Venezuela's petro is a fictitious financial instrument backed by undeveloped oil reserves. How could it affect the gasoline market, especially when PdV's oil production is in crisis?
It wasn’t long after dodging an alleged drone strike that Venezuelan leader Nicolas Maduro warned his beleaguered people to join the ranks of political loyalists, or risk paying international prices for gasoline. Watch the pump as a harbinger of selective dollarization.
Caracas plans to roll out two-tier fuel pricing in conjunction with a new currency that lops five zeros off of the useless old one. But in a speech to the nation last night, Maduro suggested that the new “sovereign bolivar” could become a surrogate for the US dollar.
Since he dare not mention the imperialist dollar, Maduro said the new currency will be tied to the petro, a fictitious financial instrument backed by undeveloped oil reserves. First dubbed a crypto-currency, the petro now looks to be a smokescreen for dollarization, first at the pump and later to “all salaries and prices” in the wider oil–based economy.
The ambiguous plan to be launched on 20 August has distinct echoes in Venezuelan ally Cuba’s pesos and “convertible pesos” that are equivalent to the dollar. The new Venezuelan currency will be indexed to the petro, and the petro will be indexed to international currencies. The first test of the system will be gasoline, which Venezuela virtually gives away, Maduro acknowledged last night, before vowing to wipe out the price “deformity” and associated smuggling in two years.
It’s worth pausing here to remember that gasoline, like so much else in Venezuela these days, is in short supply. State-owned PdV’s oil production is collapsing, its refineries are barely operating, and the company can hardly afford imports. Part of the dwindling pool ends up in other countries like Colombia where retail fuel prices are significantly higher.
The new dual pricing system is a recipe for corruption and more acute shortages. More than 17mn holders of the homeland identity card, which Maduro says gives him “credibility” and which government opponents say is a tool of official control and surveillance, will want to resell their “subsidized” fuel to those without it. A vehicle census that the government is carrying out through 17 August will only reinforce the divide.
The fuel plan and “monetary reconversion” lauded by Maduro in a national broadcast last night are the proverbial equivalent of holding up a finger to block out the sun. Venezuela’s economy is forecast to shrink by up to 22pc in 2018 and hyperinflation is well rooted. But Caracas is demanding submission. Pounding his fist, Maduro said anyone who opposes the “economic recovery, growth and prosperity plan” will be subject to Plan B, and “will regret the day they were born.”
No one is quite sure what happened on 4 August when at least two drones flew over Maduro as he addressed a national guard formation about the economic plan. Flanked by his inner circle, Maduro was quickly swarmed by security personnel as national guard troops scurried from the scene. The president claimed an assassination attempt. Others called it a ruse to justify another crackdown.
Whatever happened that day, more opponents were swiftly jailed afterwards, earning Venezuela another round of condemnation from its neighbors. It’s a repeated reaction that has done nothing to deter the entrenched regime so far, let alone dislodge it as many are demanding. Now it looks like the US dollar, disguised as a shiny new coin, will help to perpetuate it.