We all know it by now: Venezuela  faces economic sanctions by the US that make day-to-day financial transactions extremely complicated for the government, in general, and for oil giant/dumpster fire PDVSA in particular. The US has also contemplated imposing further sanctions banning PDVSA from making any transaction in US dollars.

This could severely impair PDVSA’s already compromised operations. Involuntary default on its external debt is just the start. PDVSA has been close to defaulting recently just because the third rate Chinese and Russian banks that it uses to make international wire transfers take many days and in some cases weeks to process them.

None of these actions are coherent. None of them betray even an inkling of an understanding of the depth of the shit they’re in.

So, how’s the government preparing to face this complex scenario? Well, we recently covered the sheer lunacy reached by Finance Minister Ramón Lobo who wants to solve the severe cash shortage in the country by going after the portus willing to give you cash back for swiping your card. Plainly, Oil and Mining Minister Eulogio del Pino saw Lobo’s press conference and thought “hold my beer.” From now on, his ministry will publish the Venezuelan oil basket price in yuans instead of dollars.

Facing a major financial crisis, Eulogio decides his response is going to be to stick a regla-de-tres on the empire. Of course, he knows oil is ultimately quoted in dollars worldwide. He understands this childish calculator trick does exactly nothing to change that. But he’s hoping you don’t.

On the other side, the WSJ recently reported that PDVSA informed oil traders that it would not receive or send any payment in US dollars. The company took the chance to convert all of its cash holdings into euros and ordered its partners in joint ventures to follow suit.

It appears that PDVSA is either closing or emptying all of its US dollar-denominated accounts instead of creating a backup mechanism in case further sanctions are brought to bear. That would be the rational thing to do. But what they seem to be doing is self-sanctioning before the sanctions actually do come down, suffering in advance all the negative consequences that not having access to dollars and dollar-denominated accounts will have on its operations and already disastrous accounting.  

Anti-imperialist posturing is now so deeply ingrained that the government can no longer tell it apart from proper fiscal planning.

On top of this, Maduro recently announced the suspension of Dicom auctions (the umpteenth failed alternative currency system enabled by chavismo to beat DolarToday — and by the way 23,744 — hello!)

Instead, the government is announcing a basket involving the aforementioned yuan, Indian rupees and Russian rubles to denominate its forex trade in.

This is nonsense and plainly won’t work. Still, the parallel exchange rate took a steep hike in response, following the suspension of future DICOM auctions.

None of these actions are coherent. None of them betray even an inkling of an understanding of the depth of the shit they’re in.

It’s hard to avoid the conclusion that the reflex to anti-imperialist posturing is now so deeply ingrained that the government can no longer tell it apart from proper fiscal planning. Their grasp of basic finance is so thin and their arrogance so vast that these actions may end up accelerating a default rather than forestalling it.

But it’s impossible to take any comfort in their bumbling, because the consequences of these decisions will be born by sick and starving Venezuelans, not by the amoral criminals who make them. It’s sickening.  

26 COMMENTS

  1. My goodness. So what happens when the EU takes financial sanctions against Venezuela? I understand this is being contemplated and might further complicate their international banking options in any currency except for the Russian and Chinese banks.

    Next up will be an expat Venezulano working at a job in Spain and starting website “Euro Ahoy.”

  2. Oil will continue being priced in USD as is the normal international business practice , so if someone wants to buy sell to Venezuela it will simply have to convert the current USD price to the regimes selected currencies for the day of payment, because these vary from day to day and those currencies are not held by companies which normally use USD in their transactions this adds a layer of red tape and banking costs to the transaction which will be charged to Pdvsa subtracting sums from what it would receive if the transaction were in USD . If a company has other sources of oil it might choose to avoid that additional red tape and simply forego doing business with Pdvsa . To be noted if payments are made in currencies other than the USD that doesnt mean that the original pricing of the good will not be priced in USD as per established business practice, The currency of account will remain the USD even if the currency of payment is not a different currency.

    By adding extraordinary transactions costs and efforts to any buy sell Pdvsa operations Pdvsa will lose customers or providers . Also to be noted is that even if the payment is to be made in currencies other than the USD unless the buyer seller has a chinese bank account the payment will have to flow thru a western bank or banking system that doenst ordinarily does these transactions , so there are bound to be mistakes , errors , delays in any operation that didnt exist before , some banks might use it as an excuse not to do any more business involving Pdvsa or Venezuela , Pdvsa will have to rely on third tier banks to do the job probably much less efficiently.

    This in the end will not make the life of Venezuelans better but worse , it will not help the finances of the regime but harm them …….it is definitelly another folly of a regime that just doenst understand how the business world works and thinks in terms of omnipotent govts that can order anything done and force the world to comply with its arbitrary measures…….it is a sign of hubris and ignorance..!!

    And all of this just because some people have the emotional need to feel all powerful , to remain indefinitely in power ….whatever the cost to peoples welfare….

    • Your analysis is spot on. The cheap parlor tricks will not be anything more than a path into a blind alley.

      As money becomes harder to come by(legally) we should expect the narco state to come into full power. (If it has not already)

      There is no sign (yet?) that the chavistas will step down or hold elections. ” Whatever the cost to the people” sums it up pretty well.

  3. “He would see this country burn if he could be King of the ashes.”

    Clearly, these morons are more concerned with retaining their fleeting power than doing the right thing. Which is quite interesting, because in the business world (of which I am immersed) you NEVER see such bizarre thinking.

    What good is it to be the owner of a business that has no customers? (I am perpetually reminded of the “Buggy Whip” speech given by Danny DeVito in the movie, “Other Peoples Money”.)

    ———

    “You know, at one time there must’ve been dozens of companies making buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company?”

    ———

    Chavismo is heavily invested in buggy whips (Bolivarian Socialism). And Delcy and Diosdado and Nicky want Venezuelans to buy buggy whips and quit worrying about stupid things like food and medicine. Be assured, these numbskulls won’t be in business for much longer.

  4. I’d be impressed if Maduro could get Americans to transact cocaine in yuan or rubles or rupees. Depending on the on-the-ground hostility to dollars in black market transactions, the regime will complicate money laundering in the dollar denominated drug trade. Moreover, if banks were reluctant to deal with Venezuelan petrodollars for fear of money laundering, the reluctance to deal with Venezuela dollars will be much greater if there is any sort of success in making oil income petroyuans while leaving narcodollars in dollars. Any dollars from Venezuela will be dirty, and the narco elements of the regime will face consequences.

  5. Existing loans or obligations which are payable in USD will continue to be payable in USD ……..Govt decrees cannot change this . For the future if the client or supplier of oil or other goods does not have a chinese bank account or does not normally transact its business in chinese currency it will have to make arrangements so that whatever amounts are denominated in Yuan are converted from or into USD using western banks as intemediaries , this is not free , banks charge for these services , making the transactions both more onerous and complicated which in turn adds to the transaction costs of doing business with Pdvsa or the respective Venezuelan govt body. ( a cost which inevitably passed on to venezuela ) , and also makes for delays and problems in effecting and recieving payments to from Venezuela …….

    Maduros fears that the US and other western countries may in future apply sanctions which disallow the govts use of US Currency in any of its transactions is very real , US law allows for such measures to be applied and in fact they were applied to Cuba in the past.

    Banks are very finicky creatures , they dont like any kind of risk , if they have to deal with govts which are fast falling into international pariah status they will do things to make that govt take their business elsewhere , they dislike the possibility of harming their reputation by dealing with a pariah regime, or the danger that direct US or UE sanctions or the spill over from such sanctions make their life more difficult or create problems for their businesses,

    Venezuela is totally dependent on its exports and imports to survive , if in the end they have to hand over the handling of their international finances and money movements to China or Russia this represents a risk to the regime and to venezuelan sovereignty much greater than Venezuelans may desire or want to accept.

    • This is the scenario i been expecting for awhile there is already territory that belongs to chinesse and russians, the next step for the chavista is to accept colonization to keep themself alive, that must be the reason why russia and china stay dumping money and negotiating with this pariah state, soon they will fully takeover.

  6. As Oil and Gas Guy points out, Europe is already on the brink of putting the Euro out of bounds for the Chavistas. And to Bill’s point, having Russia or China become comptroller of Venezuela’s financial doings – both countries are infamous for skimming and shenanigans – is a truly desperate move. And trying to reverse it, once the whole thing comes crashing down, will be ugly. Starting to feel like a suicide mission, driven by machismo and insanity.

    So much for the pueblo.

  7. Just so the rest of you know, there’s a major gasoline shortage in this area. It’s affecting everyone’s life, for the worse.

    Maturin, a major city in the eastern state of Monagas has basically been without gasoline for the better part of a week. Huge lines all over the city with a tanker does show up. On top of that, the gasoline that is available is now being blamed for major pollution in the city as the rumor is the gasoline that does arrive is missing important additives that assist modern engines in burning the fuel. I noticed a week or two ago that my woman’s car smelled of gasoline in the interior and the same comments are pouring in from all over.saying that the cars (and the city of Maturin) smell like gasoline because it’s not being burned effeciently by the city’s vehicles.

    I don’t know about the rest of the country, but it’s getting critical here.

    We’re working on finding a 55 gallon drum of gasoline to have on hand for emergency. The guy who supplies our diesel says he can find it, but to date he’s not completed his word.

      • Price of gasoline in the Boston area jumped from about $2.35 to about $2.80 per gallon (US). No shortages though.

        Hey, guys and gals, things are tough all over.

    • I just read an article about this, and they said it’s all about the hurricanes. The sellers are even rerouting tankers of refined gas to VZ and elsewhere that were destined for elsewhere.

      They didn’t mention at all that this was a sanctions related issue. Just a logistical delivery problem.

      • Oh, I forgot:

        This delivery problem further screws PDVSA by denying them the light crude they need to deliver their heavy for refining.

        Every day, little by little, something happens to PDVSA to chip away at their profits.

        • I thought they were still able to get that from Russia… Not 100% sure, so don’t hold me to it. But the cost to blend from the other side of the world is not a long term solution.

          Oil experts can correct me.

  8. “It’s hard to avoid the conclusion that the reflex to anti-imperialist posturing is now so deeply ingrained that the government can no longer tell it apart from proper fiscal planning.”

    Oh, come on. This shouldn’t be a new revelation to anyone.

    This has been the case since 1999.

    • Here in lies the problem. Switching to yuan or another currency just costs them MORE on every transaction. The cycle will quickly spin out of control.

  9. This is strange news to me, because PDVSA invoices for crude oil have been in Euros for many years now. Only the upgraders such as Petropiar and Petrocedeno were still billing in USD

  10. I wonder why they changed the graphic on this.

    I’ll cut CC whatever slack for whatever reason…maybe a copyright thing…but I’m curious.

  11. Leftist economics fail again and again and no one seems to remember that or even care. Don’t destroy the market economy if you want to have any decent standard of living. Even China, Vietnam, and India figured this out back in the 80’s. If you want to redistribute wealth, there has to be an engine for producing it first. Communists just can’t grasp this because their whole ideology is based on just being the total opposite of capitalism in any and every way. They do succeed, of course. They create horrible economies that try to attach themselves parasitically to some rich benefactor like Castro, who pimped his country out to the USSR (now to US tourists) and Venezuela, which would starve if the wicked USA did not buy its oil for cash. Better hope those imperialist capitalist bastards keep thriving!

    • quote… “If you want to redistribute wealth, there has to be an engine for producing it first” this is a simple point that many leftist politicians in Latham never mention. Glad that you did.

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