The Politics of Latin American Energy

There has been a lot of talk about the shifting geopolitical weight from the east to the west due to the growth of energy resources in Latin America. Ever growing oil discoveries off the coast of Brazil, hundreds of trillions of cubic feet of shale gas in Argentina, and booming energy markets in Colombia and Peru have led many to bet on Latin America as the next energy frontier. Tempering the enthusiasm is the stagnation or even decline in output in other places -- Bolivia, Mexico and Venezuela -- despite the buried potential riches.

University of California, San Diego political science professor David Mares was here at the Council last week talking about these issues and had a number of interesting takeaways. One was to move the discussion beyond simple resource nationalism. In nearly all Latin American countries the government is involved in the energy sector, but production, prices, and property rights vary dramatically. The question then is how the political systems work or don’t work to encourage the exploitation of this wealth. Here the on-the-ground realities get quite complicated.

What’s interesting as we try to estimate a geopolitical resource shift is that Latin American nations fall somewhere between the two best known energy-based political models. Though Latin American democracies have made great strides in the last two to three decades, they’re still a far cry from the Norways of the world, which have managed huge natural resources with considerable aplomb, using them to spur widespread and inclusive economic growth. Unlike Norway, government institutions are often weak, energy prices can be highly politicized (and subsidized), and nefarious characters such as guerilla groups or drug traffickers vie for control of energy rich areas.

But resource rich Latin American nations are still politically more open, and hence less potentially volatile than their Middle Eastern counterparts (think Iran, Iraq, or Libya). Every country in the region besides Cuba is at the very least an electoral democracy (and at best an inclusive and substantive one), and in general Congresses and Courts play a role in policy making.

As new resources come online, the real question is whether these countries can strengthen institutions and move closer toward the Norway model, rather than a more autocratic or conflict ridden situation. In that, some legislative gridlock might actually be a good sign, as it ensures more incremental and predictable policy changes in the energy sphere.