On May 20, the ExxonMobil subsidiary Esso Exploration and Production Guyana Limited announced the discovery of approximately one billion barrels of oil equivalent in an area called the Stabroek Block, 120 miles off the Guyanese coast. Nicolas Maduro, the troubled Venezuelan dictator, immediately ordered ExxonMobil to stop exploring the block because he considers it Venezuelan territory. The move shocked Guyana's newly elected President David Granger because Venezuela already has the world's largest proven reserves. Clearly, Venezuela doesn't need more oil.
But oil is not Maduro's primary motive for dredging up the conflict. His motivations are deeper and more political. The dispute reaches back to 1899, when the Paris Arbitration Award granted Great Britain the contested territory west of the Essequibo River. Venezuela contested the ruling, eventually declaring it "null and void" at the United Nations in 1962, just four years before Guyana declared independence from Great Britain. Since then, Venezuela has refused to recognize the territory west of the Essequibo River as anything but Venezuelan sovereign territory. The issue is a raw nerve in the Venezuelan body politic, and Maduro is plucking this nerve to rally support for his party ahead of legislative elections in December.
By issuing an official decree warning ExxonMobil to vacate the Stabroek block, Maduro is also taking a swipe at his newly elected neighbor, President Granger of the People's National Congress Party. Maduro is upset that Granger's coalition narrowly defeated the socialist People's Progressive Party (PPP) in general elections this May, because the PPP ruled Guyana for the past twenty years, forging strong ties with his mentor, Venezuelan President Hugo Chavez. Related: Germany Struggles With Too Much Renewable Energy
In fact, Guyana joined Petrocaribe during the PPP's tenure and the small, relatively weak Guyanese government soon became dependent on Venezuelan oil shipments. In exchange for shipments equal to roughly half of Guyana's daily oil consumption, Guyana sends 200,000 tons of rice every year, about 40 percent of its total rice production. But, according to Guyanese Finance Minister Winston Jordan, the Venezuelan government threatened to stop buying rice from Granger's government by 2016. Maduro is punishing Granger for his defiance and, as a result, Guyana might have to buy oil from Venezuela at market prices using hard currency.
Maduro's hostility is also borne of fear. In May, Guyana sent a ship from the Guyanese Defense Force to St. Kitts and Nevis to partake in military exercises hosted by the U.S. Southern Command. And with U.S. investors fleeing Venezuelan markets, Maduro wants to prevent capital flight to an English-speaking, U.S.-aligned neighbor with sudden windfall oil profits.
Maduro knows that if Guyana keeps its government from forming an oil monopoly like the ones in Saudi Arabia and Venezuela, Guyana could become a wealthy and functional society. And if the government does eventually form an oil monopoly, Guyana could become the Kuwait to Venezuela's Iraq; Maduro would want to prevent that. Related: How Much Pressure Will Iran Put On Oil Prices?
As long as Venezuela doesn't seize Guyanese oil assets or sabotage rigs, the Stabroek block could produce more than $40 billion worth of crude oil over ten years. In that case, Guyana, the third-least prosperous country in Latin America, with the world's highest suicide rate, has a shot at becoming more like its most realistic role model, Uruguay.
Fortunately, both leaders have stated publicly that they will seek a peaceful solution. This is good news for energy investors who prefer to deal with an English-speaking government less likely to seize assets. In fact, ExxonMobil is not the only foreign oil company placing a healthy bet on Guyana's future.
In addition to Exxon's Esso Exploration and Production Guyana Limited, which holds a 45 percent interest in the Stabroek drilling project, Hess' Guyana Exploration Limited and China National Offshore Corporation's Nexen Petroleum Guyana Limited hold 30 percent and 25 percent, respectively. Additional companies exploring Guyana's off-shore potential include Canada's CGX Energy and Spain's Repsol. Related: Could This Innovation Pave The Way For An EV Revolution?
The future is bright for Guyana. Multinational oil companies are investing unprecedented sums into Guyana's offshore potential, and its new governing coalition led by President Granger has a chance at a fresh start.
But the likelihood of Venezuela invading Guyanese territory increases as the fate of Maduro's reign worsens. In a desperate bid for domestic support, Maduro might strike out at Guyana, much like the Argentine military junta's failed attempt to save itself by invading the Falklands Islands in 1982.
On the other hand, the likelihood of Maduro invading Guyanese territory diminishes as the coalition of international firms invested in the region grows larger and more diversified. At a certain point, the coalition across the border will be too powerful for Maduro to oppose. In this sense, the race for Guyana is on.
By Gonzalo Molina for Oilprice.com
More Top Reads From Oilprice.com:
Gonzalo Molina is the Director of Caribbean & Latin American Frontier Markets at DaMina Advisors. He conducts insightful, forward-looking research into Latin American markets, then… More
Comments
I invite every one to read the complete agreement (is not that long): "https://treaties.un.org/doc/Publication/UNTS/Volume 561/volume-561-I-8192-English.pdf".
Guyana has also ratified in several time the validity of this agreement.
Guyana now, does not want to recognize the agreement, therefore they are violating the law.
What the US will do if another country changes their mind, and does not recognize territorial international agreements they signed with?????????????????????????????????????.
Have a nice day.
Perhaps 'Frank' is unaware of the existence of the Treaty of Washington (1897) to which to which Great Britain and Venezuela were party.
To cut to the chase, the said arbitration tribunal ruled against Venezuela.
The basis of Venezuela’s claim has always been that they objected to the ruling of the arbitration tribunal.
Baseless? well the facts speak for themselves and the answer is obviously yes.
The mumbo jumbo about Guyana ratifying an agreement isn’t clear neither is the monologue about the US but then lets chalk that up to 'Frank' not being too bright and a bit out of his depth on border disputes (Venezuelan maybe?)
Jack, nothing happened in 1897. But in 1899 happened the "Paris Arbitral Award" that gave to UK (Guyana) the territory in dispute. Venezuela protested this decision and in 1966 UK and Guyana recognized Venezuela's arguments signing in UNITED NATIONS the Geneve Agreement.
Jack, the 1966 Geneve Agreement IS NOT and old article, it is an INTERNATIONAL AGREEMENT, it happened after the 1899 Paris Arbitral and it is mandatory for all the parts. Guyana is playing a very dangerous game not recognizing the law (Geneve Agreement).
Once again, I will invite you and every one to read the FORMAL 1966 Geneve Agreement:
https://treaties.un.org/doc/Publication/UNTS/Volume 561/volume-561-I-8192-English.pdf
"A Mixed Commission shall be established with the task of seeking satisfactory solutions for the practical settlement of the controversy between Venezuela and the United Kingdom which has arisen as the result of the Venezuelan contention that the Arbitral Award of 1899 about the frontier between British Guiana and Venezuela is null and void"
So in fact the Geneva agreement was in fact a peaceful avenue for Venezuela to prove why the award of 1899 was null and void thus referring to it as Controversy and not dispute but almost 50 years later and Venezuela hasn't given any evidence or reasonable why the 1899 award was null and void.
But as of 1814 Britain began its aggressive and hostile policy of westward expansion from the region under its sovereignty of by then "British Guiana". Thus, the original 20,000 miles in its possession, were expanded to 60,000 in the mid-nineteenth century, 76,000 in 1855 up to 109,000 miles. It should be recalled that Britain was the main colonial power at the time and exercised its unhindered hegemony in the world through force, aggression and subjugation.
Given these facts, Venezuela repeatedly protested the arrogant and expansionist attitude of Britain, but it was until 1897, after the Venezuelan government asked the United States (US) to intercede in the conflict, when Britain and Venezuela began talks about the border situation.
The US stance in this discussion, which was supposed to represent Venezuela, was completely flawed and imposed conditions of arbitration absolutely harmful to Venezuela and favorable to Britain through the Arbitral Award of Paris on October 3, 1899, which granted the transfer of lands west of the Essequibo River to Britain.
However, it was in 1949 when, through a memorandum written by American lawyer Severo Mallet-Prevost, who had acted as junior counsel for Venezuela in the Arbitral Tribunal's hearing, it was learned that the award was the result of a political deal between the United States and Britain, agreed outside the rule of international law that made an arbitrary delineation of the border. Therefore any Venezuelan government has recognized or accepted this arbitration award.
From that moment, the country made permanent efforts to seek international recognition for its position, rejecting the legal validity of the Award and stressing the need for negotiations for a peaceful solution to the dispute. In 1966, Britain finally agreed to start negotiations with Venezuela, reaching the Geneva Agreement on February 17, 1966. This agreement was recognized by Guyana at the moment of its independence on May 26 of that year.