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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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South American Oil Under Threat As Unrest Grapples The Region

The Arab Spring, which was a series of pro-democracy anti-government uprisings over a decade ago that swept across several largely Islamic states, triggered a substantial regional conflict that ultimately impacted global oil production. Those events left a legacy of civil war in OPEC member Libya, Syria, and Yemen. There are emerging fears of similar developments occurring in Latin America, with many countries in the region rocked by widespread anti-government protests since 2019.

Colombia, Latin America’s fourth-largest oil producer, and economy, recently became the epicenter of broad anti-government dissent with the Andean nation rocked by nationwide protests for over two months. Decades of chronic socio-economic inequality, violence, lawlessness, corruption, and suppression of civil society created a tinderbox that the slightest spark could ignite. 

Those politically flammable conditions were amplified by the Trump administration’s decision to abdicate regional leadership and take an inflammatory tone toward Latin America. The COVID-19 pandemic caused poverty to rise sharply across the region and amplified the deep socioeconomic fault lines that exist sparking greater instability, turmoil, and conflict. The latest developments, notably deep dissatisfaction with the region’s rightwing governments’ failure to deliver economic and social progress, could spark a Latin American Spring with leftwing politicians sweeping to power across the region.

Colombia’s anti-government marches, which were marred by considerable violence, only recently died down after two months of protests. During those protests, independent Colombian peace think tank Indepaz recorded 74 deaths with 44 of those occurring at the hands of police and other security authorities. The blockades which sprang up across Colombia in the wake of the Duque administration’s violent repression of the protests, sharply impacted the Andean country’s economically crucial oil industry. Onshore drillers were forced to shutter oilfields during May 2021 causing production to plunge to a low of 650,884 barrels per day. 

Source: Colombia National Hydrocarbon Agency.

While most of the anti-government marches and road blockades have ended considerable political turmoil still exists and tensions are simmering, indicating that they could flare up once again at any time. That risk is magnified by the Duque administration’s refusal to recognize protestors’ grievances, many of which relate to the government’s poor economic performance and failure to quell violence in the crisis-riven Andean country.

Related: U.S. Gasoline Demand In 2021 May Have Peaked Already Since Duque became President in August 2018 lawlessness, corruption and poverty have spiked. The Inter-American Commission on Human Rights stated last year that Colombia has the fifth-highest legal impunity rate in Latin America. A 2019 survey conducted by international thinktank Transparency International found that just over half of respondents believed corruption in Colombia had increased compared to 12 months earlier.

Violence is spiraling out of control since Duque took office. Indepaz recorded 46 massacres for the first six months of 2021 compared to 33 for the same period a year earlier, with a total of 36 massacres documented by the UN’s Colombian mission for all of 2019. The latest incidents have been compared to the paroxysms of violence which swept across Colombia during the 1990s. Data from government statistics agency DANE shows (Spanish) that at the end of 2018 just under 35% of Colombian’s lived in poverty whereas by the end of 2020 it had jumped to nearly 43%. Some non-government organizations believe that more than half of all Colombians are now living in poverty compared to roughly a third only two years ago. These events have occurred in-country long dominated by a divisive political environment where many Colombians struggle to access basic public resources.

Civil opposition to the Duque administration is also manifesting as hostility toward Colombia’s economically crucial petroleum industry. Oilfield invasions and community blockades of industrial facilities were increasing before the anti-government protests erupted in late April 2021. From December 2020 onward there has been a series of violent seizures of oilfields in the municipality of Puerto Gaitan in the Llanos Basin. Widespread community opposition toward hydraulic fracturing grew considerably after national oil company Ecopetrol and international oil supermajor Exxon received government consent to conduct fracking pilots in the Middle Magdalena Valley.

These events indicate that the petroleum industry’s social license is crumbling, particularly after incidents of environmental contamination. Those developments, including the failure of President Duque’s rightwing government to deliver basic public goods and social services as well as provide greater access to Colombia’s growing wealth, are driving civil dissent in other Latin American nations. Latest polls indicate (Spanish) former M19 guerilla and left-leaning senator and 2018 presidential candidate Gustavo Petro will win Colombia’s top job if elections were held today.

Related: The Ongoing Transformation Of ‘Big Oil’

Peru is on a knife-edge after a hotly contested presidential election and a constitutional crisis that last year saw three presidents in one week. Surging discontent with the establishment saw leftwing presidential candidate Pedro Castillo, who campaigned on a platform of resource nationalism and even proposed deactivating key democratic institutions, emerge victorious. This occurred after what can only be described as one of the closest-run and most contentious presidential elections in Peru’s modern history.

The confusing electoral outcome and ensuing political turmoil are testing Peru’s fragile democracy, which was already under fire because of a long-running constitutional crisis and fallout from the pandemic that sharply magnified divisions between rich and poor. The populist leftwing Castillo’s victory underscores the considerable disenfranchisement and discontent that exists among everyday Peruvians regarding the Andean country’s establishment. This has triggered considerable consternation in Peru’s mining and hydrocarbon sectors. Not only did Castillo state he is seeking greater state control of natural resources, including increased taxation, but that he is willing to shutter Peru’s legislature should it block his economic and institutional reforms. Such authoritarian rhetoric is reminiscent of Hugo Chavez’s statements when he won Venezuela’s 1998 democratic presidential election. While Castillo’s advisers last month retracted his earlier statements about nationalizing natural resources, his victory indicates there are tough times ahead for Peru’s petroleum industry that was already rocked by violent protests during 2020.

Opposition to Brazil’s populist rightwing President Bolsonaro is growing mainly due to his mishandling of the pandemic which has killed over half a million Brazilians. Protests recently erupted across Brazil provoked by allegations of corruption regarding the health ministry’s purchase of vaccines. While they pose little danger to Brazil’s oil industry, the protests point to increasing political turmoil and instability in a country that not long ago was embroiled in Latin America’s largest-ever corruption scandal involving national oil company Petrobras. That event saw left-leaning President Dilma Rousseff impeached and Brazil plunge into its worst economic downturn in decades.

During 2019 turmoil engulfed Chile, long considered Latin America’s most stable and business-friendly nation, which after weeks of protests saw the government agree to rewrite the constitution to address severe socioeconomic inequality. Cuba and Haiti are also inundated with strife as decades of turmoil caused by deep socioeconomic inequality inflamed by the pandemic explodes. While many Latin American nations are lurching to the left because of the failure of right-wing governments to deliver a long-promised economic bounty, Venezuela’s autocratic socialist regime appears on the verge of collapse. It is the rapid decline of the founding OPEC member, once Latin America’s wealthiest country and most stable democracy, that stands as a stark reminder of the perils ahead for Latin America’s less-stable nations.

By Matthew Smith for Oilprice.com

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