By Youri Kemp From Caribbean News Now

CARACAS, Venezuela — Venezuelan charge d’affaires in Barbados, Alvaro Sanchez Cordero, has responded directly to a Caribbean News Now report on the viability and efficacy of the Venezuelan, oil backed, cryptocurrency, the “Petro”, launched in February.

“Don’t hold your breath. The bottom line is that the Petro is backed by Venezuela’s proven oil reserves, which are the largest worldwide, adding to 300 billion barrels of oil (even larger than Saudi Arabia),” Cordero said.

Despite his claim of Venezuela having the largest reserves, there is still no evidence of the Petro benefiting from this. Also, while Venezuela boasts massive oil reserves, its oil production and related industries have been in decline, making an oil-backed cryptocurrency somewhat meaningless.

As we reported in July, according to the 15-member oil cartel, the Organization of the Petroleum Exporting Countries (OPEC) Monthly Oil Market Report (MOMR) for July 2018: “Venezuela’s Merey OPEC Reference Basket (ORB) price showed little changed amid tighter supplies of sour crudes to the US Gulf Coast (USGC), due to lower Venezuelan exports. Also in the month of June, Merey was up 96¢, or 1.4%, m-o-m at $69.25/b in June, 2018.”

In addition to the July 2018 OPEC MOMR, Venezuela also showed a year-on-year decrease in production overall, from 2,154 million barrels in 2016 to 1,911 million barrels in 2017; and, similarly, 48 million barrels lower between May-June 2018, as per OPEC’s secondary source confirmation method.

More importantly, Venezuela has lost nine oil rigs during 2016 to 2017, and additional 23-plus rigs between 2017 to June 2018.

In a Reuters special report, referred to by us, analysts are also expecting that Venezuela’s crude-oil exports could drop by a third in September because of a tanker collision at state-owned PDVSA’s main terminal, possibly leading to a force majeure declaration, further exacerbating the issue of the revenue potential of Venezuelan oil backing its cryptocurrency.

The Greek-flagged Meganisi carrying imported naphtha collided with the terminal’s south dock during mooring operations last weekend. The accident reduced the terminal’s 1.5mn barrels per day (b/d) capacity by up to 425,000 b/d or up to a projected 15.7mn barrels over a five-week period through September.

Noting that the US dollar no longer backed by gold, Cordero went on to state that, despite all of this, the Petro should have more credibility, and in turn blamed US sanctions for the Venezuelan cryptocurrency not taking off in the market, admitting that it is not as successful as the Maduro regime envisioned:

“Therefore, unlike the US dollar, which long ago ceased to be backed by gold, the Petro should have more credibility. Nonetheless, you are right in one point: the US government has sanctioned Petro transactions, which could ultimately affect it.

“Just like similar American sanctions have had a toll on the Venezuelan economy, thereby seriously damaging Venezuelan living standards, Trump sanctions on the Venezuelan Petro have the same goal: toppling the democratically elected government of President Maduro, regime change, and getting hold of the very Venezuelan oil that would otherwise back the Petro to stabilize our economy,” Cordero said.

Venezuela has been crippled with sanctions by the US government based on human rights grounds.

In May 2014, the US House of Representatives passed the Venezuelan Human Rights and Democracy Protection Act (HR 4587), a bill that would apply economic sanctions against Venezuelan officials who were involved in the mistreatment of protestors during the 2014 protests against Maduro’s regime.

In December 2014, the US Congress passed Senate 2142 (the Venezuela Defence of Human Rights and Civil Society Act of 2014).

On March 9, 2015, then US president, Barack Obama, signed a presidential order declaring Venezuela a “threat to national security” and ordered sanctions against seven Venezuelan officials.

On April 20, 2017, the Venezuelan government seized the General Motors plant in the Venezuelan state of Zulia, causing the plant to close down operations. This prompted the US government under the new Trump administration on August 11, 2017, to issue a statement stating that it was “not going to rule out a military option” against the Maduro regime.

On May 21, 2018, Trump signed an executive order imposing the penalties that bar US companies or citizens from buying debt or accounts receivable from the Venezuelan government, including the state owned oil company PDVSA that is the parent of Citgo Petroleum Corporation in the US.

Other countries have responded and treated Venezuela in kind and in step with US-led sanctions. In May 2018, a Curacao court ordered the seizure of $636 million in assets belonging to PDVSA, thus awarding multinational oil giant ConocoPhillips a portion of a $2 billion settlement won in an arbitration ruling handed down by the International Chamber of Commerce last month – further putting pressure on PDVSA’s distribution chain, in addition to the stiff US sanctions.

Since the US sanctions took hold in 2014, the Venezuelan economy has been in free-fall. Inflation is set to hit one million percent before the end of the year, prompting the government to introduce a new national currency, the Bolivar Soberano or the Sovereign Bolivar, chopping five digits off of the old currency in order to tamp down inflation.

The Venezuelan economy has been in recession as well, shaving close to US$40 billion in GDP from its economy during 2013 to 2018.

With no end in the economic collapse in sight, and Venezuelans leaving for other countries in droves, the situation is not yet clear as to how the economic reforms backed by Venezuela’s gambit on the Petro will play out.

IMAGE: Venezuelan charge d’affaires in Barbados, Alvaro Sanchez Cordero