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If Venezuela goes back to selling oil to the United States, will its economy be fixed?

Venezuela's economic scenario has been undergoing visible changes for its citizens. More excellent circulation of foreign currency, better salaries than in previous years (at least in the private sector), and the stabilization of the exchange rate has been key in this new scenario, without the hyperinflation that keeps Venezuelans in suspense about the new price of the most basic products in a matter of hours.

Now, a new possibility is added. Paradoxically, what enables this new option for Venezuela is a terrible event: war. The wave of sanctions and the generalized blockade of Russia due to the armed conflict in Ukrainian territory has caused the United States to rethink its position towards Venezuela. All because of oil, the primary historical source of income for the South American country. Just a few days ago, it became known that an official delegation of the U.S. government was in talks with the government of Nicolás Maduro. The intention? Renegotiating the sale of Venezuelan crude oil to the United States would lower costs for both parties and could alleviate the Venezuelan economy with better oil revenues.

There is only one small problem: for the moment, Joe Biden's administration has denied that they are directly negotiating crude oil from Venezuela. At least, according to White House spokeswoman Jen Psaki, she has said "for now" on the subject, despite having acknowledged a rapprochement to discuss economic issues. The energy issue was on the table, the White House realized, although it later denied that any negotiations were currently underway. But how could it be useful for Venezuela to resume oil sales to the most significant economic power on this side of the world, despite the apparent political differences and disagreements between the parties?

Venezuela, between better prices and low oil production

Two analysts consulted

agree that the possibility of resuming crude oil negotiations with the United States could be beneficial for Venezuela. However, they also agree that it is not so simple. Eduardo Gavotti commented in an exclusive interview with this media that, in principle, the impact of this hypothetical negotiation "depends on the type of agreement reached ."In this respect, he reiterated that there is nothing concrete to date. For his part, economist Aarón Olmos argued that there is an opportunity to start receiving income from the sale of oil that had stopped coming in. But not without a significant obstacle: "the state of the oil industry is not the best."

A local industry that once produced more than 3 million barrels a day fell to 400,000 barrels a day last year. And although it has returned to producing around 860,000 barrels a day, according to data from the Venezuelan Oil Chamber, this figure is still far below an optimal level.

The president of the Venezuelan Oil Chamber, Reinaldo Quintero, stated in an interview with local media that he does see an increase in crude oil production as viable. Even up to the level of 1,200 million barrels per day. And in this scenario, the country would cover an important part of the demand of the energy sector in a market that requires this work on the part of the country.


Leaving aside the low production rates, Olmos assured that "the doors to sell crude oil to the United States are reopened to generate income for the country through traditional exports would be tremendous."

Lack of production, the largest proven reserves in the world

To have the necessary impact for an economic recovery in Venezuela, it would be required to optimize that production. A lot of investment is needed for that to happen, says the specialist. And for this to happen, a lot of investment is required, says the specialist. Will it regain the place it once had in the global market? Gavotte does not think so because "it would have to significantly increase its production" to do so." But all is not lost, or at least there is still an advantage for Venezuela: "it will continue to be relevant due to the size of its proven reserves," in the analyst's words. Olmos agrees on the importance of Venezuelan oil reserves. The largest on the planet, it should be remembered. This element, he said, still guarantees the country a relevant position in the global market. On this point, he added that the approach of the United States is essential. "But we would be generating more if we had a better situation at the industry level."

And if Venezuela recovers economically, what will happen to cryptocurrencies?

Venezuela has been on the bitcoin world's radar for some years now. The inflationary indexes, and even the hyperinflation scenario that lasted for quite some time, combined under a scenario of necessity to give bitcoin a propitious use case in the region. The Venezuelan market responded positively to this perception and became one of the countries with the highest volume in P2P markets such as LocalBitcoins, and even positioned itself in the global adoption indexes of analytical firms such as Chainalysis.

Much of this behavior has been attributed to two main factors: bitcoin as a store of value to combat local inflation; and the use of this and other cryptocurrencies as an escape valve to access foreign markets, given the blockage of countless services for Venezuelans. Both scenarios have changed in recent months. Venezuela is now officially out of hyperinflation, while more financial services seem to retake the Venezuelan market. Will bitcoin still be necessary for this context if we add higher oil revenues for the country? Gavotte finds no correlation. For him, the local cryptocurrency market goes beyond these economic difficulties because "it fulfills an alternative payment system function to the traditional system, due to the almost absolute loss of confidence in the national currency."

In addition to this, there is the ease of transacting with stablecoins such as USDT, which has been gaining a place among Venezuelans mainly through Binance. In addition, he referred to the opportunity that Venezuelans find in terms of investment. He gave the lack of access to global markets. Olmos, for his part, relativized what some in the streets perceive as a recovery of the local economy. "While Venezuela is emerging from hyperinflation, it is still the country with the highest inflation in the world. The fact that Argentina's inflation in one month has been higher than Venezuela's does not mean that the accumulated inflation is still very high in terms of comparison", he pointed out.

The Venezuelan cryptocurrency market looks excellent for the economist because "it has had a spontaneous, natural, organic growth process ."All this has become "an important response to problems of lack of confidence in the bolivar, of difficulty in accessing foreign currency, or lack of accounts to make payments outside Venezuela. And crypto-assets continue to have these characteristics. For income and safe keeping", he reiterated.

And where does the petro stand in this equation?

It seems unbelievable. But the petro, the digital currency created by the Venezuelan government, whose value is anchored to a basket in which oil predominates, is already four years old. And although there was a time when the petro was almost absolutely present in the economic plan presented by Maduro to the public, for some time now, that has changed significantly. "The petro is already four years old in the Venezuelan economy, in February. And notice that there was not much mention of it", Olmos commented. In other words, this relative silence may be apparent as to the low usability and acceptance of the petro in the country.

Previously, it was not only part of the government's predominant discourse, but it was also tried to be included in various government services as a form of payment. However, despite this and the officially defined price of around 60 dollars, the secondary market devalued it considerably. For some time now, the value of the petro has been reaching the government's initial expectation, "but it is not that all commerce and services can accept it as a means of payment," added Olmos. Could revitalizing the oil industry and negotiating with the United States change this? In principle, there are more questions than answers. Especially, because the fact that crude oil will be sold again to the U.S. country does not imply a lifting of the veto of the petro in the international market imposed by the U.S. government. Indeed, as we independently corroborated in CryptoNews, the PetroApp is available in a testing phase in the Google Play Store. And considering that U.S. regulations govern Google, it is something striking.

Will there be a new wave of attempts by the government to give the petro a place in the Venezuelan economy? Olmos believes that it would have to be through taxation. Perhaps through services such as public transportation managed by the government, the Metro, or to obtain the subsidized food bags off the Clap system. But, if so, the economist warns: "Let us remember that a crypto-asset is not forced. It loses even more sense. We know that the petro is not free and decentralized, and the executive is the one who determines what use it will have. In four years of existence. The only way for it to have widespread use is to have usability."

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