In what is set to be a major blow to the U.S.’ increasingly fragile “petrodollar” system, Venezuela announced on Wednesday that it would no longer accept U.S. dollars as payment for its crude oil exports. According to the Wall Street Journal, Venezuela has begun using euros in lieu of the dollar and will convert existing cash holdings into euros as well.
However, the official website of Venezuela’s state oil company, PDVSA, has begun offering prices in the Chinese yuan, not euros. The decision is similar to that once made by former Iraqi leader Saddam Hussein, who dropped the dollar in favor of the euro a few years prior to the 2003 U.S. invasion of Iraq.
The move, though drastic, was not entirely unexpected. Venezuelan President Nicolás Maduro had stated earlier in the month that the country would look to “free” itself from the dollar within a week’s time, following the U.S.’ sanctions against the embattled nation.
International markets thus far have failed to noticeably react to the policy shift, despite the threat it presents to the petrodollar system. The system, created in the 1970s, calls for OPEC nations to sell their oil in dollars in order to create artificial demand for the U.S. currency. Venezuela, home to the world’s largest oil reserves, is likely to exert some effect on the demand for dollars through its new policy, though the extent of the potential damage remains unclear.
However, other recent global developments, such as China’s recently announced plans to launch crude oil futures contracts priced in yuan and convertible to gold, suggest that the petrodollar system is facing a very uncertain future.
The U.S., as is custom when the petrodollar system is threatened, wasted little time responding to Venezuela’s decision to forsake the dollar in its oil transactions.
The same day that Venezuela’s decision to drop the dollar was announced, U.S. President Donald Trump announced that he will host his counterparts from Peru, Colombia and Brazil on Monday to discuss Venezuela. The U.S. is set to lead military drills with the three countries in close proximity to Venezuela in November of this year.
In addition, Venezuela’s decision to drop the dollar was immediately followed by Trump’s signing of an annual determination of countries considered to be “major drug transit or major drug producing” areas. Venezuela was singled out and “blacklisted” in the document for failing to adhere to counternarcotics obligations.
— PanAm Post (@PanAmPost) September 15, 2017
The document describes Venezuela, along with its only regional ally Bolivia, as “countries that have failed demonstrably during the previous 12 months to adhere to their obligations under international counternarcotics agreements.” As Telesur noted, the document expressed no concern over countries where drug trafficking has become a dangerous, highly institutionalized force, such as Mexico.
It also declined to name Colombia as one of the states failing to follow its counternarcotics obligations, despite the fact that the country’s cocaine crop yield has broken all previous records for two years in a row and is still growing. The document signed by Trump noted that Colombia was not included “because the Colombian National Police and Armed Forces are close law enforcement and security partners of the United States in the Western Hemisphere.” Ample evidence has shown that these same “security partners” in Colombia are intimately involved in its booming drug trade.
In contrast, Bolivia, under the leadership of the progressive and anti-imperialist Evo Morales, has the fewest illegal coca crops of any South American country. Some have credited Morales’ decision to expel the U.S. Drug Enforcement Agency (DEA) as having led to the nation’s notable decrease in cocaine production.
While drug trafficking does occur in Venezuela, the U.S. has taken to accusing top Venezuelan officials of complicity in the drug trade without evidence as the relationship between the two countries has continued to deteriorate. For instance, in February, the U.S. accused Venezuelan Vice President Tareck El Aissami of having “drug trafficking links” without providing substantial evidence. The accusations have not been verified and El Aissami’s Lebanese heritage has also been used by the U.S. to erroneously suggest that Hezbollah has an active presence in Venezuela.
Though the U.S. did not explicitly connect Trump’s condemnation of Venezuela’s alleged failure to curb drug trafficking to the country’s decision to stop accepting dollars as payment for oil, its condemnation still aids in building the case for U.S. intervention and thus regime change. CIA Director Mike Pompeo and Vice President Mike Pence have recently argued that Venezuela is a “threat” to U.S. national security and President Trump has stated that the U.S. has “many options for Venezuela, including a possible military option if necessary.”
In addition to unverified, discredited claims that Venezuelan politicians have planned to assassinate U.S. politicians, namely Marco Rubio, the assertion that the Venezuelan government is somehow involved in drug trafficking has also been a central theme in attempting to justify more aggressive and perhaps militaristic behavior towards the country.
Feature photo | An anti-narcotics police officer stands guard at a landing zone near a cocaine lab in Calamar, Guaviare state, Colombia. Police seized cocaine and chemicals at the lab. About 104 labs have been destroyed by the police in a five-day period, Aug. 2, 2016. Fernando Vergara | AP