Latin blues

March 4, 2002
A key part of the White House's energy strategy is to bolster ties with the US's own oil-rich neighbors, including Canada, Mexico, Venezuela, Colombia, Ecuador, and Argentina. But that policy may be strained by ongoing political turmoil in Latin America that casts doubt on whether the region can be considered a more reliable supplier than the Middle East.

A key part of the White House's energy strategy is to bolster ties with the US's own oil-rich neighbors, including Canada, Mexico, Venezuela, Colombia, Ecuador, and Argentina. But that policy may be strained by ongoing political turmoil in Latin America that casts doubt on whether the region can be considered a more reliable supplier than the Middle East.

Venezuela, Colombia, and Ecuador are all facing internal struggles that could compromise US oil imports. Collectively, they account for almost 2 million b/d of US crude oil and refined product imports, a volume surpassing individual levels from Saudi Arabia, Mexico, and Canada. Yet the three South American countries were on a list compiled by the US Energy Information Administration last August as "areas to watch," which also included Algeria, Angola, the Caspian-Caucasus region, Indonesia, Iran, Iraq, Libya, Nigeria, and Sudan.

Venezuela concerns

US officials worry the most about Venezuela, which has the largest oil reserves in the Western Hemisphere and is a major oil exporter to the US (see related Editorial, p. 19). The country "has been experiencing serious political and economic uncertainty in recent years" in EIA's words. President Hugo Chavez has promised to encourage foreign investment. But that goal has not been realized; investment activity has actually fallen since Chavez's election in 1998, suggesting that Chavez's increased concentration of power in the executive branch has worked against promoting investor confidence, according to EIA.

The situation is not improving. Last month dozens of executives from Venezuela's state-owned oil monopoly took out a newspaper advertisement protesting Chavez's decision to fire top management and replace them with friendlier political allies.

"It's unacceptable that people who historically have been enemies of this institution...can be named to top positions for ideological reasons or personal interests," the ad said.

Other hot spots

Colombia is another concern. It was the seventh largest source of US oil imports in 2000 and has about 2.6 billion bbl of proven oil reserves, although potential reserves are much larger, EIA said.

The country wants to boost exploration, but it is in danger of having to import oil if its leaders cannot maintain peace. The US says it may expand military aid to help the country's leaders tighten military pressure on leftist rebels.

Meanwhile, the kidnappings and threats to energy infrastructure in Colombia have spilled over into neighboring Ecuador, which itself is a significant oil producer (around 418,000 b/d in 2000). Last month Ecuador's President Gustavo Noboa declared a state of emergency in two Amazon jungle provinces where protesters blocked work on a $1.1 billion heavy oil pipeline. His action allowed military force to protect infrastructure associated with the oil-producing region of Sucumbios, which is near Colombia's largest cocaine producing province and is a leftist stronghold.

These recent developments in Latin America and the ongoing tension in the Middle East underscore a public policy argument made by President George W. Bush and many of his predecessors that concentration of world oil production in any one region of the world is a potential contributor to market instability.