Senior Analyst
The territorial dispute between Venezuela and Guyana over the Essequibo region stands as a testament to the complexities born from colonial legacies and the pursuit of natural resources. Rooted in centuries of historical contention, this dispute traces its origins back to the colonial era when Spanish and British powers vied for dominance over South America's rich and expansive territories. Today, this historical discord manifests in a modern geopolitical struggle, exacerbated by the discovery of significant oil deposits within the contested region.
The Essequibo region, situated along the border between Venezuela and Guyana, has become a focal point of contention between the two nations, symbolizing their unresolved territorial claims and geopolitical aspirations. However, the dispute transcends mere territorial ambitions; it is intertwined with complex historical narratives, political dynamics, and economic interests that have shaped the trajectory of both nations.
While the global community was distracted by events in Israel and Ukraine, on December 3rd, 2023, referendums were held across Venezuela deciding whether or not the Venezuelan government would formally annex the Guyanese territory known as the Essequibo. According to the Venezuelan government, the referendum passed with 95% support, with over 10 million votes counted. However, these claims have yet to receive backing from 3rd party sources, with most reputable sources calling into question both Venezuela’s voter turnout as well as its ability to even enforce the result. In any case, getting a full picture of this dispute requires a brief trip through history.
The roots of this dispute go back to the early 1800s, when the British Empire and Imperial Spain were competing over territory in South America. Spain claimed that their South American territory extended as far east as the Essequibo River, while the British, who had acquired the land from the Dutch, argued that the territory was so remote that the Spanish could not hope to control it, and that the Indigenous people living there had more contact with the previous Dutch colonists, making the territory rightfully British. As Spain was distracted by their other South American territories fighting for independence, the issue largely went unresolved. After Venezuela gained independence from Spain in 1811, and later from Gran Colombia in 1830, it continued disputing this territorial claim with the British Empire all the way up until 1899, when an international tribunal in Paris ruled on the issue.
With judges from the United States, Britain, and Russia acting as arbitrators, the tribunal awarded the British 90% of the disputed territory, leaving just the westernmost 10% to Venezuela. Despite the seemingly unfavourable outcome, Venezuela accepted the ruling, and the issue was considered resolved by both parties. It was only until Guyana achieved independence from Britain in 1966 that Venezuela decided to re-open its territorial dispute over the Essequibo region. While Guyana has continuously asserted that the 1899 tribunal’s findings are final and the issue resolved, the fact that the largest oil discovery of the 21st century has happened in the Essequibo region’s offshore Exclusive Economic Zone has certainly been a factor in the renewed enthusiasm from the Venezuelan government in reigniting the territorial dispute.
Venezuela’s interest over oil in the Essequibo does pose with some questions however, the most obvious being: why would a country with the largest known oil reserves on the planet want to gain control over the comparably tiny offshore reserves of Guyana? There are two answers, one geologic, and the other historical. Let’s start with the geological answer.
Venezuela, despite having the largest oil reserves in the world, also suffers from having arguably the lowest-quality crude deposits of any oil exporting nation. Here’s a quick lesson in oil refining: different crude blends are graded on a sliding scale of light to heavy, and sweet to sour. Crude that is graded lighter and sweeter is much easier to refine and turn into end products such as gasoline, kerosene, or diesel, while heavier and more sour blends require a much more advanced refining process with vastly greater upfront costs in capital and labour. Crude from the Middle East or American shale deposits is much lighter and sweeter, while crude from Siberia or the Caucuses is much heavier and laden with impurities, usually sulphur. Some deposits, such as the tar sands of Alberta, are so heavy and so sour that they are actually solid at room temperature, and require a refining process far too advanced for me to confidently write about before being turned into usable end products. Unfortunately for the Venezuelans, their crude deposits are much heavier, and more sour, than almost any other crude blends available, limiting the number of refineries that can take Venezuelan crude to the refineries on America’s Gulf Coast. Additionally, most of Venezuela’s crude is exceedingly difficult to access, and successful drilling projects require immense amounts of technical skill and precision, both of which aren’t exactly common in Venezuela.
This brings us to the second explanation, one that requires a deeper dive into Venezuelan political history. As recently as the 1990s, Venezuela exported just under 3.5 million barrels of oil per day (BPD), making it the largest Petro-state in the Western hemisphere and one of the largest globally. However, as impressive as these production numbers were, Venezuela came to fall into the same trap that many other Petro-states have found themselves in. Unfortunately, when a country has such a sizable and successful petroleum sector, other important economic priorities tend to be neglected, such as diversifying the economy. As a result, no real tax base is ever created, leaving the government primarily funded by oil leases and levies, which gradually makes the government less and less accountable to the citizens it governs. Corruption in such countries usually ends up running rampant, with the populace being kept pacified through force-fed subsidies and social welfare programs. Venezuela was no different.
The Venezuelan oil boom started in the early-to-mid 20th century, allowing the Venezuelan government to generate significant income through taxes and levies on the country’s oil industry. In the 1960s, after creating the state-owned oil firm, the Venezuela Petroleum Company, and becoming a founding member of OPEC, the Venezuelan government felt it had enough leverage to negotiate a 65% revenue sharing agreement with the foreign energy companies operating in Venezuela.
Heading in the 1970s with this new agreement, the Venezuelan government was posed to take full advantage of the coming oil price boom. Starting in 1974, in retaliation for American support of Israel during the Yom Kippur War, the Middle Eastern members of OPEC initiated an oil embargo, sending prices skyrocketing, rising from $25 per barrel in 1974 to over $148 per barrel by 1980, according to MacroTrends. While this price boom left the Venezuelan government swimming in cash, it also led to their devastatingly short-sighted decision-making.
In 1976, Venezuela nationalized their entire oil industry, under the state-owned company PDVSA. As part of this new nationalization initiative, PDVSA monopolized every aspect of the Venezuelan oil industry, including exploration, drilling, refining, and exporting. While foreign companies were still allowed to operate in the country, it was only through joint ventures with PDVSA, and only if PDVSA was given at least a 60% controlling share of the project. The government also continued its lavish spending on social welfare programs even through the 1980s, when global oil prices continued to gradually fall. However, the country’s finances became extremely stressed when, in 1986, through PDVSA, the Venezuelan government purchased half of the U.S. based refining company Citgo, later purchasing the other half in 1990. Then, in 1986, after years of steadily dropping energy prices, the price of oil suddenly crashed, reaching as low as $29 per barrel, taking government revenues with it. Inflation soared in Venezuela, as did government debt. By 1989 Venezuelan government debt had reached approximately 66% of GDP, at around $29 billion.
With oil prices failing to break even $50 per barrel, the Venezuelan government appealed to the IMF, asking for a financial bailout. As part of the bailout agreement, the Venezuelan government was forced to make severe austerity cuts to their social welfare programs, sparking violent mass protests throughout the country. As the government grew increasingly unpopular, the leader of a failed coup in 1992, one Hugo Rafael Chávez Frías, was launched into political popularity with the Venezuelan public. Serving two years in prison before being pardoned, Chávez rode a tidal wave of public support all the way to the Venezuelan presidential palace in Caracas in 1998.
Running on a left-wing anti-corruption platform, Chávez assumed office, and making use of his immense public support, as well as new funds from the steadily rising price of oil, Chávez went about dramatically expanding social welfare and healthcare spending, which drastically reduced Venezuela’s poverty rate, and earned him a near carte-blanche in the eyes of the Venezuelan working-class. Chávez used this power to exert even more control over nearly every aspect of the Venezuelan political and economic system. Press freedoms were curtailed, or outright abolished, presidential term-limits were overturned, and the remaining joint ventures between PDVSA and western supermajors like EXXON, BP, or ConocoPhillips were fully nationalized by PDVSA. Lastly, Chávez then purged PDVSA of all potential opponents, most of whom were PDVSA’s most experienced and skilled workers, and replaced them with party loyalists. The expulsion of both technically advanced western supermajors, as well as the most experienced PDVSA employees led to the throttling of PDVSA’s productivity, leading to steadily decreasing export volumes of Venezuelan crude.
Chávez also continued to pivot Venezuela away from its historically pro-western foreign policy, and began to embrace anti-western global powers such as Russia and China, causing irritation in Washington, D.C. For example, through PDVSA, Venezuelan crude was sold at a discount to regional allies like Cuba and Nicaragua, whom Chávez saw as ideological allies. He also sold discounted oil to Russia and China, who, ironically, would typically turn around and sell it to the Americans at market price and pocket the difference. Additionally, Chávez agreed to an arms deal valued around $20 billion with the Russian government, paid for in part by allowing Russian state-owned oil firm Rosneft to become PDVSA’s main drilling partner for all future drilling projects, and by putting up 49% of their stake in Citgo as collateral in order to get a loan from the Russian government. This drew significant ire from Washington D.C., and led American refiners to shift away from taking crude from Venezuela and towards accepting more crude from Canada’s oil sands in Alberta, slowly chipping away at Venezuela’s primary source of income.
Global crude oil prices
Although still massively popular with the Venezuelan people, by the time Chávez died in 2013 he had effectively tripled Venezuela’s national debt despite PDVSA producing just over 3 million BPD due to his expansion of social welfare programs, his own personal spending, as well as significant corruption. Additionally, he had failed to diversify Venezuela’s economy away from the oil sector, effectively leaving Venezuelan society balancing on a house of cards.
As it so happened, just one year after Chávez’s death and the assumption of office by his successor, Nicolás Maduro, who doubled down on Chávez’s spending policies, global oil prices crashed from just over $125 per barrel, to just $63 per barrel, and took the Venezuelan economy with it. Since then oil production in Venezuela has also crashed significantly, with current production sitting at around 770k BPD. Venezuela has only become more repressive ever since, currently ranking at #159 in the Global Press Freedoms Index published by Reporters Without Borders, ranking near countries like Oman, Belarus, or Russia.
So, what does all of this have to do with Essequibo and Guyana? The answer is remarkably simple. During his tenure in office, Maduro has enjoyed record unpopularity among the Venezuelan people, with no better example than the Venezuelan election of 2018, where Maduro claimed victory over opposition candidate Juan Guaidó, in an election that nearly every outside country saw as illegitimate and even the Venezuelan National Assembly initially refusing to
Venezuelan oil production per thousands of barrels per day
recognize Maduro as the rightful leader of Venezuela. Despite still managing to maintain power, Maduro likely knows that his hold on power isn’t long for this world, so drumming up whatever support he can will be crucial before Venezuela holds presidential elections later this year. In all likelihood, given that annexing Essequibo is a unifying issue for most Venezuelans, this referendum was likely an attempt at providing just that. Although the oil produced in Guyana’s offshore rigs is much lighter, sweeter, and easier to refine than Venezuela’s own crude, it’s worth remembering that offshore projects require a high level of technical skill, and the Venezuelan government under both Chávez and Maduro have a pretty well-documented history of killing/exiling/imprisoning the most technically competent workers in PDVSA.
Despite all logic failing to find a plausible reason to invade Guyana, as well as Maduro’s pledges to resolve the matter peacefully, in recent weeks satellite photos have shown a build-up of troops by the Venezuelan border with Guyana, pointing to the possibility of an invasion taking place. Such an invasion would likely not be successful for a variety of reasons, with it taking place in a dense jungle environment favouring guerrilla warfare, as well as the Brazilian military stationing troops along the only road that connects Venezuela and Guyana, which happens to go through Brazil. It is certainly possible that Maduro could order an unwinnable invasion in order to delay elections, further maintaining his own power. As of right now, it is too soon to tell.
In conclusion, the Venezuelan-Guyanese dispute over the Essequibo region epitomizes the enduring complexities and challenges inherited from colonial histories and experienced in contemporary geopolitics. Despite efforts at mediation and diplomatic dialogue the unresolved territorial claims continue to strain bilateral relations and regional stability. The discovery of significant oil reserves within the disputed area has further heightened tensions, highlighting the intersection of economic interests and territorial sovereignty. Moreover, Venezuela's internal political turmoil adds another layer of complexity to the dispute, shaping its trajectory and exacerbating its volatility. As both nations navigate the intricacies of the longstanding conflict, it is imperative to recognize the importance of dialogue, cooperation, and respect for international law in seeking a peaceful resolution. Ultimately, the resolution of the Venezuelan-Guyanese dispute holds implications not only for the two nations involved but also for the broader dynamics of regional stability and cooperation within South America.
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