worth roughly $60 USD and thus 360 million bolívars, and President began forcing public and private Venezuelan banks to adopt the national cryptocurrency.
Relatedly, a few weeks ago news broke that Maduro’s administration was increasingly under economic pressure because of its dwindling foreign currency reserves, so the Venezuelan central bank had begun studying how government-owned bitcoin (BTC) and ether (ETH) might be used to pad those reserves.
That news combined with the new development that President Maduro might be on the verge of rolling out 30 million barrels of oil for the Petro suggests his administration is growing increasingly desperate as economic pressure against it mounts.
Whatever happens, Venezuela is rich in oil and Maduro is trying to make the most of that. Other countries might be influenced to follow similar paths.
Interestingly, Russia has previously rejected offers from Venezuela for trade deals made via the Petro, but there have murmurings in the Eurasian country for an oil-based crypto that could be similarly aimed at busting sanctions, too.
“[A]n oil-backed cryptocurrency would allow oil producing countries to avoid any financial and trade restrictions that have become excessive in recent years,” former Russian energy minister Igor Yusufov said last fall.