Oil boom falls flat in Latin America

Drillers are pouring more oil from Saudi Arabia to West Texas in order to profit from a ferocious price increase. However, an area that is home to 5% of global crude reserves is largely being ignored.

Nationalist policies that tightened government control of the energy sector and marginalised the foreign investors who had helped raise output throughout Latin America have dulled the potential benefits of $100 crude. Although production in Brazil and Guyana is increasing, overall production in the region has decreased so dramatically that it is now barely keeping up with demand. Contrary to what happened during the previous oil boom a decade ago, Mexico and Argentina now import more crude oil and natural gas than they do.

The leaders of the oil-producing nations in Latin America are directly in the political firing line as a result of their reliance on expensive fuel imports. Brazilian President Jair Bolsonaro is behind his major opponent ahead of the October election due to reaction from cash-strapped drivers. Following demonstrations against rising inflation and fuel prices, Ecuador’s president almost lost his position. Mexico is subsidising gasoline with billions of dollars.

Due to Russia’s invasion of Ukraine, the world cannot rely on Latin America to increase production of oil and natural gas. Despite increased supply from the US and Middle Eastern manufacturers, the rampant price increases that threaten to lead to gasoline restrictions and plunge nations into recession cannot be stopped.

It stands in sharp contrast to how Latin American commodity booms in the past have developed. Leaders like Hugo Chavez of Venezuela and Evo Morales of Ecuador exploited oil and gas windfall money in the 2000s to boost their domestic popularity and broaden their regional influence. However, those astronomical profits were only made feasible by foreign investments that increased output. The nationalisation of the oil sector by Chavez and Morales resulted in the mismanagement of large-scale projects and a lack of funding.

“The oil industries have been victims of the resource nationalism that prevailed during the supercycle,” said Francisco Monaldi, a lecturer in energy economics at Rice University’s Baker Institute for Public Policy and an expert on Latin America. “Now they don’t have the capacity to do what Chavez did in 2003 and 2004, to build up massive spending.”