Written by: Pooja Gundimeda
Back in 2015, Guyana, a small South American country, was projected to become the Western Hemisphere’s next big oil producer. The world paid attention to this small country when Exxon Mobil announced a significant oil discovery, about 120 miles off its coastline. While drilling, the company encountered more than 90 meters of sandstone reservoirs, thus confirming that Guyana’s coastal waters were home to a big oil discovery: something major oil companies had not encountered in decades. Experts estimated that this discovery would lead to the recovery of more than four billion barrels of oil, valued at more than $200 billion.
This discovery signified a big victory for the South American country, as it was projected to change the country’s economy forever, and make Guyana one of the richest nations in the world. Guyana was one of South America’s poorest nations with an annual GDP per capita of around $4200 in 2015. As the country had no prior hand in oil, this discovery looked to be a major economic boost for the country with a population of less than one million. Experts projected that this small nation would soon be transformed into a developed nation in upcoming years with the continuation of drilling by Exxon Mobil.
Jumping ahead to 2020, the drilling by Exxon Mobil led to the recovery of the first oil cargo, and in April, approximately $55 million were deposited to an account of the Bank of Guyana for the first million barrels of oil. As initially projected, Guyana will be receiving numerous royalty payments and withholding taxes, proving this discovery to be a boon for the once poor country.
While many were hopeful this oil discovery would result in better lives for the Guyanese citizens, few anticipated that historical tensions between ethnic groups could change the nation’s future with oil. Recently, many Guyanese citizens are afraid that brand-new oil wealth will overthrow the democracy of the nation, leading to dire consequences. After all, this occurred to Guyana’s neighbor, Venezuela.
In March of 2020, elections for president and members of the National Assembly were supposed to determine which party would be in charge of the revenue gained from the oil discovery. Both major political parties are representatives of the country’s two main ethnic groups, the Afro-Guyanese, and the Indian descendants. Tensions were high as both parties feared that whoever won the election would utilize the oil wealth to shut out the opposing party from power in the following years. This is a valid concern: being held out of government by the opposing political party suggests to opposition supporters that they will not be provided their equal share of the revenue. However, both parties alleged victory in the March elections before official results could be announced. Leaders of both sides still are using the threat of harming the economy in an attempt to win the particularly dangerous battle. As Guyana is one of South America’s poorest countries, this standoff could cause the Guyanese economy to fall into a crisis.
Both political parties also have concerns that the big corporations, such as Exxon Mobil, are taking advantage of the inexperienced Guyanese government, especially regarding the terms of the oil deal. Experts reported that Guyana had no previous economic model to refer to while negotiating with Exxon Mobil, and additionally did not seek input from outsiders. Thus, Exxon Mobil used this to their advantage and showcased their power in an attempt to take as much as they could, even if it meant depriving Guyana of what the nation actually should have received. Exxon Mobil is more powerful in comparison to the tiny South American country and used Guyana’s lack of experience in oil to their full advantage by not treating them as an equal partner.
Aside from the internal issues that have arisen, international conflict has also emerged from the oil discovery. Tensions have reignited between Venezuela and Guyana, as a result of the offshore oil discovery. Venezuela brings back a century-old dispute regarding territory rights. The neighboring country has claimed that the oil discovery is theirs to have, as they have long held the belief that much of the Guyana territory is theirs. The conflict originated when both countries gained independence from their colonial powers. Though Venezuela has vocalized for decades that certain territories in Guyana belong to them, they argue that the oil discovered offshore belongs to them. Only once Guyana was projected to make billions in revenue from the oil discovery did Venezuela feel it was appropriate to risk vocalizing that the small countries oil belonged to Venezuela.
All in all, the economic decisions made by the next government will dictate whether Guyana will be able to utilize the oil wealth to further the development of the nation, or if Guyana will be torn apart by political tensions. It also will provide insight as to how the Guyana government will handle relations with Venezuela. Though companies like Exxon Mobil insist that the oil wealth will improve life for the nation’s 750,000 residents, nothing is certain until political tensions cease and the citizens are assured that they will reap the benefits of this oil discovery.