Will South America’s latest oil boom trigger a military clash?

Since the controversial decision of 1899 fixing the border between Venezuela and Guyana, Caracas has repeatedly contested the ruling, claiming that the 61,000 square miles west of the Essequibo River belong to the Bolivarian Republic.

That controversy has intensified in recent years with authoritarian Venezuelan President Nicolas Maduro reinvigorating the claim as a way to distract the Venezuelan people who have long suffered from the country’s economic collapse and near-implosion into a failed state.

In a surprising development during the negotiations negotiated by Norway in Mexico between the Maduro regime and the Venezuelan opposition, an agreement was reached between the two parties to revive the petro-state’s territorial claims against Guyana. This alarmed Guyanese President Irfaan Ali with the Foreign Ministry publish a statement rejecting this agreement and going on to say that “Guyana cannot be used as an altar of sacrifice for the settlement of the internal political disputes of Venezuela”. Cynically, the renewed pressure exerted by Maduro with the backing of the Venezuelan opposition, led by internationally recognized interim president Juan Guaido, comes at a time when ExxonMobil has made important oil discoveries in the disputed region. Since 2015, the world’s energy supermajor has made 22 discoveries in the 6.6 million acre Stabroek block off Guyana and estimates it has at least 9 million barrels of recoverable oil resources. Part of the Stabroek block, including a segment of the Liza deepwater oilfield, lies in the disputed territory of Essequibo, known in Venezuela as Guayana Esequiba.

The Caracas claim poses an existential threat to Guyana as the disputed region makes up around three-quarters of the former British colony’s territory and captures a significant portion of its oil-rich territorial waters.

It couldn’t have come at a worse time for Guyana. The local economy has been ravaged by the COVID-19 pandemic and the small, deeply impoverished South American nation is finally enjoying its massive oil wealth to the point where the gross domestic product in 2020 has increased by an impressive 43%.

Exxon is currently pumping 120,000 barrels per day from the Stabroek block with production expected to reach 340,000 barrels in 2022 when the Liza Destiny FPSO enters service, and up to 1 million barrels per day by 2026. That will see Pumping from Guyana more crude oil than Venezuela, which according to OPEC’s Monthly Oil Market Report for September 2021 produced on average only 523,000 barrels per day in August.

This highlights the considerable incentive for Venezuela to take control of the Essequibo region which contains part of Exxon’s Stabroek bloc. Emergency Venezuela needs to increase its production of crude oil, which is the only realistic way to generate the income necessary to rebuild the destroyed economy of the petro-state.

The IMF estimates The OPEC member’s gross domestic product fell by 30% in 2020 after a disastrous 2019 when it contracted by 35%. The crisis-torn petrostate economy has not seen a single year of growth since 2013 when it grew by a meager 1.3%., despite an average Brent of $ 108.55 per barrel in one year where Venezuela pumped nearly 2.4 million barrels per day. The disintegration of Venezuela’s economic backbone, its oil industry, has been so rapid that less than a decade later, the country, according to secondary OPEC sources, has only pumped an average of 514,375 barrels. per day for the first eight months of 2021.

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While the territorial question created a consensus between the Venezuelan opposition and the Maduro regime, it further destabilized an unstable region. Venezuela’s border with Colombia has been a regional hotspot for over a decade. most recent conflict fought earlier this year between Venezuelan security forces and the dissenting left-wing Colombian guerrilla, who refused to lay down their arms as part of the government’s 2016 peace agreement with the Revolutionary Armed Forces of Colombia.

In the past, Venezuela has engaged in serious saber-strikes against Guyana.

In 2018, a Venezuelan navy vessel clashed with an oil exploration vessel operating for Exxon in Guyanese waters.

In January 2021, like Maduro intensified its rhetoric concerning the disputed territory and the Atlantic coast, a Venezuelan warship detained two Guyanese fishing boats in the exclusive economic zone of Guyana. There were also unsubstantiated allegations that a third vessel had been seized by the Venezuelan navy.

Allegedly unauthorized Venezuelan fighter jets entered Guyanese airspace in March 2021.

The events were part of a marked increase in Venezuelan military activity in the disputed maritime area intended to put pressure on Georgetown.

It is not only Guyana which is impacted by the clicking of the Caracas saber. There have been clashes along the border with Brazil, which the president of Latin America’s largest oil producer Jair Bolsonaro militarized in 2019.

These events point to greater instability in a region where governments grapple with the profound economic and social fallout from the pandemic, a proliferation of non-state armed groups, increasing violence and one of the world’s worst humanitarian crises.

Maduro’s erratic actions and saber rattling are unlikely to go away as he becomes more and more desperate maintain its position of power in the face of the collapse of the Venezuelan state. Even its iron grip on power will mean very little if the Venezuelan state implodes and various non-state actors fight for control of its remnants.

Caracas has made it clear that it does not recognize the jurisdiction of the United Nations International Court of Justice, thus removing the only way out of the impasse. This could see a larger regional conflict if Venezuela chooses to exercise its claims on the Essequibo by force.

By Matthew Smith for Oil Octobers

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