ExxonMobil’s swathe of world-class oil discoveries in offshore Guyana, estimated to contain over 11 billion barrels of oil, has captured the world’s attention. This includes considerable scrutiny from Nicolas Maduro the autocratic president of neighboring socialist Venezuela. A longstanding and bitter territorial dispute has embroiled the two South American countries, with Caracas claiming nearly 62,000 square miles or roughly three-quarters of Guyana’s territory, including territorial waters containing the Stabroek Block. Guyana refutes the more than century-old claim, which has become a powder keg waiting to explode, and most of the international community agrees. The dispute has flared with such intensity there are genuine fears Maduro’s saber-rattling will escalate. As Vladimir Putin’s invasion of Ukraine demonstrates, dictatorial illiberal rulers do not respect international law and will use force to resolve disputes.
The bitterly contested region, known as the Essequibo, encompasses all of Guyana’s land east of the Essequibo River or nearly three-quarters of the former British colony’s sovereign territory, which before independence in 1966 was known as British Guiana. Spain had originally assumed control of large parts of the Essequibo as part of the colony of the Vice Royalty of New Granada, but the constant distraction of battling independence movements in Latin America prevented Madrid from cementing its claim. To define the boundaries of British Guiana London, in 1835, commissioned German-born explorer Robert Herman Schomburgk to map the western part of the colony and demark a border with Venezuela. The boundary selected by Schomburgk sparked the now more than a century-long territorial dispute between Venezuela, which had emerged as a sovereign state in 1831 and elected to exercise its colonial legacy after gold was discovered in the Essequibo.
After considerable pressure from the U.S., the border between Venezuela and the colony of British Guiana, which became Guyana after independence in 1966, was settled in 1899 by the Washington Treaty of Arbitration. The agreement granted Venezuela control of the land surrounding the mouth of the Orinoco River, while Britain was given all land west of the Essequibo River. Caracas was extremely dissatisfied with the treaty and, after decades of simmering tensions, in 1962, declared the Treaty of Arbitration null and void.
Since then, the dispute has ebbed and flowed, with numerous attempts by international bodies to resolve the long-standing altercation. In 1966, the United Nations attempted to find a solution with the parties signing the Geneva Protocols, which stipulated that Venezuela, the United Kingdom and Guyana will find a peaceful and satisfactory solution to the dispute. This saw the creation of the Good Offices Process by the U.N. to mediate Venezuela’s territorial claim. After nearly three decades of Guyana and Venezuela being unable to reach an agreement, the matter was referred to the International Criminal Court of Justice, or ICJ, in 2018. The court has accepted the case but made little headway with Maduro, who ironically is facing an ICJ probe for crimes against humanity and refuses to recognize the court’s jurisdiction. By November 2022, the ICJ concluded its preliminary hearing on the objections raised by Venezuela, where Caracas argued that Guyana’s case should be dismissed.
After smoldering for decades, Caracas’ territorial claim on Guyana flared in intensity after Exxon’s swathe of more than 30 world-class oil discoveries in Guyana’s offshore Stabroek Block. A significant portion of that block lies in the territorial waters of the region disputed by Venezuela. Exxon’s discoveries have found over 11 billion barrels of recoverable oil resources and catapulted Guyana on the path to becoming a leading regional oil producer and exporter. By the end of January 2023, Guyana was pumping 393,000 barrels of oil per day, all of which was coming from the Exxon operating Stabroek Block. That has transformed the former British colony into the sixth largest petroleum producer in Latin America and the Caribbean, with output forecast to exceed one million barrels daily by 2027, which will make Guyana the third largest oil producer in the region.
The Stabroek Block oil discoveries have transformed Guyana from an economic backwater into a major global petroleum producer and launched the impoverished South American country into the economic stratosphere. Guyana now possesses one of the world’s fastest-growing economies, with IMF data showing 2022 GDP expanded by a stunning 57.8% and is expected to grow by another 25% during 2023. Georgetown’s oil revenues are surging in value. Information from the Bank of Guyana, the country’s central bank, shows the former British colony earned $1.4 billion from royalties and oil sales in 2022, which was more than double the $608 million received in 2021. It is anticipated by Guyana’s government and industry analysts that oil revenue will exceed $1.6 billion during 2023 and climb to over $7.5 billion by the end of the decade.
As a result, it is easy to understand Maduro’s interest in Essequibo at a time when Venezuela’s economic crisis has finally bottomed, and Caracas is desperate to rebuild a shattered oil industry and pump more petroleum. The intensity of the saber-rattling by Venezuela’s autocratic leader is rising, with the dispute a handy distraction for Venezuela’s people from the country’s economic and humanitarian crisis. After experiencing a post-pandemic surge in production, PDVSA appears incapable of lifting output any higher. The OPEC member’s production has plummeted from a peak of over three million barrels per day during 1998, before Hugo Chavez became president, to 700,000 barrels per day for February 2023. The catastrophic collapse of Venezuela’s oil industry, the petrostates' economic backbone, has devastated the economy and triggered a prolonged humanitarian catastrophe described as the worst to ever occur outside of war.
PDVSA is incapable of significantly lifting production volumes or achieving the ambitious production targets set by Maduro and his oil minister Tareck El Aissami without a massive capital investment estimated to be at least $110 billion. That will only occur once Washington substantially eases sanctions, which is highly unlikely for the foreseeable future. By annexing the Essequibo, Caracas will gain access to the region’s considerable mineral wealth, including the substantial oil resources contained in the offshore Stabroek Block. Over the last decade, there have been frequent incidents of Venezuelan naval vessels harassing shipping in Guyana’s territorial waters in the disputed zone, including drilling vessels contracted by Exxon. In 2021 two fishing vessels from Guyana were detained for weeks by Venezuela’s navy.
Since 2015 Maduro has regularly vowed to reconquer the commodity-rich Essequibo. Caracas frequently deploys ground forces to the border with Guyana and conducts military exercises in the region. In early 2018, Brazil’s military revealed it had discovered plans for Venezuela’s invasion of Guyana, which would see Caracas use force to annex the Essequibo. Brazil’s then-President Michel Temer pledged to defend Guyana if Venezuela invaded, but it is difficult to see if Brasilia could deploy sufficient forces in a timely manner to repel Venezuela’s attack.
If Venezuela launched a military assault to annex the Essequibo, there is very little that Guyana could do to repel such an event. Venezuela’s military apparatus outnumbers the Guyana Defense Force by at least a whopping 100 to 1 in personnel while Caracas possesses modern fighters and naval craft to which Guyana has no viable response. Maduro’s close ties with the Kremlin means Venezuela has received extensive military aid from Russia, including modern weapons systems, such as small arms, tanks and fighter bomber aircraft, and training by Russian advisers. While Russia promised in 2022 that military aid to Venezuela will not be used against Colombia, no such assurances have been made regarding Guyana. The overarching consensus is that without U.S. intervention, a Venezuelan invasion of the Essequibo will be successful.
The risks of the border dispute boiling over and exploding into conflict are very real. Heightened tensions between Caracas and Washington over sanctions and U.S. Department of Justice indictments against Maduro, as well as members of his government, increase the risk of conflict erupting. Maduro also uses the dispute as a means of distracting Venezuelans from the suffering they are enduring because of his policies, with the dispute one of the only points on which he and Venezuela’s opposition agree. Putin’s invasion of Ukraine, despite the international outcry, has emboldened authoritarian illiberal rulers like Maduro to see the application of force as a viable tool to achieve their goals.
Matthew Smith for Oilprice.com
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