Guyana is a tiny nation home to
just more than 800,000 people. This small South American
country though has been making big headlines. Venezuelan President Nicolas
Maduro and Guyana president Irfaan Ali met in the Caribbean
yesterday. Tensions between South American
neighbors Venezuela and Guyana escalated this week over a
century old territorial dispute. As Venezuela threatens to annex
more than half of the country of Guyana. Yes, Venezuela wants to annex
Essequibo part of Guyana. Why? A one word answer to this is oil. So, it's all about the oil. In
2015 discovery by Exxon Mobil as you noted, there's enormous
wealth there and Guyana has been in the last three years - their
standard of living has skyrocketed with this newfound
source of wealth This discovery has made has made
it seem more attractive to Venezuela to pursue this course
of action. Venezuela has laid claim to this
for more than 100 years. Venezuela even though they have
300 billion barrels of proven reserves in Venezuela that they
can't manage to drill on their own. They would like to lay
claim to this area as well. So this is why there's been a
rising tension escalation. Amid rising tensions with
Venezuela, Guyana has become the world's fastest growing economy
recording the world's highest real GDP growth rate in 2022.
And that happened again in 2023. Guyana is at a crossroads in its
history. It is about to become one of the most exciting and
important oil producing countries in the world. And that
matters a great deal both for the Guyanese people and also for
the United States, which will be heavily impacted by the growth
of Guyanese oil production and by the trajectory that Guyana
takes over the next 10 to 15 years whether oil boom happens
or whether it suffers an oil bust. Everything changed for Guyana, a
country the size of Idaho in 2015. ExxonMobil says it has made a
significant oil discovery off the coast of Guyana. Guyana joined the ranks of the
world's oil producers for the first time on Friday. As US oil
company Exxon Mobil said it began producing crude off the
coast of the South American country. Exxon made a major discovery
that then led to a string of discovery after discovery after
discovery. And at that time, Guyana, like many of the
countries that we work with, had only a couple of people in
government who really were familiar with the oil and gas
sector, and so had to quickly ramp up its capacity in order to
oversee this rapidly growing sector. We started drilling and 2019
started producing in 2019. So production has gone from
basically zero to almost 600,000 barrels a day of oil by the end
of next year. And that production is going to double to
almost 1.2 million barrels by the end of 2027. So the growth
trajectory has been tremendous. The only English speaking
country in South America has been witnessing tremendous
economic growth since the discovery of oil. This chart
from the International Monetary Fund shows how its GDP has
skyrocketed since it began pumping oil in 2019. Really massive changes to the
economy in the last two years. And we're expecting that to
continue for the foreseeable future. It's a moment of great
excitement in the in the economic landscape of the
country. The challenge though it's really too tied to the oil
and gas industries. Guyana is one of the great
success stories in the oil industry in the western
hemisphere of the last 10 years. It has gone from being a
relatively impoverished poorer country to one of the richest
countries in South America on a per capita basis, and it stands
to increase its wealth as it continues to grow its oil
production. This is the map of Guyana and
this region is called Essequibo, which makes up two thirds of the
total land. Venezuela claims this region as part of its
territory, even after the dispute was resolved by an
international tribunal all the way back in 1899. Ever since the
oil discovery in Guyana in 2015, Nicolas Maduro led Venezuela has
been very vocal about annexing this region. The escalation
raised eyebrows when Venezuela held a referendum in December to
seek approval to take over the area. However, a few days later,
leaders of both countries met and agreed not to use force or
threaten one another in a dispute. We are a peace abiding country
and people. We have have no other ambition than to pursue
the peaceful coexistence with Venezuela at every country in
this region. Venezuela doesn't truly have
sources of support in its ambitions to take over that
territory of of Guyana, whereas Guyana has seems international
public law on its side, as well as the United States. We absolutely stand by our
unwavering support for Guyana sovereignty. I'm not sure Guyana standing on
its own. To tell you the truth. I think, you know, there are a
lot of we've all seen what happens when nation
sovereignties are challenged and unilateral actions taken. I
think the world and outside community have grown pretty
sensitive to that. So my expectation is, there's more
support more broad support in the international community to
make sure that the right processes are followed to
resolve this dispute. Critics also argue that Maduro
is playing the Guyana card to win the country's 2024
presidential election. They say Maduro may be trying to distract
voters from his country's dire economic situation, once the
wealthiest nation in South America thanks to its oil
industry, Venezuela's economy has collapsed since Maduro took
power in 2013. So this has has two purposes for
Venezuela, one for a government, which is providing a relatively
poor quality of life to its own citizens, that gives them an
opportunity to rally around the flag and say, Oh, there's more
to be had across the border. It allows President Maduro to
activate the sort of electoral machinery that he will need for
elections in 2024. That gives him a bit of a dry run on
mobilizing his constituencies. It also gives him a, you know, a
way to to position himself for the presidential election in
2024. By saying, I'm the one who fights for Venezuela. But it is
a very thin legal claim. And I think it's going to be an
enormous strategic mistake by Maduro. Because Venezuela is
trying to reconnect to the international community, regain
legitimacy and remain free from sanctions. And there is no
better way to organize the entire international community
against you than to impermissibly transgress a
border with your peaceful neighbor. I wouldn't believe anything,
Nicolas Maduro said yesterday, he's proven to be a very
untrustworthy negotiating partner, particularly with the
United States. Back in October, the US came to deal with
Venezuela saying, Okay, if you promise to have free and fair
elections, we will in advance of that we will ease sanctions, and
that's what allowed Chevron to get a license at least for six
months to go back in there and start resuming work. Within two
weeks of that agreement, he outlawed the opposition
candidate and said the person could run for office. You know,
the Financial Times has written an editorial saying that the US
should reimpose the sanctions right away. Because he's so
untrustworthy. We have the international world.
On our side. There'll be very few countries who would approve
of what President Maduro and Venezuela have been suggesting
and indicating and doing in the last six months or so. US oil giant Exxon and its two
partners Hess and the China National offshore oil company
have discovered more than 11 billion barrels of oil in Guyana
since 2015. Ghana's economy has exploded since then. Critics
argue that Exxon Mobil is reaping the most benefits from
this oil bonanza. For many years, there's been
controversy surrounding Guyana and Exxon's oil deal with many
critics within Guyana, challenging the validity or the
soundness of that deal, because it's very much to the advantage
of Exxon. It's a one sided deal because
Exxon pays no taxes. Exxon didn't put up the insurance
they're responsible for putting up Exxon has a special
arrangement, where they maximize profit first. They get their
profits first and Guyana gets theirs later. On the question of whether the
arrangement with Exxon is fear or not for Guyana. I was with it
from the very beginning. And it may be that way. I think it was
a fear or I think it is a fee arrangement. It is a production
sharing arrangement. Deals get struck. And sometimes
the deals don't always favor you in all of the aspects and I
think that Guyanese have to embrace that if they want to
continue to participate in this broad global setup. And to say
how do we ensure that the terms going forward. For all the international oil
companies they look for big finds and Guyana is the biggest
that anybody has found that a long time and there may not be
other giants, as they're called in the business that are left.
So it's extremely important. And I think that's why you see
ExxonMobil play such a high priority not only on the
development of the asset, but on the development of the country.
Because, you know, for international oil companies,
these are 30 year projects, they're going to be there for a
long time. And so if the country doesn't succeed, neither do
they. Guyana is very close to the
United States. It's close to the Gulf of Mexico, where the United
States has an enormous array of refinery and oil and gas
refining infrastructure, so a lot of Guyana's oil will go to
the United States and potentially could be consumed by
the American market. So the United States is in a pretty
strong position to benefit from the exploration and expansion of
Guyana's oil both in terms of corporate infrastructure, and
also in terms of the American economy. On paper, Guyana's sky high GDP
growth looks like the envy of the developing world. However,
critics highlight that the country's weak democratic
institution, and deeply divided politics among ethnic lines
could cause Guyana to suffer from the so called resource
curse. So, the resource curse is this
unfortunate historical circumstance that countries
which have significant wealth in a single sector, which dominates
their economy tend to have worse development outcomes after the
discovery of the resource than they had before. Guyana created the Natural
Resource Fund in order to set aside some of the fiscal
restraints from the oil sector. It's a precautionary step really
to avoid having a situation where revenues are just spent as
they come in. And you end up with a quite an erratic economy
as the commodity prices go up and down. I think the fund is being it's a
very, very poor fiscal choice by the government to put the money
in a fund like this and to not have it subject to normal rules
of accountability. I'm a former Comptroller of the state of New
York, and I manage both the fund investment funds as well as the
fiscal side of government. This is not how you manage this
amount of money, unless all you want to do with it is put it
into the budget in order to meet the political needs of the party
in power. In order for Guyana to avoid the
curse they need to get to the next level. First, they have a
Natural Resource Fund, but they need independent management of
that fund, as Norway has to have a long term view on investment
and avoid wasting that money. Second, they need to build
government capacity to manage the sector, not only the oil and
gas sector, but very large procurements, billions in
procurement for roads and infrastructure. And governments
don't think it's politically popular to do that. But without
that government capacity, accounting, inspectors general
budget supervision, they're going to have a hard time
managing that money well. Third, they need to make capital
available to Guyanese. As the world tries to move away
from fossil fuels, Guyana wants to pump as much oil as possible.
The country's enthusiasm for oil production became most evident
when officials said they were not interested in joining OPEC,
the cartel of oil heavyweights like Saudi Arabia and the United
Arab Emirates. For a country like Guyana. It's
probably not in its interest to join OPEC because it wants to
produce as much as it can, as quickly as it can. And that's
not the game and OPEC . In OPEC, it's all about curtailing
production to manage the market. So I think a country like
Guyana, which is a bit on the margins, it will be more in its
interest to be a bit of a free rider and benefit from OPEC's
management of the market without itself having to cut back its
production. I think Ghana is essentially
wanting to produce as much oil as possible and to capture as
much money as possible today. And I think she's well within
her rights to do that. And, you know, so I would, you know,
state in a very nice way by saying she wants to maintain her
autonomy. Rossil fuels will no longer be
loan will no longer be commercial at least, that by
that time, we will be able to have a good life without oil.
Without the income that comes now from oil. I think we've been
working our way through those things. And I think we are
making good experiences that are good for the world at large. Guyana is one of the few
countries in the world which has an opportunity to go from least
developed to highly developed in a rapid period of time, and
that's because of this major discovery that they've had in
oil. By 2035, Guyana might be the fourth largest oil producer
in the world. And so they have an opportunity to do what very
few countries have ever done before, which is to spend this
money wisely and to provide equitable and prosperous
development.
