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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Why Venezuela Is Escalating the Essequibo Dispute

  • Maduro appears to be using a potential conflict with Guyana to divert attention from internal issues and upcoming U.S.-mandated elections in Venezuela.
  • The Essequibo dispute has escalated since the discovery of massive oil reserves, with Venezuela now threatening a military invasion.
  • International intervention, particularly from Brazil, will be crucial to prevent a full-scale conflict, as diplomatic talks begin between Venezuela and Guyana.

The more than century-long dispute over the resource-rich Essequibo region in Guyana has intensified. Venezuela’s autocratic President Nicolas Maduro asserts, in one of the few issues it agrees on with the opposition, that the 1,450 square mile territory belongs to Caracas. The Essequibo, which makes up two-thirds of Guyana’s territory, was awarded to the then-British colony in 1899. Venezuela has long opposed the judgment, arguing it was invalidated by a 1966 agreement, made after Guyana’s independence, to resolve the dispute. Maduro’s saber-rattling became more fervent after Exxon’s slew of world-class oil discoveries in Guyana’s territorial waters off the Essequibo. There are fears Caracas will use the results of a recent referendum, where 95% of the 10.5 million votes cast were in favor of integrating the territory into Venezuela, as justification to annex the region.

Maduro is eagerly stoking a geopolitical crisis to district Venezuelans, who have suffered immensely under his rule, from U.S.-mandated free elections to be held in the second half of 2024. Indeed, the petrostate’s dictatorial ruler is caught in a bind because Washington recently granted relief from strict U.S. sanctions in exchange for guarantees of free and fair elections to be monitored by international observers. Less severe U.S. sanctions, which allow Caracas and national oil company PDVSA to access global energy as well as capital markets, are crucial to rebuilding Venezuela’s shattered economy. After a decade of draconian rule, rampant corruption, and a massive economic implosion, described as the worst to occur outside of war, Maduro appears incapable of winning such a poll. If the dictatorial leader tries to win by underhanded means and fails to abide by Washington’s conditions, then heavy-handed sanctions will most likely be reimposed.

Venezuela’s dictatorial ruler is threatening tiny Guyana, a country of less than one million, with invasion by Latin America’s fourth most powerful military. This isn’t the first time Caracas has used military force to intimidate Georgetown with Venezuelan military assets encroaching Guyana’s territorial waters and airspace many times since 2015. In 2021, I speculated that South America’s latest mega-oil boom could spark a clash between Guyana and Venezuela, or potentially even a broader conflict involving other South American nations such as Brazil. President Maduro, since Exxon’s first 2015 discovery in the Stabroek Block, which lies in the waters off Essequibo, has been hungrily eyeing Guyana’s burgeoning oil wealth. Exxon’s slew of discoveries along with growing oil production from the Stabroek Block launched an economic boom that saw Guyana become the world’s fastest-growing economy, with gross domestic product (GDP) expanding by a whopping 62.3% during 2022.

Guyana has administered the Essequibo for more than a century with it considered part of the sovereign country’s territory since independence in 1966. President Irfaan Ali has frequently stated the country is committed to resolving the dispute through the International Court of Justice (ICJ), which ruled on December 18, 2020, that it had jurisdiction to resolve the matter. Earlier this month the court weighed in on the current hostilities stating in a December 1, 2023, order:

“Pending a final decision in the case, the Bolivarian Republic of Venezuela shall refrain from taking any action which would modify the situation that currently prevails in the territory in dispute, whereby the Co-operative Republic of Guyana administers and exercises control over that area;”.

President Ali recently pledged to defend the contested territory saying “(the) Essequibo is ours, every square inch of it,”. Since taking office Guyana’s president has focused on building closer ties with Washington while moving away from Guyana’s legacy of socialism and anti-colonialism. In July 2023, U.S. Secretary of State Anthony Blinken visited Guyana and met with President Ali, who is also seeking to formalize energy security pacts and other agreements with Washington.

There is considerable trepidation Caracas will annex the Essequibo. At the end of November 2023, Brazilian intelligence warned Venezuela’s army was mobilizing in preparation for an invasion of oil-rich Guyana. Since then, tensions have boiled over, with a Venezuelan military invasion of the Essequibo emerging as a genuine threat. In response to intelligence reports, Brazil’s Ministry of Defense deployed troops to the country’s northern border with Venezuela and Guyana, as a preemptive defensive measure. This is an important development because Brazil not only possesses Latin America’s most powerful military but Venezuela’s armed forces will be required to pass through Brazilian territory to reach the Essequibo due to virtually impassable terrain along the border with Guyana. 

The size and strength of Brazil’s armed forces make the country an important regional counterweight to Venezuela’s military, which is the fourth largest in Latin America. It is for this reason, that Brasilia’s commitment to defending Guyana’s sovereignty is key to defusing current tensions. Brazilian President Luiz Inacio Lula da Silva, who retains friendly ties with Maduro, urged Venezuela’s dictatorial leader to exercise caution and act with restraint. Brazil’s presidential office went on to issue a statement saying, "Lula emphasized the importance of avoiding unilateral measures that could escalate the situation,". Colombia’s first-ever leftist president Gustavo Petro also urged caution, while the Organization of American States (OAS) rejected Venezuela’s referendum. Under international pressure, Maduro and Ali have agreed to meet this Thursday as part of an attempt to head off military confrontation.

Despite that positive development, Venezuela’s autocratic regime is ratcheting up pressure on Guyana and Exxon to create justification for the annexation of the Essequibo. Most of Guyana’s newly found oil wealth lies in the territorial waters off the Essequibo in the Exxon-operated 6.6 million acres Stabroek Block. Indeed, Maduro is positioning the claim to the Essequibo as a fight against corrupt Big Oil. Caracas alleges supermajor Exxon is meddling in regional politics to enrich itself. The regime even went as far as to claim that leading Venezuelan opposition figure Maria Corina Machado is involved with Exxon in an international money laundering scheme aimed at keeping the oil-rich Essequibo from Venezuela. Exxon denied those allegations calling them ridiculous. Maduro has since put the Essequibo under military jurisdiction and ordered PDVSA to issue oil extraction licenses.

Venezuela’s autocratic regime appears intent on fabricating whatever evidence is necessary to ensure Maduro wins next years election. Key among the measures being taken is the regime ordering the arrest of a dozen opposition figures for treason and plotting against the referendum. This includes National Assembly leader and Washington-recognized interim president Juan Guaidó, who earlier this year was ejected from Colombia and sought refuge in the U.S., and staffers of presidential candidate Maria Corina Machado. No evidence was presented against the accused, many of whom including Guaidó reside in the U.S., with it alleged they engaged in activities to undermine the referendum and money laundering.

Maduro’s actions are ratcheting up tensions at a crucial time for Venezuela and Guyana’s oil industries. The latest events could force Washington to roll back recent sanction relief potentially putting energy supermajor Chevron’s license to recommence lifting petroleum in Venezuela at risk. That will snuff out any chance of an urgently required petroleum-led economic recovery for the petrostate. Meanwhile, Exxon as well as its partners in the Stabroek Block, Chevron, and CNOOC, are evaluating their sixth project with a nearly $13 billion final investment decision (FID) expected by the end of the first quarter of 2024. During November 2023, oil started flowing from the Payara field with the 220,000 barrel per day Prosperity floating production storage and offloading (FPSO) vessel coming online ahead of schedule. That will lift Guyana’s petroleum output to 620,000 barrels per day making the tiny country South America’s fifth largest producer.


By Matthew Smith for Oilprice.com

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