PdVSA orders filling stations to end subsidy by pricing diesel in US dollars

Venezuela’s national oil company (NOC) PdVSA has instructed more than 100 filling stations around the country to begin selling diesel in US dollars, thus effectively undercutting a subsidy that had enabled drivers of trucks and public fleet transport vehicles to fill up their tanks at almost no charge.

Since late last year, Venezuela has been selling diesel at a retail price of $0.50 per litre at most filling stations. However, it also offered diesel priced in the local currency at certain locations that came to serve almost as a parallel supply network.

Since these stations were effectively able to sell fuel at below-market levels, they gained wide popularity and long lines of vehicles became commonplace sights outside the fuel stations that made use of the subsidy. As such, PdVSA decided that the time had come to increase the proportion of fuel stations selling diesel in US dollars.

According to documents and sources provided to Reuters, PdVSA communicated the new dollar-denominated price for diesel to fuel stations on May 26. “From now on, diesel will be sold at the same price as gasoline,” one of the people connected to the issue stated.

While the subsidy on diesel priced in the local currency continues to be available, the lines outside participating stations continue to grow longer. As a result, fuel retailers are coming under more and more pressure to switch to the dollar-based system.

According to analysts’ estimates, the shift to dollar-based fuel purchases is likely to lead to an increase in freight tariffs and thereby drive inflation further upwards.

Venezuela first began pricing fuel in US currency in 2020, when the government of President Nicolas Maduro authorised approximately 200 filling station across the country to sell gasoline in dollars. Because of the sanctions that the US government has imposed on the South American state and PdVSA, it has become increasingly challenging for Venezuela to secure enough fuel to cover domestic demand. Consumption of cooking oil, diesel and gasoline has been steadily returning to pre-pandemic levels.