In a move that is largely seen as Maduro giving Washington the middle finger, Venezuela has made good on its promise to layoff the U.S. dollar, publishing its oil prices in yuan on Friday.

Last Friday, Maduro had announced the forthcoming change, but that threat came after 14 years of similar threats, made by former leader Hugo Chavez, who was sure the dollar would someday lose its place in the currency pecking order.

Venezuela’s choice to price its oil in yuan is an interesting, if not toothless maneuver, that goes against earlier reports that it would favor the Euro. Still, the oil prices appear to be based on a U.S. dollar to Yuan conversion. It is unlikely that China would ever join Washington on its quest to force Mauro to end his campaign to rewrite Venezuela’s constitution in what many see as a step in bringing the downtrodden country closer to dictatorship, so the choice of yuan seems a safe one, if nothing else. After all, Venezuela has borrowed nearly $60 billion from China in exchange for selling oil at a discount—the details of which are a bit murky.

But safe, Venezuela is not, as its state-run oil company, PDVSA, slips ever closer to default, and with little hope that things will turn around. And that $60 billion that Venezuela owes to China is supposed to be paid back in oil—oil that Venezuela isn’t producing. Venezuela’s production, according to OPEC’s secondary sources, have been on a steady decline in recent years, averaging 2,375 million bpd in 2015, and falling to 2,159 million bpd in 2016. Venezuela’s 2017 production fell even further, starting out in Q1 averaging 2,057 million bpd and finally reaching an average of 1,918 million bpd in August.

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These figures are in stark contrast to its massive oil reserves—the biggest in the world. When oil was trading around $100 a barrel, Venezuela’s oil sector, which accounts for 95% of the Latin American country’s exports, was in its heyday, and Venezuela was stashing the excess cash into a rainy day fund known as the Investment Fund for Macroeconomic Stabilization (or FIEM). Unfortunately, the fund was used more like a cookie jar by the Chavez administration, and a large chunk of those funds were misappropriated. No surprise, as Venezuela is now ranked as 166 out of 176 countries on Transparency International’s corruption scale—in front of only nine other countries including Libya, Yemen, Somalia, and North Korea.

While Venezuela struggles to find its footing through angry jabs at the US sanctions, the Venezuelan people are in the middle of a humanitarian crisis, with food and medicine shortages abounding.

By Julianne Geiger for Oilprice.com

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