Petropolitics in Latin America

February 15, 2007 // 2:00pm4:00pm

The use of energy resources as a political tool has recently become an important feature of foreign policy in the Western Hemisphere. On a global level, the term "petropolitics" is used to describe this type of positioning and its political and economic consequences. Genaro Arriagada, Woodrow Wilson Center Public Policy Scholar and former Chilean ambassador to the United States, explained the term's application in Latin America at a February 15, 2007 seminar.

Arriagada delineated the different dynamics around energy issues in Venezuela, the Caribbean, the Andes, and the Southern Cone. Under the "petropolitics" model, Venezuela has taken advantage of its rich energy resources—its heavy crude oil reserves rank first in the world and regular crude ranks sixth—to establish its status as an energy powerhouse in the region. At the same time, according to Arriagada, reduced production, inefficient management of the state-owned oil company PDVSA, and decreased investment in PDVSA are major weaknesses for the state. Based on these factors, Arriagada concluded that Venezuela's influence in the international arena is not based on its proven reserves, but on the amount of crude available for export. Low oil prices, an increase in internal demand, and the smuggling of oil to Colombia all pose serious challenges to the Venezuelan model. In particular, such developments may affect Venezuela's ability to sustain its hefty commitments abroad, a paradox according to Arriagada, given that Venezuela's economy is the same size as Colombia's yet it still serves as the primary donor for some of Latin America's poorest countries. In the end, Venezuela's expanded influence in the hemisphere will not be a problem for countries like Brazil, the United States, or Argentina, but for the people of Venezuela, as their "oil bonanza turns into a curse."

Apart from Trinidad and Tobago, the Caribbean has a dearth of oil for internal consumption. There are two major alliances seeking to fill this need. One is an accord between nine southern states of Mexico and the countries of Central America, known as Plan Puebla Panamá; the agreement was originally created to promote integration and development of the area but has evolved into an energy integration program. Venezuela and Cuba form the other alliance: the strong political and economic partnership between the two nations is based on the exchange of oil for services. In addition, Venezuela provides other Caribbean nations with oil through PetroCaribe. According to Arriagada, PetroCaribe is one of Chávez's most sustainable and successful political initiatives. This is in large part due to the potential political influence of Caribbean nations in the inter-American systems (CARICOM countries hold 14 out of 34 votes in the General Assembly of the Organization of American States).

That the Andean region possesses abundant energy resources of its own should make it resistant to the use of oil and gas as a political tool by others. However, most of the Andean countries are in crisis due to regional, ethnic, or political cleavages, and are thus vulnerable to the influence of external actors. Arriagada used the case studies of Ecuador and Colombia to show how the two Andean countries have chosen different paths in creating energy policy within a weak state environment. Over the last ten years both of these countries have seen a decrease in oil production. In response, Colombia has chosen to follow the path of Brazil's Petrobras while Ecuador has turned toward the Venezuelan PDVSA model.

The Southern Cone presents a contrasting set of energy policy experiences. Brazil has been the region's success story in terms of transforming itself from a net importer of oil to an almost self-sufficient producer. The Brazilian state-owned oil company Petrobras is also the global leader in deep water oil exploration, which is reflective of the company's overall success. Arriagada praised Brazil's decision in the 1990s to strip Petrobras of its regulatory role—a role then assigned to a national hydrocarbons agency. This paved the way for Petrobras to develop in a competitive, efficient, and accountable fashion, attracting private investment along the way. By contrast, the Argentine approach to energy policy has resulted not only in failure, but in an energy crisis for the country. Arriagada cited two reasons for this: the early implementation of aggressive privatization without state regulation and Argentina's fixed gas prices following the monetary crisis of 2002. The decrease in investment caused by the latter policy has resulted in a new focus on nuclear energy to resolve the country's energy shortages. According to Arriagada, the reintroduction of nuclear energy in Latin America by Argentina could trigger imitation by other countries (Brazil, Chile, or Mexico in particular) looking to diversify their energy sources.

Bolivia, one of the poorest countries in South America, is surrounded by three countries (Argentina, Brazil, and Chile) that have a high demand for its natural gas. Over the past year, the government of President Evo Morales has been negotiating the price of natural gas with Argentina and Brazil, claiming that those countries were unfairly paying well under market price and thus selling short the Bolivian economy. As a result, both countries have agreed upon a higher price for gas (though in the case of Brazil, with very specific conditions). Arriagada warned that in the case of Argentina, the higher gas prices combined with the risks of being dependent on a sole Bolivian pipeline for gas—some of which is then sold to Chile—may push the both Argentina and Chile to focus their attention on less politically vulnerable liquefied natural gas (LNG) plants.

Ramón Espinasa observed that the energy situation in Venezuela is deteriorating quickly. There has been a 25 percent drop in the price of oil since July 2006, a decrease in both PDVSA's own production and that of private companies, and an increase in domestic demand. Espinasa predicted that these factors, combined with the smuggling of up to 100,000 barrels a day to Colombia, will lead to as much as a 50 percent decrease in government revenue from oil in 2007 as compared to 2006. Espinasa also cited Venezuela's non-revenue producing exchange with Cuba as another factor in Venezuelan economic decline. Other countries in the region are also facing this decline in the energy sector. Mexico's state-owned oil company PEMEX, for example, has struggled to discover new oil reserves due to its own technology deficiencies and lack of capital. If productivity continues to decrease and investment slows, Mexico will play a key role in widening the North American energy gap. Despite plentiful reserves, Ecuador has also experienced a drop in production by the state-owned company PetroEcuador. Over the past fifteen years, private oil companies have been able to compensate for these decreases; however, newly-elected President Rafael Correa has called for private companies to reduce their production. Espinasa agreed with Arriagada that Brazil and Colombia have found success through implementing a Norwegian-inspired model for their energy sectors.


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