Latin America’s Petroleum Economies: In Sickness and in Health

An interesting turn of events has taken place in the last while. While the world has been facing a global recession, Latin America has been somewhat blessed with a pre-2008 oil boom that has yet to completely phase out, a super economy in the making which has fared relatively well over the last year, and a reputation of instability which is slowing being forgotten. In the mix is the discovery of oil off the Brazilian coastline and the rather rapid global rebirth of a Latin America which has prospective influence outside of the Americas. While oil has played a greater role in some countries than others, it is often the strength of the single commodity that can create or ruin a country.

As in an earlier posting this month on this blog, Brazil as a Unique BRIC, the difference between Brazil’s slow growth model and the dominance of oil politics in Russia and Nigeria will likely create significant winners and losers among many petroleum economies. Russia, while achieving great economic benefits from its oil and gas reserves, often uses its oil influence and Europe’s dependence on Russian fuel to leverage itself in Central-Western Europe and clamp down on former Soviet republics regarding other political interests. Nigeria’s oil wealth is often used as a giant power leverage against local political opposition in the rest of the country. The benefits of oil and the use of it to simply grow the national economy often creates a better economic engine than an oil company that operates for political leverage. Slow growth with an influx of funding can be distributed in a logical manner to balance communities in one society, but can also tear holes in formerly balanced societies as well.

In a European Courier Op-Ed by writer Gustavo Coronel, Gustavo compares the use of Petrobras in shaping Brazil alongside PEMEX in Mexico and PDVSA in Venezuela. The interesting comparison of the three is a reflection of the three paths Latin American countries often have taken in the last sixty years, sped up with the influence of oil wealth to change, alter and destroy Latin America’s three largest Petroleum fuelled economies. He details Petrobras’ reforms and private-public sector growth and growing international cooperation as he compares the often insular and untransparent PEMEX as a symbol of Mexican independence with the PDVSA which has turned from a fairly well run company pre-1999 into a symbol of Hugo Chavez’s personal independence. While Petrobras still has political influence shaping some of its policies, PEMEX has become a drain on Mexico due to heavy economic losses and lack of modernization and PDVSA has been turned into a tool of the state to be used for any make shift project that might win political support for Mr. Chavez. While I do not agree with all of Gustavo’s conclusions, I recommend reading the Op-Ed and posting comments below.

The history of the petroleum economy and OPEC in general usually has its political ties in the darker history of the Middle East, Africa and Latin America, but can become more than simply a missed opportunity. Brazil might be able to continue its successes if it can keep politically motivated executives outside of its slow growth approach and Petrobras and keep future politicians on the same economic path as followed by Cardoso and Lula Da Silva. The next debate will not be about oil economies however, the evolution of the oil economy will develop into a debate about the rights of those past energy giants to obtain nuclear capabilities in the international energy and security dialogue.