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U.S. 'change' and Latin America

By Jeremy Martin and Roger Tissot

President-elect Barack Obama's "change" mantra does not appear to end at the United States' shores.

The news networks had hardly shut down their high-tech Electoral College maps before Latin American leaders began to offer public statements, revealing that they had sent congratulatory letters to the president-elect and going out of their way to underscore his campaign's catch phrases of hope and change. How all the buzz will ultimately translate for our hemisphere's energy sector and bilateral relations over the medium to long term is not abundantly clear. But there will surely be a honeymoon period beginning almost immediately.

The enormity of Obama's election and what will certainly be important changes throughout many levels of U.S. government will - at least at the outset - offer some improvement on relations with key oil and gas producers in the region who have adopted increasingly hostile attitudes toward the United States. The honeymoon may be short-lived, however, if some of the underlying and fundamental disagreements over issues such as how those countries handle their efforts to combat the illegal drug trade, as well as their approach to U.S. investors, are not improved (not to mention allowing U.S. ambassadors to return in the cases of Bolivia and Venezuela).

Most telling perhaps is a communique released by the Venezuelan government the day after the election. The document's language clearly cried olive branch suggesting perhaps that President Hugo ChÁvez is willing to move forward in his relations with Washington. At the same time, the document also heavily underscored ChÁvez's desire for Venezuela to continue to dominate regional politics - which has always occurred on the back of energy.

Obama should not expect too much from ChÁvez's olive branch, as it is unlikely that the Venezuelan leader would - in the name of change - be willing to address the institutional shortcomings that could eventually result in an erosion of his power, or limiting in his desire to emulate his hero Simon Bolivar.

Moreover, with the continued specter of the global financial crisis, relations between the United States and Latin America will be increasingly dominated by its impact, breadth and length. Indeed, it will likely become the dominant issue for regional relationships and cooperation and there may be no more critical trend therein than oil prices.

If the price of oil continues its downward spiral, producing countries in Latin America will be under pressure to revise their policies and strategies. While almost cliché by now, "resource nationalism" has indeed been very successful at extracting more rent from reserves produced by international oil companies, but has fallen short at increasing investments. Instead, as evidenced through myriad examples in Ecuador, Venezuela and Bolivia, it has significantly stifled new investment.

Given the increasingly dire global economic scenario, regional state-owned energy companies such as Pemex, PetroEcuador and PDVSA will unquestionably be under enormous pressure and will be confronted with significant fiscal constraints, particularly when it comes to investments in new exploration. As such, these governments may be favorably inclined to revise the tenor of their current policies. To wit, Venezuela has bet on the role of national oil companies (NOCs) yet foreign NOCs are under intense pressure from within their countries and in many cases are ever more fiscally and technologically strained.

Meanwhile, the United States' third-largest supplier, Mexico, and its domestic hydrocarbon issues and declining oil production should be high on the list of issues to track for President-elect Obama. Yet as has long been the case, there is little the United States can, or should, do. And a change at the presidential level, no matter how historic, does not seem likely to alter that. It should be added that, despite the furor over NAFTA in the Democratic primary, it seems doubtful and certainly unwise for Obama to follow through on the positions his campaign set forth. The campaign rhetoric regarding NAFTA most likely will end up being much ado about nothing.

But perhaps most interesting, Obama's win in Florida and the role of the "new generation" of Cuban-American voters, is the age-old Cuba question. Indeed, it might be prudent to keep a longer-term eye on energy relations between Cuba and the United States. Obviously, any move regarding Cuba would be simultaneously a seismic shift in foreign policy and unnecessarily risky early in his term, but may become more politically interesting - read advantageous - vis-a-vis the 2012 electoral map. A realistic expectation given signals from the president-elect's camp is for an Obama administration to ease some of the unpopular restrictions imposed by the Bush administration on Cuban-Americans visiting relatives in Cuba.

In sum, while "hydrocarbon relations" between the United States and Latin America do seem likely to improve, it may not be directly attributable to the election of Barack Obama as much as it is the reality of a world with crude oil around $50 a barrel and trending down.

Martin is director of the Energy Program at the Institute of the Americas on the campus of the University of California San Diego. Tissot is the Energy Fellow at the Institute of the Americas.

Jeremy Martin is director of the energy program at the Institute of the America on the campus of the University of California San Diego. Roger Tissot is Energy Fellow at the Institute of the Americas and independent energy consultant.Petroleumworld does not necessarily share these views

Editor's Note: This commentary was originally published by The San Diego Union-Tribune, on 11/21/2008. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 11/22/08

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