Guyana-Venezuela tensions: How oil discovery revived Essequibo crisis

On December 15, Guyana and Venezuela agreed to resolve the Essequibo dispute without the use of force. With that, the threat of a military conflict is over – at least for now.

Esequibo is a part of English-speaking Guyana, constituting two-thirds of the total land. However the densely-forested region has been claimed by Venezuela for the last two centuries.

The territorial dispute took a dramatic turn on May 20, 2015, when US energy giant ExxonMobil announced that it had discovered crude oil deposits in the region.

“In 2013, the Guyanese explored the waters off the Essequibo coast for oil reserves and awarded a license to ExxonMobil to drill for oil. Without this oil discovery, the dispute would not have escalated to the current level,” argues Latin America expert Hari Seshashayee.  

The offshore waters of Essequibo hold over 11.2 billion oil-equivalent barrels and 17 trillion cubic feet of natural gas reserves.

The discovery, nevertheless, opened Guyana’s door to economic prosperity.

Until 2019, when commercial oil exploration began, Guyana’s economy depended on agriculture and mining. But the discovery of oil & natural gas has helped change the economy, as they now constitute nearly half of the country’s Gross Domestic Product.

The country has been the fastest growing economy since 2020, even as the global economy slowed under the weight of Covid-19 lockdowns and the Ukraine war.

In 2022, Guyana’s economy grew by a whopping 62.3 per cent. The Caribbean country is expected to end 2023 with a growth rate of over 38 per cent. The momentum is likely to continue in 2024 too, with the economy expected to grow at an average of 20 per cent.

Guyana’s oil and gas reserves are expected to potentially alter the global energy panorama.

As per some estimates, the South American country is set to become a top per capita oil producer by 2030. Thanks to its new-found oil wealth, Guyana now ranks high in GDP per capita in the Americas. Some estimates also suggest that the oil reserves can also help the country of 800,000 people to become richer than Kuwait or the UAE.

The dispute, however, imparts some lessons about the close link between politics and economics.

Seshasayee blames the current escalation on Venezuelan President Nicolas Maduro who, he argues, is fueling the dispute to appease his domestic constituency. “Maduro is essentially making a storm in a teacup. This will likely amount to nothing,” he says.

In fact, Maduro held a referendum in November over the question of annexing Essequibo, which was marred by poor voter turnout and allegations of irregularities. Interestingly, the referendum took place just days after Guyana discovered another oil reserve in the region.

The fears of a military confrontation are not new. Reports suggest that Venezuela was eyeing the region during the Falkland war between the UK and Argentina.

However, the discovery of fossil fuels immediately triggered fears of a military confrontation in Guyana. “Guyana at the moment is facing a challenge to its survival by a larger state,” President David Granger said in 2015. 

Venezuela already is a top oil producer and is known to possess the largest-proven oil reserves in the world. 

Experts argue that adding Guyana’s proven oil reserves in its kitty is unlikely to make much of a difference. So, the general view is that this issue has been whipped up only to save Maduro’s presidency, due for expiry next year.

Nevertheless, the timing of the escalation underlines the difference that natural resources can make to the economic and political importance of a region.

The Arabian peninsula is a prime example. Once an arid and resource-scarce region, the discovery of oil in the late 1930s tranformed Saudi Arabia – the kingdom occupies most of the peninsula – into a geopolitical hub, where the superpowers vie for influence.

Thanks to Essequibo, Guyana has the opportunity to turn its oil reserves into ‘black gold’. But the looming fear of a Venezuelan invasion and other uncertainties could force Guyana to never achieve its full economic potential. 

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