Oil-rich South America forces US free trade agenda on the back foot

Article 21 Aug 2006 admin

In a sign of increasing resistance to US hegemony in South America, both Bolivia and Ecuador have moved towards nationalisation of their oil industries – This article was first published in Platform’s Carbon Web Newsletter, Issue 5.

Bolivian President Evo Morales in May issued an ultimatum to foreign oil companies to negotiate new contracts or leave the country. The revised contracts are essentially service provision contracts to Bolivia’s national oil company (YPFB), with Morales stating that foreign companies should not be owners of Bolivia’s natural resources. He also announced that his country will not join Andean Free Trade Agreement (AFTA) negotiations with the United States as previously expected, and instead will seek agreements with other countries which prioritise the protection of national industries and human wellbeing.

The announcement follows moves by Venezuelan President Hugo Chavez last year to renegotiate the economic terms of contracts with foreign companies, although he stopped short of nationalisation.

Two weeks after Morales’ announcement, Ecuador cancelled a contract with US-owned Occidental Petroleum, accusing the company of breach of contract in selling 40% of its operation to a Canadian company. Occidental has long been accused of environmental destruction and of intimidating is opponents in Ecuador, and the indigenous party Pachakutiq described the cancellation of the contract as a triumph for indigenous peoples.

Although Ecuador has stated that the move against Oxy is not part of a broader nationalisation, the US state department expressed concern, and commentators said the decision would spell an end to US-led AFTA negotiations with Ecuador. Occidental is pursuing an arbitration case through the World Bank’s International Center for Investment Disputes in Washington.

Illustrating the regional power play between Brazil and Venezuela, Chavez has agreed to invest $1.5 billion to exploit new oil and gas fields in Bolivia, while Ecuador has agreed a deal with Venezuelan state oil company (PDVSA) to refine 100,000 barrels per day of Ecuador’s crude. Bolivia, which is Brazil’s largest source of gas, has struggled to renegotiate gas supply contracts with its larger neighbour, but has joined negotiations with Venezuela, Argentina and Brazil over the 10 000 km ‘Great Southern Gas Pipeline’.

The struggles also have a global dimension, with the high oil price sparking challenges to foreign company operations around the world. Russia, Kazakhstan and Algeria, have all recently questioned the terms of their production deals. The lesson of the 1970s – in contrast to Iran’s defeated nationalisation in the 1950s – is that oil producers can be successful when they all move together.

The potential exception to the current trend is Iraq. Given the scale of Iraq’s reserves, if oil companies are successful in regaining a hold there, it could be a significant setback for nationalising moves in Latin America.


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