The small South American state that has benefited from the chaos of the war in Iran
Guyana, with less than half a million inhabitants, is the fastest growing economy in the world after doubling its oil profits
BarcelonaWhile the energy crisis is suffocating the Gulf countries, which are predicting billions in losses and years of hardship due to damage to their oil infrastructures, on the other side of the Atlantic there is a country experiencing unprecedented growth. Bathed in Caribbean sun and covered in tropical forests, Guyana has benefited from the chaos resulting from the blockade of the Strait of Hormuz thanks to its oil production.
Fewer than a million inhabitants live in this small state on the northeastern edge of South America. Just a decade ago, almost half lived below the poverty line. But in 2015, a crude oil deposit was discovered that would end up transforming the country's economy. In 2020, the year after its exploitation began, Guyana's economy grew by 49%, earning it the title of the fastest-growing economy in the world.
When the boom occurred, oil was sold at an average of $69 a barrel. Today, even after the supposed ceasefire between the United States and Iran, prices are barely falling below $100 a barrel. According to data from the British newspaper The Economist, before the war the country was already earning the equivalent of about 320 million euros per week, while now it earns practically double. In this regard, if the price of oil remains close to $100, Guyana's share of oil revenues will reach around 4 billion euros, according to Reuters calculations, a figure that exceeds the annual budget of the Barcelona City Council.
“Guyana's reserves are almost equal to those of Brazil – explains to ARA Cidob expert Anna Ayuso–, with the difference that the country has less than a million inhabitants.” She maintains that the discovery of oil has meant a “total change” for the island, and even more so considering that it is high-quality crude that is easier to market. “From one day to the next, [Guyana] has gone from being subject to the intervention of the International Monetary Fund to receiving millionaire investments, and this is difficult to absorb for such a small country,” she explains.
Guyana extracts oil from the Stabroek block, a huge deposit of about 200 km located in the Atlantic Ocean, controlled by a consortium led by the North American oil company ExxonMobil. This consortium, which controls all of the country's oil production, has achieved a production rate of over 900,000 barrels per day in just seven years, an unprecedented feat. Despite the Strait of Hormuz blockade, which since the end of February has been preventing the passage of 20% of the world's crude oil production and a similar percentage of ExxonMobil's oil production, the company has exceeded profit forecasts for the first quarter of this year. This is due, above all, to the increase in production in Guyana.
An unequal distribution
The landscape in the capital, Georgetown, has also changed in the wake of the rain of profits that is showering the accounts of the three operators forming the oil consortium –ExxonMobil, Chevron and China’s CNOOC–. New roads, luxury hotels and rows of single-family homes similar to those in US suburbs have appeared. But in many neighborhoods, without sewage systems and with recurring electricity outages, it is difficult to find signs of this wealth. "The profits from oil have not changed the social structure –Ayuso agrees–. Buildings, infrastructure, hospitals are being built... There is growth. But it is a very unequal country.
While a part of the population has been able to benefit from the growth derived from the oil boom –middle and more educated incomes have been able to access positions linked to oil–, the economic boom has been accompanied by high inflation that has harmed the rest of the workers, who have not seen these improvements reflected in their paychecks and barely in public services. Instead, they have noticed the increase in the prices of housing, food, and, ironically, also fuel, since the island has no refineries and has to import the gasoline and diesel it consumes.
The root cause of this inequality are the agreements signed after the discovery of oil in 2016, which were very favorable to the oil companies and harshly criticized by the International Monetary Fund. The agreement stipulates that the companies can keep 75% of the revenue from crude oil until they cover the costs of what they invested in the exploration and exploitation of the field. In contrast, the royalties for the government of Guyana –the fixed percentage the state receives just for extracting the resource– are only 2%, an extraordinarily low figure. And, to top it off, in practice, the companies are exempt from paying taxes in the country. These "unilateral" agreements make Guyana very attractive to energy multinationals, according to industry experts. Average production costs are around $30 per barrel, making Guyana one of the cheapest and most profitable countries in the world to extract oil.
The government is aware of the risk of depending almost exclusively on oil and has tried to diversify the economy with measures such as the creation of a sovereign wealth fund – similar to Norway's – or a law that obliges oil companies to contract certain services from local companies. For now, however, the impact on the productive fabric remains limited.
However, the coming years may mark a turning point in resource management. Exxon expects to recover the exploitation costs of the fields in 2026. When this happens, the share of profits corresponding to Guyana will increase from 12.5% to 50%, which will multiply the state's revenues. It remains to be seen whether these resources will serve to correct the imbalances resulting from the oil boom. Be that as it may, even with a potential drop in crude prices, experts agree that Guyana has become a new major player on the global energy map.
