Is Guyana Getting a Fair Cut of Its Oil Bonanza?

Welcome back to Foreign Policy’s Latin America Brief.

The highlights this week: Guyana struggles to manage its newfound oil wealth, Peru’s political crisis deepens, and Argentines ditch their previous criticism of Lionel Messi ahead of a high-stakes World Cup final against France.

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Most South American economies have grown sluggishly this year. But Guyana has been an outlier—both in the region and the world at large. The small country is on track to boast the globe’s highest GDP growth rate of 2022—a staggering 57.8 percent—thanks to steadily rising output from an offshore field where ExxonMobil struck oil in 2015. It took a few years for the company to set up pumping operations in the area, which only produced its first barrels of oil in December 2019.

Guyana’s oil reserves are so vast that the country’s daily production is expected to rise from the current level of around 360,000 barrels a day to around 1 million barrels per day by 2027, dethroning Kuwait as the country with the highest level of oil production per capita worldwide.

Guyana was a relatively poor country before it struck oil seven years ago. Since then, the question of how these riches will be distributed has hung over the country’s politics. Many were worried that, without proper guardrails, Guyana would fall victim to the so-called resource curse, whereby an abundance of natural resources disincentivizes countries from developing other sectors and creates circumstances ripe for corruption. In 2016, government authorities agreed to a deal with ExxonMobil and partner firms that allots Guyana an unusually low cut of profits from an oil-rich exploration zone called the Stabroek Block.

“It’s the most favorable [for oil companies] I think I’ve ever seen in the industry, anywhere,” Tom Mitro, a fellow at Columbia University’s Center on Sustainable Investment and former Chevron financial officer, told Bloomberg.

Each quarter, the companies pay a 2 percent royalty fee to the government on revenue from oil produced in the block. They are allowed to devote 75 percent of that revenue to paying their previous and ongoing exploration costs, and the remainder is split 50-50 between the companies and the state. The range of costs the companies can deduct before giving profits to the government is unusually large, Mitro and other analysts have said. ExxonMobil told Bloomberg that the deal was consistent with agreements in other countries at such an early stage of oil exploration.

Dissatisfaction over how the largely Afro-Guyanese-backed government handled Guyana’s oil contracts was a key reason it was voted out of office in 2020, Guyanese journalist Kiana Wilburg told Foreign Policy. Now, the largely Indo-Guyanese-backed administration that replaced it is responding to the criticism by adjusting its preliminary terms for a new auction of oil leases that kicked off last week and will run through May. The areas being auctioned lie between the Stabroek Block and the coastline.

The draft rules include a 10 percent royalty fee to the government, set the cost recovery portion of revenue at 65 rather than 75 percent, and introduce a 10 percent corporate tax. After cost recovery, profits are still divided 50-50.

In late 2021, Guyana’s government created a sovereign wealth fund with oil revenues and soon afterward approved plans to spend nearly all of its holdings at the time. The government says it put around $600 million from the fund toward its 2022 budget, set to be around 44.3 percent higher than last year’s.

“Speaking to several young people there is an optimism about their futures in Guyana rather than what has been for decades a cynicism and an overwhelming impulse to migrate,” the editorial board of Guyana’s Stabroek News wrote in July about the oil boom’s impact on the local labor market.

Still, transparency advocates, opposition politicians, and investigative reporters in the country have pressed the government—so far with little success—to be more open and systematic about the way it is spending its oil money, including the $600 million earmarked for this year.

“Ideally, the proceeds should be geared towards orienting the economy away from oil and gas so that in 30 years when the industry … [has] to be dismantled, agro-processing, high-quality manufacturing and financial and technological services will be the pre-eminent features,” the Stabroek News wrote in an editorial in April.

The government says it is beginning to put such a transformation in motion. In July, it published a low-carbon development strategy that includes plans to invest in forest maintenance, tourism, and sustainable housing.

The strategy is part of Guyana’s answer to environmentalist critics who say it should not be drilling for oil at all. The other part of its argument hinges on historic injustices. President Irfaan Ali estimates that Guyana has around 30 years before global demand for oil dries up and argues that oil sold until then should benefit poorer countries most vulnerable to climate change. Barbadian Prime Minister Mia Mottley, who was a star at the most recent United Nations Climate Change Conference, has made a similar argument, and Barbados is now preparing its own auction for offshore oil and gas leases.

Meanwhile, some Guyanese continue to scrutinize their country’s oil dealings. This month, social media users and opposition members criticized ExxonMobil’s placement of billboards across the country that read: “Guyana receives 52 percent of all profits from Stabroek Block.” There was no mention of the 75 percent of revenue that goes to oil company costs. An opposition member and former head of the country’s environmental protection agency called the billboards “propaganda to mislead and silence our people’s bonafide concerns.”

The terms of Guyana’s newest contracts may yet change. Mitro told Foreign Policy that based on what has been published, the new draft terms are unusual in that they contain no provisions for periods of time in which oil is especially profitable. Such a clause could hypothetically kick in during an oil price spike like the one that followed Russia’s February invasion of Ukraine, increasing Guyana’s share of proceeds.

“Regarding oil and gas in Guyana, even though it was discovered in 2015, there is still a lot of about the fundamentals of the industry that many citizens are not fully aware of,” Wilburg said. She has thrown herself into the topic, hosting a show at Kaieteur Radio called Guyana’s Oil and You.

“There is still that information gap we are trying to close,” she added, about “what you should be demanding.”

Sunday, Dec. 18: Argentina plays France in the finals of the FIFA World Cup in Qatar.

Sunday, Jan. 1: Luiz Inácio Lula da Silva is inaugurated as president of Brazil.

Peru’s state of emergency. Nationwide protests supporting ousted Peruvian President Pedro Castillo have grown violent over the past week, resulting in the closure of two airports and clashes with security forces that left at least seven people dead.

On Monday, new President Dina Boluarte, who took office after Castillo was impeached and detained following his Dec. 7 attempt to dissolve the country’s Congress, reneged on a previous statement saying she would not seek early elections and agreed to move the next vote up, provisionally to 2024. On Wednesday, Boluarte’s government also declared a 30-day state of emergency for the country.

Four Latin American governments on Monday released a statement of support for Castillo—those of Mexico, Colombia, Bolivia, and Argentina. Chile and Brazil did not join.

The Economist’s Michael Reid tweeted that the groups driving the protests include local politicians who want to use the public anger in the streets as a bargaining tool, organized hard-left parties that backed Castillo, and criminal groups such illegal miners and narcotraffickers who seek to capitalize on the chaos. Among the demonstrators, too, are rural Peruvians who feel disaffected and neglected by the elite in Lima, Peru’s capital, Reid wrote.

Stability in Peru requires that politics be able to address the grievances of this last group, legal scholar Alonso Gurmendi tweeted Wednesday. The Castillo administration proposed doing that but failed disastrously. “As things stand Peru’s elites are unable to understand the gravity of the crisis and they still think they can shoot their way to social peace. I fear they are gravely mistaken,” he added.

The catch in U.S.-Mexico ties. Two new investigations published by U.S. media outlets take a deep dive into how anti-narcotics cooperation between the United States and Mexico reached a low point in recent years, visible in the Mexican government’s sidelining of a top Mexican anti-drug operative, its slow-walking of visa renewals for U.S. Drug Enforcement Administration (DEA) agents, and its backing away from the security cooperation program the Mérida Initiative.

Even as U.S. deaths from fentanyl, which is often trafficked into the country from Mexico, have risen—to an estimated all-time high of more than 70,000 last year—law enforcement authorities in the two countries have dramatically curtailed joint investigations, both the Washington Post and a New York Times Magazine/ProPublica collaboration reported.

Part of the decline in cooperation can be traced to the attitude of current Mexican President Andrés Manuel López Obrador, who in his public discourse prides himself on pushing back against U.S. intrusions in Mexican internal affairs. Since his 2018 election, López Obrador has also worked to strengthen the authority of Mexico’s army. In 2020, following a binational anti-corruption probe that targeted a high-ranking retired Mexican general who had allegedly colluded with a Pacific Coast drug gang, López Obrador objected to the general’s arrest by U.S. authorities and then presided over the delays in DEA visas and subsequent chilling of cooperation.

For its part, the United States did not live up to its pledges to work to reduce demand for opioids, the Post wrote.

Washington has often held back from publicly criticizing López Obrador’s pushback to cooperation. That’s in part because the White House wanted his help controlling northbound migration, a senior Mexican official told the Times and ProPublica. “The [Biden administration’s] agenda consists of immigration, immigration, and immigration.”

Argentina supporters display a banner depicting images of soccer player Lionel Messi and late soccer star Diego Maradona before the start of the 2022 World Cup quarterfinal match between the Netherlands and Argentina at Lusail Stadium, north of Doha, Qatar, on Dec. 9.MANAN VATSYAYANA/AFP via Getty Images

Messi-mania. Argentina’s World Cup final against France this Sunday is the last step between Argentina and “eternal glory,” an Argentine television broadcast claimed this week. The national team’s victory against Croatia in Tuesday’s semifinal led thousands of Argentines to flood streets, plazas, and even highway overpasses across the country in celebration.

But even if the national team walks away without the title this weekend, its World Cup campaign has already produced a powerful change in Argentine soccer fandom. Star striker Lionel Messi, who is considered by some to be the best player of all time, was once criticized by many Argentines for his repeated failure to win titles for the country while performing well for his club teams in Europe. Commentators said he had become too European after years of playing abroad, a critique that Argentine American journalist Jasmine Garsd explores in the NPR/Futuro Studios podcast The Last Cup.

Now, after a 2021 Copa América title and his current streak in Qatar, Messi appears to have won over any remaining doubters. In recent days, fans delightedly shared images of him together with Argentine soccer great Diego Maradona.

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Students demonstrate to demand a new constitution-drafting process near La Moneda presidential palace in Santiago, Chile, on Sept. 14.MARTIN BERNETTI/AFP via Getty Images

Three months after Chileans voted down a progressive draft constitution in a nationwide referendum, national lawmakers from across the political spectrum have agreed on guidelines to give the process another go.

Politicians from 14 parties reached a deal Monday that outlines a January to December 2023 drafting and approval process. For it to kick off, the proposal still must pass a formal congressional vote.

The suggested design of the second rewrite process aims to address factors seen as responsible for the first’s failure. The previous proposed constitution was drafted by an assembly of directly elected delegates, many of whom identified as political independents, and the document they produced was 388 articles long. It included extensive new provisions for Indigenous groups, nature, health care, and housing rights. After the draft constitution was voted down, leftist President Gabriel Boric said political leaders learned that “you cannot go faster than your people.”

The new framework appears designed to produce a less transformational charter. Under its rules, a team of experts appointed by Chile’s National Congress—where Boric’s party is in the minority—will outline a new document. Then, a group of 50 publicly elected assembly members will write their draft based on the outline. Finally, the draft will be “harmonized” before being put to a national referendum.

Like the first rewrite process, half of the elected constitutional assembly will be required to be women. In a shift, however, there will not be a pre-set minimum quota of Indigenous members. Instead, Indigenous seats will be allotted based on Indigenous voter turnout in assembly elections.

The deal represents “the return of political realism,” University of Santiago, Chile political scientist Marcelo Mella Polanco wrote for news site CIPER. The rejection of the proposed constitution was a significant defeat for Boric, who had supported it, but this new process appears to have a chance of success, Mella Polanco wrote.

An immediate topic that sprang into public debate was how exactly someone could be classified as an “expert.” The deal stipulated they be of “indisputable professional, technical, and/or academic trajectory.” These days, “who is indisputable?” economist Noam Titelman, a former student organizer with Boric, mused on Radio Duna.

Many in Chile’s academic community pushed back against the part of the deal that said the experts would not be paid for their labor, saying it encouraged recruitment from the ranks of paid think tankers who tended to be pre-aligned with political parties. Heeding their concerns, Boric called Wednesday to tweak the deal so that they would receive salaries.