Hemispheric securityPandemic Crushes Guyana’s Dreams of Big Oil Profits as “Resource Curse” Looms over Oil-Producing Nations

By Amy Myers Jaffe

Published 22 September 2020

This year was supposed to bring great things for Guyana. ExxonMobil discovered massive oil deposits off the South American country’s Caribbean coast in 2015, and Guyana sold its first cargo of crude oil this February. But Guyana’s dreams of fabulous wealth this year have been dashed by COVID-19, which has delayed production and slashed oil demand. Compounding its coronavirus troubles, Guyana shows warning signs of the so-called “resource curse,” in which a country’s new oil wealth crowds out other productive economic sectors, breeds corruption and triggers political conflict. Very few petrostates have adequately diversified their economies. Exceptions include Malaysia and Dubai, which have both used oil wealth successfully to build a broader economic foundation and have avoided the dreaded “resource curse.” Those countries should be models for Guyana.

This year was supposed to bring great things for Guyana.

ExxonMobil discovered massive oil deposits off the South American country’s Caribbean coast in 2015, and Guyana sold its first cargo of crude oil this February. As production ramps up, its first stage offshore wells were projected to produce 750,000 barrels a day by 2025, tripling the size of Guyana’s economy, from $3.4 billion to $13 billion.

Guyana also received its first U.S. secretary of state when Mike Pompeo visited on Sept. 17, reflecting both its rising international status as a major oil exporter and U.S. hopes that it will be an American partner in dealing with its troubled neighbor Venezuela.

But Guyana’s dreams of fabulous wealth this year have been dashed by COVID-19, which has delayed production and slashed oil demand. Compounding its coronavirus troubles, Guyana shows warning signs of the so-called “resource curse,” in which a country’s new oil wealth crowds out other productive economic sectors, breeds corruption and triggers political conflict.

If oil prices stay low, more countries could join the list of troubled petro-nations. My work on the link between the COVID-19 crisis, climate change risk, sovereign debt and oil suggests a looming crisis.

Burst Hopes
Guyana, a former British colony with a population of 786,000, already struggles with political instability and ethnic tensions.

Earlier this year, in the first national election held since oil was discovered, accusations of corruption prompted a recount and an unclear presidential result. The transfer of power dragged on for five months, leading to deep uncertainty, violence and eventually U.S. sanctions.

Guyana’s new president, Mohamed Irfaan Ali, finally took office in August.

Ali campaigned on the issue of oil governance. Asserting that his predecessor David Granger had agreed to overly generous contracts with foreign oil investors, he promised to get Guyana its fair share of oil revenues.

So far, Ali has stopped short of saying his administration will retroactively change existing oil contracts, but calls for a review of terms have already delayed government approval for the next phase of offshore oil development, a holdup that is estimated to potentially cost Guyana over $1.6 billion in lost oil revenue.

Meanwhile, the coronavirus pandemic has delayed the ramp-up of oil production, as safety concerns prevented crews from going to work last spring.