The world is shifting to renewable energy, yet fossil fuels remain essential to the global economy — and are still valuable enough to fight over.
A new energy dispute is brewing in the northeast corner of South America, where the little-known nation of Guyana, population 800,000, is enjoying an oil boom. Guyana, however, has some dicey neighbors, including thuggish Venezuela, which wants in on the mushrooming mineral wealth.
Venezuelan dictator Nicolás Maduro held a referendum on Dec. 3 meant to shore up support for his hated regime, including one question asking if Venezuela should seize a large chunk of Guyana that includes much of its offshore oil reserves. Voter turnout was poor, constituting a flop for Maduro. Yet the government says 95% voted to take the Guyanese territory, which has long been a populist rallying cry. Two days later, Maduro ordered state-owned companies to start capitalizing on the oil, natural gas, and other mineral rights Guyana claims as its own.
Guyana is a small oil producer quickly becoming a big one. Exxon Mobil found oil off the country’s coast in 2015, and Guyana now has known reserves of 11 billion barrels, placing it in the world's top 20. It produces 400,000 barrels of oil per day, output that could could triple within five years. That has made Guyana the world’s fastest-growing economy.
Venezuela doesn’t lack oil — it has reserves of more than 300 billion barrels, the most of any country. Yet its oil sector and its economy are a wreck, thanks to the corrupt socialist regimes of Maduro and, before him, Hugo Chávez. Sanctions have discouraged commercial energy firms from working with Venezuela and left its oil production of about 750,000 barrels per day, far below potential. Guyana, with less than 4% as much oil as Venezuela, will soon be delivering more to market.
This matters for the United States because the Biden administration has been scouring the globe for new sources of oil supply — no matter how small — to help keep gasoline and other types of energy prices low as Biden runs for reelection in 2024. In October, the administration even eased sanctions on Venezuela, opening the door to, at most, 200,000 barrels per day in additional Venezuelan crude. That’s just 0.2% of world supply, yet small changes can move prices when supplies are tight.
Unlike Venezuela, Guyana is a democracy in progress that has solid relations with the United States. Secretary of State Antony Blinken spoke with Guyana's president on Dec. 6 and reiterated America's "unwavering support for Guyana’s sovereignty." On Dec. 7, the Pentagon's Southern Command said it would conduct exercises with Guyana's tiny military. This isn't the same scale of involvement as in Ukraine or Israel, but it is another instance of the Biden administration committing resources to what is basically energy security, and specifically fossil fuels.
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If Maduro pulls a Putin and invades neighboring Guyana, that could threaten supplies from both nations. But that may not be the plan. “One theory is that Maduro is not intending to actually invade and hold territory, it’s that he’s attempting to be a bully and get a concession, like profit sharing,” says Ryan Berg, director of the Americas Program at the Center for Strategic and International Studies. “I worry not that his plan is to invade. I worry that these things become so goofy that they start to take on their own logic that could result in some kind of kinetic action or gray zone activity. If they send 30 or 50 guys over and just plant a flag, what does Guyana do?”
Maduro’s claim involves the Essequibo region that constitutes roughly two-thirds of Guyana’s territory, and would include the heart of the offshore oil fields. The borders date to 1899 and most countries acknowledge them. Another wrinkle: One of China’s state-owned oil companies is partnered with Exxon in Guyana, conjoining US and Chinese interests in safeguarding Guyana’s future.
Joe Biden’s presidency has been fraught with fossil fuel supply challenges, even as Biden signed into law the biggest set of green energy incentives in US history last year. Russia’s invasion of Ukraine in 2022 sent oil prices surging as traders worried the war or events related to it would disrupt energy flows. Gasoline prices in the United States hit $5 per gallon, the highest levels ever. Biden’s approval rating sank to around 40% and has never recovered.
Worldwide energy flows have been thoroughly rerouted as Europe weaned itself off Russian oil and natural gas and a US-led coalition imposed a $60 per barrel price cap on Russian oil, to limit the energy revenue Russia can rake in to finance the Ukraine war.
The Middle East war that erupted on Oct. 7, when Hamas terrorists massacred 1,200 Israelis, sent another jolt of fear through energy markets, since Iran, which backs Hamas and Israel’s other enemies, is a major oil producer. Any retaliation against Iran could prompt a new oil war and send prices soaring again.
The worst hasn’t happened. Prices settled after both wars began, and US production has cranked into overdrive, with American oil output now at a new record high of more than 13.2 million barrels per day. Oil prices are lower than before Russia invaded Ukraine, and US gasoline prices are a manageable $3.20.
Biden needs that luck to hold out for another 11 months. An energy war anywhere is bad news for Biden’s reelection prospects. So tiny Guyana will have a beefy friend looking over its shoulder as it confronts the bully next door.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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