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The Liza Destiny crude tanker in Guyana. (Photo: Government of Guyana)
Wednesday, May 11, 2022
Perspectives

Southern Caribbean Energy & Ukraine War


Geopolitical realignments and the Southern Caribbean energy matrix.

BY GEORGES A. FAURIOL
AND SCOTT B. MACDONALD
Global Americans

In February 2022, conflict jolted the global economy when Russia invaded Ukraine. While Russian missile salvos, helicopter assaults, burning tanks, and Ukrainian resistance transfixed the world’s attention, policymakers and citizens in many countries soon noticed rising energy prices. Before the Russo-Ukraine War, oil prices headed toward the $100 per barrel mark, and natural gas prices remained high while supplies were tight. After hostilities began on February 22, oil prices topped $100 per barrel. Although the Southern Caribbean is far from Ukraine, the region’s energy producers are on the frontline of a global geopolitical realignment. In the decade ahead, the Southern Caribbean is likely to play a much more prominent role on the global energy map, something local leaders will have to weigh carefully.

Guyana, Suriname, and Trinidad and Tobago make up the broader Southern Caribbean energy matrix. While Guyana and Suriname are oil producers, Trinidad is an important natural gas supplier. As Trinidadian energy expert Anthony Bryan observed in 2021, the greater Guyana-Suriname Basin (GSB) is morphing into the “Holy Grail” of new oil discoveries.

Trinidad and Tobago has a long history with fossil fuels, beginning in the mid-nineteenth century, with its early development stimulated in part by the British Navy’s shift from coal power to oil. However, Guyana and Suriname are relatively newer players in the industry, as Guyana’s major oil discovery came in 2015. Although Suriname’s oil industry began in the late 1960s, its 2019 offshore find raised hopes that the former Dutch colony would become a petrostate.

Today major energy companies, notably ExxonMobil, Hess, Apache, Total, and CNOOC are active in the Southern Caribbean, while new buyers are emerging from India, Uruguay, and Vietnam. Marginal links with other countries are becoming deeper and more lucrative, reflecting the persistent demand for oil and natural gas around the world, despite gradually intensifying calls to transition to cleaner sources of energy since the 1997 Kyoto Protocol. Nonetheless, the Southern Caribbean energy matrix has become more important for the following reasons:

• Guyana and Suriname’s oil is a light crude with low sulfur, meaning it is easier to refine and commands a higher price than heavier crudes, like those of Venezuela or Alberta, Canada.

• Oil and natural gas from Guyana, Suriname, and Trinidad and Tobago represents a relatively stable production source compared with Iran, Iraq, Libya, Russia, and Venezuela. Moreover, all three states are considered democracies, with longstanding ties to the United States. 

• Though these three Caribbean states may not be perfect democracies and are not immune to corruption, they function within a comfort zone of regular elections, general rule of law, and lack claims on large swaths of their neighbors’ territory (the only important caveat lies with Venezuela’s territorial claim over what essentially amounts to 2/3rd of Guyana, extending offshore—a dispute which Guyana has presented to the International Court of Justice).

• The private sector largely leads oil production in the Southern Caribbean, and it has considerable experience in exploration and extraction (much of it with cutting-edge technologies). The state-owned energy companies in Suriname and Trinidad and Tobago have extensive experience in their own right, though their resources are more limited.

• We think this should continue as it reflects a comparative international nature of the Caribbean over other parts of the world. Although there are major challenges in managing newfound revenue streams, leaders in Guyana, Suriname, and Trinidad and Tobago are aware of the need to conduct business with transparency and disclosure.

• Leaders also recognize that the days of fossil fuels are numbered and that global energy is in a transitional stage. As World Bank Vice President and Treasurer Jorge Familiar concluded in a 2015 opinion piece, “By coming together and agreeing to build a common platform, Caribbean countries and their partners show their commitment to make the energy sector more efficient, sustainable, and green.”

• Growth forecasts are bullish. In 2022, the IMF expects Guyana’s real GDP to grow by 48.7 percent, following growth of 20.4 percent in 2021 and 43.5 percent in 2020. After decades of struggling to maintain a positive trajectory, Guyana is one of the fastest-growing economies in the world. It can help pull the region along with it, including Suriname, which is climbing out of a deep economic recession and debt default. Trinidad and Tobago’s real GDP growth rate is also expected to be strongly positive (5.4 percent) in 2022.

• The rise of oil production in Guyana and Suriname is also important vis-a-vis any climb back to regional influence by Venezuela, which is benefiting from higher oil prices.

The Southern Caribbean and the new Cold War Blues

The emergence of the Southern Caribbean as a major energy producer comes at a time when the global system is shifting into a new Cold War between democratic governments, supportive of a rules-based global order competing with authoritarian regimes that are more oriented to traditional power politics. Prior to the Russo-Ukrainian War, many international observers defined the new Cold War as the growing mistrust between the United States and China, which was deepened by the Asian country’s adroit economic statecraft in the Caribbean (and Latin America, Africa, and Asia). That part of the new Cold War included the use of soft power in the form of educational and cultural outreach by high-ranking diplomatic visits and foreign investment, pushed along by a combination of large state-owned companies and banks.

China’s reasons to increase involvement in the Caribbean include:

• The Caribbean is important to China’s international development strategy, built around the need to secure natural resources to transform China’s economy into a modern, cutting-edge powerhouse.

• By extending influence into the Caribbean, China can reduce the number of states with a diplomatic relationship with Taiwan, which is crucial to its longer-term plan to absorb the island (considered as a breakaway province) as part of national reunification with the mainland.

• China is poking at the U.S.’s strategic underbelly by establishing close relations with Caribbean countries, somewhat like what the United States does by maintaining close relations with Taiwan, Japan, and several Southeast Asian nations.

• Suppose China wants to transform into the world’s leading hegemonic power. In that case, it needs to control international forums, especially those where U.S. allies may criticize its record human rights or territorial ambitions. The Caribbean also offers many country votes, and swaying adherence to China’s view is comparatively less here than with larger countries like Argentina or Brazil.

China’s entrance into the Caribbean in the first decades of the twenty-first century coincided with fading U.S. interest in the region. Following the end of the original Cold War, Washington’s engagement with the Caribbean (outside of Haiti) declined, while wars in Afghanistan and Iraq refocused its attention. In addition, the 2008-09 financial crisis and the ensuing Great Recession reduced U.S. aid, as did support from other Western countries, like the United Kingdom and Canada. U.S. awareness of China’s diplomatic gains in the Caribbean only materialized later—in Obama’s second term. The effects of the U.S.’s delayed action materialized during the early Trump years when El Salvador and the Dominican Republic dropped their diplomatic relations with Taiwan and embraced China, due to considerable alleged financial inducements.

During the Trump administration, the Caribbean came back into a limited if important focus. While tackling China’s longstanding unfair trade practices by launching a trade war, the Trump administration also brought pressure to bear on the China-aligned states of Cuba and Venezuela. Former U.S. National Security Advisor John Bolton famously branded them (along with Nicaragua) as part of the “troika of tyranny.” Indeed, China, Cuba, and Venezuela shared a strong dislike of the U.S. and wanted to displace U.S. global and regional hegemony. As a result, each suffered under new U.S. sanctions during the Trump years.

 

 

As part of the Trump administration’s pushback against China in the Caribbean, the Southern Caribbean achieved strategic importance. ExxonMobil’s 2015 discovery of up to 10 billion barrels of recoverable oil and gas in the Stabroek Block likely influenced this shift. Former Secretary of State Mike Pompeo’s 2020 visit to both Guyana and Suriname, the first U.S. Secretary of State trip to either country, illustrates the U.S.’s growing interest in the region. While visiting, Pompeo stressed China’s predatory lending and vanity projects which saddled countries with unsustainable debt. Guyana and Suriname have also enticed China due to their energy potential and timber. However, China’s Guyanese embassy pushed back, indicating that Pompeo’s comments were fake news and essentially that he should mind his own business.

Equally important in the Southern Caribbean, the U.S. has sought to promote respect for election results and good governance issues in both Guyana and Suriname. Relations with Trinidad and Tobago during the Trump years remained cordial. However, U.S. policymakers worried that the twin-island state remained readily open to Chinese investment and refused to join the United States in its economic sanctions against the Maduro regime—despite a steady stream of Venezuelan refugees and documented human rights abuses across the Gulf of Paria. China’s role in Trinidad and Tobago includes constructing the Brian Lara cricket stadium, refurbishing the St. James police station, the National Academy for the Performing Arts in Port of Spain, and various infrastructure projects (some of them energy-related). Trinidad and Tobago also uses Huawei telecommunications and IT equipment and services, including working to implement its 5G network.

In 2019, Evan Ellis, a research professor of Latin American Studies at the U.S. Army War College Strategic Studies Institute, signaled U.S. concern when he stated, “Trinidad and Tobago’s deepening engagement with the PRC needs to be on the radar of U.S. policymakers in Washington, particularly as the incumbent Rowley government engaged in bombastic rhetoric and positions increasingly unhelpful to the maintenance of security and rule of law in the region—particularly the Maduro regime and its associated criminal actors and armed groups in Venezuela.” The Southern Caribbean felt the effects of the U.S.-China rivalry largely through economic statecraft but also a certain degree of rhetoric. The global realignment of the Southern Caribbean is evident in other ways. These include:

• The Russo-Ukraine War has ushered a new era into place in which the world economic trajectory is likely to pull back from globalization. Though the future is uncertain, Western actors will likely shift to critically reassess global supply chains (including oil and natural gas), and over which countries do business with. If nothing else, the use of economic sanctions against Russia, could maintain upward pressure on international energy prices to the benefit of Guyana, Suriname, and Trinidad and Tobago. Over the longer run, a new Cold War could complicate trade if the major powers apply pressure for countries to take sides.

• There has been a distinct improvement in Guyanese-Surinamese relations since 2020 when both countries changed government through the ballot box. High-ranking officials in both governments, including Presidents Chandrikapersad Santokhi of Suriname and Irfaan Ali of Guyana have met on a regular basis to discuss better relations, including how to ease travel and trade between the two countries.

• The desire to increase regional cooperation has extended beyond Suriname and Guyana. In January 2022, Presidents Santokhi and Ali met with Brazilian President Jair Bolsonaro in Paramaribo to discuss the idea of an energy transportation corridor for oil and gas, known as “Arco Norte” across the northern shoulder of South America, as well as other natural resources. One vision for this project would see the development of a road system linking up northern Brazilian cities to the Atlantic through a deep-water harbor in Guyana. Although the talks were inconclusive, Brazil’s heightened interest in jointly developing the region adds another geopolitical actor to the region. Arthur Deakin, Co-Director of AMI’s energy practice, highlighted the significance of this development, “Guyana’s access to the Atlantic Ocean and its newfound energy resources will be attractive to northern Brazilian states that struggle to overcome energy insecurities and complicated maritime routes.”

• India is also giving considerable attention to buying Guyanese oil. The South Asian country is a major consumer of imported energy, fueled by several decades of strong economic expansion and relatively meager domestic energy resources—except for coal. Indian domestic production meets only about 15 percent of total oil consumption, they must import the rest. The high level of reliance on imported oil has made the country’s economy highly sensitive to international price swings, a situation compounded by U.S. sanctions on Iran, which was once a key oil supplier. India’s push to diversify brought it to Venezuela in the early 2000s and continued through 2021. According to the Wilson Center’s Hari Seshasayee, India’s imports of Venezuelan oil in 2019 accounted for 40 percent of the South American country’s crude oil exports, equal to $5.5 billion. Considering the generally odious nature of the Maduro regime and U.S. pressure, India has been casting about for other options. This situation has been made more urgent by slipping domestic Indian oil production in 2021 and higher oil prices ending that year and going into 2022. Guyana, with a sizable Indian-descended community, has attracted attention. Earlier Indian efforts to lock in Guyana’s oil exports failed, but the South Asian country looms as a trade partner that could steadily expand its demand.

• A looming factor in the Southern Caribbean’s geopolitical realignment is climate change. In both Guyana and Suriname, there is a growing threat of rising sea levels and salination of freshwater sources as well as the risk of pollution from illicit gold mining in the interior of both countries. Some conservation academics are frustrated with the pace of government action on maintaining the forests, while the potential for oil spills always hangs on the horizon. As for Trinidad and Tobago, the World Bank’s Climate Change Knowledge Portal noted, “As a Small Island Developing State (SIDS), the country is vulnerable to temperature increases, changes in precipitation, and sea-level rise. Other vulnerabilities include increased flooding, increased frequency and intensity of hurricanes, hillside erosion, and loss of coastal habitats.” Although oil and natural gas may be king in Southern Caribbean economies, local policymakers are seriously considering developing a “blue ocean economy,” which relies less on fossil fuels, promotes alternative energy, and looks to creative ways to pursue economic development.

• Climate change also complicates politics. With the exceptions of the Southern Caribbean matrix countries, the rest of the Caribbean region is highly dependent on oil as a primary energy fuel. This reliance has forced many countries to explore the wider adoption of alternative energy sources and renewables. However, the Southern Caribbean’s successful oil discovery is prompting other countries to explore their own coasts for offshore oil. Conservation groups have raised concerns that Caribbean countries are halting their push for alternative fuels. At the same time, the Biden administration’s push on environmental issues has injected a degree of friction with Guyana. For example, the U.S. voted against a $180 million loan to upgrade the Guyana Shore Base Incorporated port facilities at the Inter-American Development Bank in October 2021. The rejection came after a two-year application process. News of the announcement made one Guyanese user comment, “Don’t get surprised when Guyana turns to China.” The Biden administration’s position became more unclear when they turned to Venezuela in March 2022 to discuss the possibility of bringing more oil back into the market—most likely in the wake of the turbulence in the world energy markets triggered by the Russo-Ukrainian war. From a Southern Caribbean perspective, the optics of the Biden administration’s actions were not good.

• Last, but hardly least in geopolitical considerations is the importance of regional integration, most significantly through the Caribbean Community (CARICOM). CARICOM’s membership is largely made up of former English-speaking colonies, along with Suriname and Haiti. Although this is a well-established argument, greater regional integration is integral in creating economies of scale and greater trade efficiencies. Guyana and Suriname, with help from some of the new revenues from oil sales, could develop their agricultural sectors with an eye to help reduce regional food security concerns.

The Southern Caribbean has undergone considerable changes over the past decade. Looking ahead, more changes are coming, both domestically in terms of dealing with a resource curse and externally in terms of navigating a shifting global order.[5] In the short term, the Southern Caribbean is well-positioned to ride through global geopolitical storms. The caveat is the risk of mounting geopolitical pressures in the form of a new Cold War. Escalation will be contingent on whether Russia decides to increase its military profile in the Caribbean (namely in Cuba, Nicaragua, and Venezuela) and if China pushes to re-engage Venezuela in a meaningful fashion and makes new inroads in its diplomatic representation at the expense of Taiwan.

China is very much part of the Caribbean landscape, including in the southern region. It is not going away. A related geopolitical issue is the role of Venezuela, which has a government that has demonstrated an interest in keeping its claims for two-thirds of Guyana alive. While the U.S., Canada, the United Kingdom, and CARICOM countries have clearly rallied behind Guyana, the threat remains.

Heightened global tensions may further energize U.S. diplomacy in the region. So far, U.S. focus in the Hemisphere has centered on the two-tiered autocratic countries: the legacy autocrats—Cuba, Nicaragua, and Venezuela; and those leaning in that direction—El Salvador, Mexico, and Brazil. Elections in Brazil may reverse that while those in Colombia may bring in an opportunistic left-wing regime less sympathetic to the United States (notably on the drug enforcement side of things, which will impact the Caribbean). In a worsening global geopolitical environment, what Washington, Beijing, and Moscow do with their relationships with these governments will require great flexibility from Caribbean governments.

The Southern Caribbean is riding a wave of good fortune, but there are many challenges that loom ahead and require forward-thinking. CARICOM should press western governments, namely the United States, Canada, the United Kingdom, France, and the Netherlands over developing the needed infrastructure for alternative energy. Oil and natural gas may provide the tools for economic transition in Guyana and Suriname, but the clock is ticking for a global shift in energy use and, with that, the Southern Caribbean energy matrix will face another geopolitical realignment.

Georges A. Fauriol is a Fellow with Global Americans; he is also a co-chair of the Caribbean Policy Consortium (CPC), as well as a Think Tank Haiti (TTH) Steering Group member, a partnership of Université Quisqueya (Haiti) and the Inter-American Dialogue, and a senior associate at the Center for Strategic & International Studies (CSIS).

Scott B. MacDonald is the chief economist at Smith’s Research & Gradings, Research Fellow at Global Americans, and founding director of the Caribbean Policy Consortium. His latest book, The New Cold War, China and the Caribbean, is forthcoming with Palgrave Macmillan.

This article was originally published by Global Americans. Republished with permission.

 

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