(Bloomberg) — Venezuelans are snapping up dollars, sending the local currency crashing to record lows as concern mounts that the Trump administration is throttling the country’s oil industry and tipping the economy back into crisis.
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This week, Trump announced a 25% tariff on countries purchasing Venezuela’s oil, testing a new mechanism aimed at pressuring the government of Nicolas Maduro. The decision spooked some of the biggest buyers of the country’s crude, with India’s Reliance Industries Ltd. halting shipments and Spanish firm Repsol rerouting a tanker.
That’s putting pressure on the bolivar because Venezuela funnels oil revenue into the currency market to keep the exchange rate stable. With a massive shortage of dollars expected, companies and individuals are rushing to the black market to buy greenbacks. The parallel rate further weakened on Thursday to 106 bolivars per dollar from around 66 at the start of the year, blowing out the difference with the official rate to the widest level in more than five years.
“This is the strongest measure a US administration has taken against the Venezuelan government from the cash flow and oil production perspective,” said Alejandro Grisanti, AGC director of consultancy firm Ecoanalitica.
The fallout threatens to stoke inflation and undo the economic stabilization the Maduro government has found, in part, by allowing the dollar to be widely used.
It couldn’t have come at a worse time for the country. With the economy forecast to contract this year for the first time since 2020 — according to a survey by the opposition-led Observatorio de Finanzas — and the central bank’s liquid reserves drying up, oil revenue is essential to supply dollars to the official market.
Driller Chevron Corp. now has a 60-day deadline to wind down their Venezuela operations. Anticipating the US-based company’s exit, the government already cut dollar sales to the exchange market by half this year, according to Ecoanalitica data.
Maduro has few options, including relaxing regulations on retailers, effectively allowing them to adjust prices away from the official rate, according to Jesus Palacios, a Caracas-based economist at Ecoanalitica.
The government “could be more permissive with the regulatory framework that rules over operations in foreign currency,” he said. Still, if corrective measures aren’t taken, the situation could get worse, he added.
