Saudi Arabia in the Caribbean? Guyana Is the World's Newest Petrostate

A view of the Exxon Mobil refinery in Baytown, Texas September 15, 2008. A big chunk of U.S. energy production shuttered by Hurricane Ike could recover quickly amid early indications the storm caused only minor to moderate damage to platforms and coastal
January 31, 2020 Topic: Security Region: Americas Blog Brand: The Buzz Tags: GuyanaOilPetrostateCaribbeanEnergy

Saudi Arabia in the Caribbean? Guyana Is the World's Newest Petrostate

A new energy superpower? 

Guyana does not feature prominently in US strategic thought towards the Western Hemisphere, but this year could change that. Guyana is set to become one of the world’s best performing economies in 2020 thanks to 6 billion barrels — and counting — of offshore oil deposits found by ExxonMobil. (Recently, several corporations made a major find off the coast of Suriname, too.) The discovery is sufficient to completely transform the economy of this small South American country.

Under normal circumstances, Guyana’s oil discovery would contribute to a glut of resources. Yet, regional energy production is anything but normal. Of course, US sanctions on Venezuela, formerly the largest oil producer in the region, have curtailed production. So has twenty years’ worth of sheer incompetence, lack of maintenance, and corruption. Political and social unrest in Ecuador, a deep economic recession in Argentina, an ill-fated effort to save Mexico’s bloated state-owned oil company (the most indebted in the world), and lackluster auctions for offshore drilling blocks in Brazil have all slowed the production figures of Latin America’s major oil producers. Guyana’s known reserves place it near the top worldwide on a per capita basis, and initial estimates are that the country will have a production capacity of between 700,000 and 1 million barrels of oil per day in a country of just 770,000 people.

Beyond enriching US Gulf Coast refiners, Guyana’s debut as an oil exporter should factor heavily in US strategic thinking about the region. First, many global institutions like the World Bank, as well as governments and sovereign wealth funds, are now climate conscious — reticent to finance infrastructure that will increase the world’s carbon footprint. For Guyana, which would like rapid development of its new discovery, this leaves China as one of the most obvious options for financing. The US is finally taking note of China’s growing presence in the Western Hemisphere, and the potential for it to further its ties with Guyana should be no exception.

Second, in the context of the flailing effort to depose the dictator of Venezuela, Nicolás Maduro, Guyana’s oil exports could move Caribbean states away from Venezuela’s influence and spearhead a real push for regional development. Under a program called Petrocaribe developed by former President Hugo Chávez, Venezuela perfected the art of oil diplomacy by delivering its crude to Caribbean countries at deeply discounted rates. In return, Caribbean countries continue to vote for Venezuelan resolutions at the Organization of American States (OAS), and more importantly, often shield Venezuela from US pressure and sanctions, in some cases using their secretive banking laws as tools for sanctions evasion. The baleful consequences of Petrocaribe continue to hobble the region, with corruption scandals destroying institutions and weakening democracy in multiple countries and few in the Caribbean community (CARICOM) willing to push for a solution to Venezuela’s political crisis.

The US should urge Guyana to develop and invest its newfound oil wealth in a program to supplant Venezuela’s Petrocaribe and to implement a real agenda for Caribbean development, rather than treating Caribbean countries as vassal states. Guyana has committed to spending about one-third of its oil proceeds on its development, while placing approximately two-thirds of those proceeds into an investment fund. This would provide it with massive resources to become a development leader in CARICOM.

There is just one caveat: the political instability currently roiling the country and its weak institutions could create a toxic mix of corruption and violence. Guyana’s petro dollars will start to arrive as its long-delayed elections are scheduled for March. The US State Department’s Energy Governance and Capacity Initiative should continue to provide assistance on Guyana’s institutional architecture, helping it to avoid the fates of those who have succumbed to the “resource curse” or rentier statebehavior. Further, the US should broaden its campaign against Venezuela, which has a disputed border claim with Guyana, to keep it from interfering in Guyana’s oil production. During the exploration phase, Maduro sent gunboats to block private companies, even detaining members of a Texas-based team for a week. With an army of just 3,500 men, Guyana occupies a dangerous neighborhood, with its border region plagued by the operations of Maduro’s network of non-state actors.

The existing literature on petro states indicates that Guyana faces long odds. The US should factor the country into its strategic thought on the Western Hemisphere and constructively engage to help it beat the odds.

This article by Ryan Berg first appeared at AEI.

Image: Reuters.