Brazil’s natural experiment on oil nationalism

In the New York Times, Alexei Barrionuevo has a long story on Brazil’s renewed oil nationalism.  Some highlights: 

Faced with the world’s most important oil discovery in years, the Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself.

The move is part of a nationalistic drive to increase the country’s benefits from its natural resources and cement its position as a global power. But it could significantly slow the development of the oil fields at a time when the world is looking for new sources, energy and risk analysts said….

For Brazil, the stakes are high. Many here see the oil as a magic bullet for tackling the country’s biggest social challenges. Luiz Inacio Lula da Silva, Brazil’s popular president, wants to alter energy laws to funnel more revenue from the undeveloped fields to government coffers and set up funds to improve education and health care. His proposal will be delivered to Congress sometime next week, one of his aides said Monday.

Despite its recent economic boom, Brazil still struggles with extreme poverty, inequality and an illiteracy rate over 10 percent.

Government officials here insist Brazil will not be swept up in the sort of nationalistic fervor that has washed across Latin America in recent years. As Mexico did in the late 1930s, Venezuela, Bolivia and Ecuador have reduced the presence of foreign energy companies, only to have their production of oil and natural gas stagnate or decline….

With Brazil’s green and yellow flag draped over the stage, oil union members watched a new documentary here last month, “The Oil Must be Ours — Ultimate Frontier.” In the film, geologists, union leaders and even a 92-year-old physician, Maria Augusta Tibiriçá, discuss how the new fields could generate “trillions of dollars” and transform Brazil’s future.

A dozen union members led off the evening with a rendition of Brazil’s national anthem, then “It Will Happen,” a song written for the movie that blends bossa nova and samba rhythms.

If oil “is very deep under the sea,” they sang, “will we play to win?”

The new nationalistic fervor recalls the 1970s and 1980s, when Brazil’s military government declared that “the Amazon is ours” to ward off foreign encroachments on the rain forest. 

Hmmm….. it is certainly possible that Brazil can avoid the Bolivarian conundrum.  Many national oil companies (NOCs) are as well-run as private oil companies and with strong anti-corruption controls.  

Those NOCs are the exception rather than the rule, however — and the history of Brazilian governance does not fill me with confidence (the fact that Lula’s choice to succeed him is also "the chairwoman of the Petrobas board of directors" could cut both ways as well).

The use of nationalism to gin up support for this strategy is also worrisome.  Nationalism is a powerful force, and to be fair to Lula, there’s no evidence that he’s whipping up nationalist fervor to support aggressive foreign policy actions.  In my experience, however, nationalism provides excellent political cover for all kinds of institutional and economic chicanery.  Which means that the odds of the best-laid intentions going awry in this oil project seem pretty damn high to me. 

Developing……