The Perils of Oil Sovereignty

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abarrelfull wrote on 03 Sep 2012 19:59
Tags: mexico venezuela

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When oil prices are high, the thought that foreigners might be exploiting mineral wealth that rightly belongs to the people is more than many can take. Taking control of national resources, or Oil Sovereignty as it is sometimes called can be very popular with the voters. Unfortunately this approach can have disastrous results, thought these are often only noticeable a considerable time later.

In the last week there have been two news stories that illustrate the impact of using nationalism to dictate oil policy rather than economic logic.

First is a happy story from Mexico:

The President, Felipe Calderon, announced the first oil discovery in the deepwater Gulf of Mexico, confirmed the presence of light oil reservoirs in the province of the Perdido fold belt.

Of course its not the first oil discovery in the deepwater Gulf of Mexico as such, just the first on the Mexican side of the border. Its a happy story because Mexico needs to replace its shrinking reserves, and yet it is a cautionary tale. Mexico's northern neighbour has been developing deep water fields in the gulf of Mexico for a couple of decades. This table illustrates that.

Almost everyone of a certain size has operations in the US Gulf of Mexico, and would be only to happy to duplicate their efforts for Mexico, but cannot.

An altogether more miserable tale comes from a country, that for all its fascist bluster is actually a little more welcoming of gringo investment. Venezuela.

The president of the Bolivarian Republic of Venezuela, Hugo Chavez, declared three days of national mourning for the deceased from the explosion in the early hours of Saturday at Amuay refinery

In terms of death toll we have one of the worst refinery disasters ever. Of course Mr Chavez many fans are immediately shouting sabotage but the probable cause is much more mundane. Ten years ago, all of PDVSA's workers who didn't share the socialist dream were sacked. Since then, the company has been starved of money for investment and by all accounts maintenance. So it looks like an accident waiting to happen.

I wouldn't suggest for a minute that oil producing nations don't bargain as hard as possible, but insisting on direct state control of oil can be extremely expensive, and not just in terms of money.