By Irina Slav
A tiny South American country until recently known mostly as the location of one of the worst mass suicides in modern history is about to acquire a whole new reputation, and this reputation has to do with its oil wealth.
Guyana, sandwiched between Venezuela and Suriname, has in just a couple of years turned from an empty spot on the international oil map into one of the new hot spots thanks to a series of discoveries offshore, made by Exxon and Hess Corp.
The Stabroek block is the place where the discoveries were made. The first ones came in 2015 and since then, Exxon has been announcing new ones on a more or less regular basis. To date, there have been 12 discoveries, with the reserves associated with them topping 5 billion barrels of oil equivalent.
This is certainly a lot of oil and it could either solve all economic problems of the tiny nation of less than a million people or, as history has sadly proved more than once, become an oil curse. It would all depend on how Guyana handles its future oil wealth.
The BBC’s Simon Maybin noted in an analysis of Guyana’s changing fortunes this week that the country, a former British colony, currently suffers high unemployment and poverty rates. It also has high levels of corruption—a practice that oil wealth has been found to exacerbate more often than not. The billions of dollars in oil revenues to be had also encourage political instability as more groups vie for power and access—preferably exclusive—to the oil dollars.
Already, sings of this political instability are emerging in Guyana, Maybin reports. The coalition in power lost a no-confidence vote last December, but instead of calling elections, which would have been standard procedure, the coalition challenged the result of the vote in court. This has led to demonstrations and a prolonged legal battle that is still not over.
Guyana’s only hope is if it can somehow manage to put a lid on political ambitions and focus on the actual benefits to be reaped when Exxon and Hess begin commercial production, such as improving the living conditions of the poorest Guyanese and reducing unemployment as well as boosting economic growth.
Luckily, Guyana has both good and bad examples to look to. Norway is the best good example of how a nation can use its oil money in a productive way and turn into one of the wealthiest in the world without relying excessively on oil but rather on the smart investments of money from this oil.
And then there’s Guyana’s very own neighbor Venezuela, which is a picture of how it shouldn’t be done, namely by neglecting other sectors of the economy in favor of oil, pouring oil money directly in otherwise good social programs and seeing them crumble along with the economy once oil prices drop. Corruption and the resulting authoritarianism to keep control of the oil money are also among Venezuela’s problems that predate the U.S. sanctions. Now, the country is shaken by a perfect storm that could see its oil production obliterated.
So, the world’s new hot spot could either turn into a new Norway or a new Venezuela, Nigeria, Angola, and a host of other countries for whom oil turned from a blessing into a curse. It seems only time will tell which example the country will follow.
By Irina Slav for Oilprice.com