{"id":7202,"date":"2020-09-22T15:11:24","date_gmt":"2020-09-22T19:11:24","guid":{"rendered":"https:\/\/latinamericasecurityreport.com\/?p=7202"},"modified":"2020-10-14T15:13:20","modified_gmt":"2020-10-14T19:13:20","slug":"pandemic-crushes-guyanas-dreams-of-big-oil-profits-as-resource-curse-looms-over-oil-producing-nations","status":"publish","type":"post","link":"https:\/\/latinamericasecurityreport.com\/?p=7202","title":{"rendered":"Pandemic Crushes Guyana\u2019s Dreams of Big Oil Profits as \u2018Resource Curse\u2019 Looms Over Oil-Producing Nations"},"content":{"rendered":"
Secretary of State Mike Pompeo with Guyana\u2019s president, Mohamed Irfaan Ali, Sept. 18. Pompeo is the first U.S. secretary of state to visit the tiny South American country. AFP via Getty Images<\/figcaption><\/figure>\n

This year was supposed to bring great things for Guyana<\/a>.<\/p>\n

ExxonMobil discovered massive oil deposits off the South American country\u2019s Caribbean coast in 2015, and Guyana sold its first cargo of crude oil this February. As production ramps up, its first stage offshore wells were projected to produce 750,000 barrels a day by 2025, tripling the size of Guyana\u2019s economy<\/a>, from US$3.4 billion to $13 billion<\/a>.<\/p>\n

Guyana also received its first U.S. secretary of state when Mike Pompeo visited on Sept. 17<\/a>, reflecting both its rising international status as a major oil exporter and U.S. hopes that it will be an American partner in dealing with its troubled neighbor Venezuela.<\/p>\n

But Guyana\u2019s dreams of fabulous wealth this year have been dashed by COVID-19, which has delayed production and slashed oil demand. Compounding its coronavirus troubles, Guyana shows warning signs of the so-called \u201cresource curse<\/a>,\u201d in which a country\u2019s new oil wealth crowds out other productive economic sectors, breeds corruption and triggers political conflict.<\/p>\n

If oil prices stay low, more countries could join the list of troubled petro-nations. My work on the link between the COVID-19 crisis, climate change risk, sovereign debt and oil<\/a> suggests a looming crisis.<\/p>\n

Burst hopes<\/strong><\/p>\n

Guyana, a former British colony with a population of 786,000, already struggles with political instability and ethnic tensions<\/a>.<\/p>\n

\n
\"Map<\/a>
Guyana neighbors Venezuela on the northern coast of South America. Wikimedia Commons, CC BY<\/figcaption><\/figure>
<\/figcaption><\/figure>\n

Earlier this year, in the first national election held since oil was discovered, accusations of corruption prompted a recount<\/a> and an unclear presidential result. The transfer of power dragged on for five months<\/a>, leading to deep uncertainty, violence and eventually U.S. sanctions<\/a>.<\/p>\n

Guyana\u2019s new president, Mohamed Irfaan Ali, finally took office in August.<\/p>\n

Ali campaigned on the issue of oil governance. Asserting that his predecessor David Granger had agreed to overly generous contracts with foreign oil investors, he promised to get Guyana its fair share of oil revenues.<\/p>\n

So far, Ali has stopped short of saying his administration will retroactively change existing oil contracts, but calls for a review of terms have already delayed government approval for the next phase of offshore oil development<\/a>, a holdup that is estimated to potentially cost Guyana over $1.6 billion<\/a> in lost oil revenue.<\/p>\n

Meanwhile, the coronavirus pandemic has delayed the ramp-up of oil production, as safety concerns<\/a> prevented crews from going to work last spring.<\/p>\n

The pandemic has also sapped oil demand worldwide, causing a glut of supply and ushering in stubbornly lower prices. That means new oil-producing countries like Guyana won\u2019t likely see the economic windfalls<\/a> that other petrostates experienced in past decades.<\/p>\n

Looming crisis<\/strong><\/p>\n

Guyana is not the only oil-production nation facing an unexpectedly harsh political and economic reality.<\/p>\n

Iraq, which experienced massive unrest in 2019 that led to a change in government<\/a>, is expected to become a debtor nation<\/a> this year, as low oil prices and high budgetary needs are forcing it to deplete its entire $62 billion nest egg. Nigeria\u2019s looming debt \u2013 which it needs high oil prices to service \u2013 will make it harder for the government to fight the terror group Boko Haram<\/a>.<\/p>\n

In the Middle East and Eurasia, $35 billion in maturing external sovereign debt is due this year. Meanwhile, Mexico\u2019s national oil company, Pemex, has $30 billion in debt coming due by 2024<\/a> and no prospects of profits this year or even in 2021. Brazil\u2019s Petrobras has a staggering debt load of $78.9 billion and a similarly dismal forecast<\/a>.<\/p>\n

The coronavirus didn\u2019t cause these problems \u2013 government debt in oil-exporting countries has been on the rise since 2016<\/a> \u2013 but it could make them worse.<\/p>\n

The pandemic has essentially created a self-fulfilling economic prophecy for some oil nations. Low oil prices mean governments must cut the budget of their national oil company to meet other more pressing fiscal, social and health needs. That will translate into less future oil production, which, in turn, further lowers the oil revenues these places depend on.<\/p>\n

The longer the pandemic recession lasts, the more oil producers will face this grim fate.<\/p>\n

Betting on Guyana\u2019s future<\/strong><\/p>\n

Though its crude has barely left the ground, Guyana was counting on oil revenues to plug its budget deficit this year<\/a>. That may now prove impossible given the damage COVID-19 has done to its economy<\/a>. But if Guyana can resist the urge to pay today\u2019s costs by borrowing against future oil receipts, it could yet ride out this crisis.<\/p>\n

President Ali has promised to create a petroleum commission to ensure transparency for how Guyana\u2019s oil revenues are spent and to prevent undue political interference in the oil and gas sector. Guyana, which has received refugees from crisis-stricken Venezuela, is well aware of what happens when oil wealth is not properly stewarded.<\/p>\n

\n
\"Line<\/a>
People line up to vote in Leonora, Guyana, on March 2 to decide which president will control its oil boom. Luis Acosta\/AFP via Getty Images<\/figcaption><\/figure><\/figure>\n

But surviving this year\u2019s low oil prices is only the beginning. To thrive in the long term, Guyana will need to sink much of its oil earnings into building other sectors to avoid overdependence on one volatile source of revenue. This is especially key in a world that\u2019s moving away from oil as its main energy source.<\/p>\n

The World Bank finds that very few petrostates have adequately diversified their economies<\/a>. Exceptions include Malaysia and Dubai, which have both used oil wealth successfully to build a broader economic foundation and have avoided the dreaded \u201cresource curse.\u201d<\/p>\n

Those countries will be models for Guyana, if can just get through 2020 first.\"The<\/p>\n

Amy Myers Jaffe<\/a>, Research professor, Fletcher School of Law and Diplomacy, Tufts University<\/a><\/em><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license.<\/p>\n","protected":false},"excerpt":{"rendered":"

This year was supposed to bring great things for Guyana. ExxonMobil discovered massive oil deposits off the South American country\u2019s Caribbean coast in 2015, and Guyana sold its first cargo of crude oil this February. As production ramps up, its first stage offshore wells were projected to produce 750,000 barrels a day by 2025, tripling…<\/p>\n","protected":false},"author":124,"featured_media":7390,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"fifu_image_url":"https:\/\/images.theconversation.com\/files\/359120\/original\/file-20200921-14-13no7u6.jpg","fifu_image_alt":"Pandemic Crushes Guyana\u2019s Dreams of Big Oil Profits as \u2018Resource Curse\u2019 Looms Over Oil-Producing Nations","footnotes":""},"categories":[189],"tags":[],"class_list":["post-7202","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-borders-commerce"],"_links":{"self":[{"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/posts\/7202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/users\/124"}],"replies":[{"embeddable":true,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7202"}],"version-history":[{"count":1,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/posts\/7202\/revisions"}],"predecessor-version":[{"id":7203,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/posts\/7202\/revisions\/7203"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=\/wp\/v2\/media\/7390"}],"wp:attachment":[{"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/latinamericasecurityreport.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}