Thursday, June 4, 2009

"Oil Nationalism" and the Protection of National Interests

Like it or not, "oil nationalism" has taken on a greater meaning in some Latin American countries. But a recent editorial in the Financial Times ("Oil Nationalism," May 30, 2009) suggests that oil nationalism may not always be in a country's best interest:

"Latin America is a study in contrast of how countries manage their oil. In Mexico and Venezuela, state and oil industry live in a symbiosis flaunted as resource nationalism – but their state oil companies are looking increasingly like wounded giants. Brazil’s Petrobras, managed with a more open attitude, now overshadows its sisters to the north. This shows that pragmatism, not xenophobia, is a better safeguard of national interests."
The FT editorial goes on to argue that:

"By inviting private oil companies to bid for concessions, Brazil continues to buck a regional trend: Bolivia and Venezuela have confiscated private stakes in oil and gas production. Petrobras is also partly privatised, although the state retains a majority of voting shares.

"Openness to the private sector is a wise choice. Tupi [the huge new oil field off the coast of Brazil] has been compared to the North Sea. The parallel goes beyond reserves: like the North Sea, the Brazilian offshore presents considerable technological challenges. The oil lies under thick sheets of rock and salt in waters thousands of metres deep. Not to want the best expertise in the world is hubris."
The editorial clearly points out that politics can play a role, even in places like Brazil:

"Petrobras is no stranger to politicisation: Brazil’s senate has voted to investigate it for alleged illegal contract awards. The pressure for political control will only increase as Tupi is developed. To avoid this, Petrobras must be treated like any commercial company. [Brazilian Oil Minister] LopĆ£o’s proposal to hold the state’s ownership stake in a separate company should be enacted. Brazil must also enforce a regulatory framework that makes Petrobras compete on equal terms with private actors.

"Maximising the value a nation derives from its oil requires collaboration, not confrontation, with private actors. A state company can help – if forced to act on commercial terms. This, not the solipsism of Venezuela or Mexico, is what real resource nationalism is about."
Certainly from North American or European investors' perspective, the FT editorial captures the current sentiment. But is it possible that Mexico and Venezuela might get the last laugh, so to speak, if longer-term oil and gas prices increase, therefore making these assets even more valuable? And in any case, it is not as if Venezuela is getting no outside investment. China seems quite interested in Venezuela's (as well as Brazil's) oil.

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