The Saudi Arabia of Latin America

November 17, 2008, 4:12 pm

By The New York Times

Justin Dargin of the Harvard Kennedy School’s Belfer Center, flagged an article in the Financial Times, noting:

Brazil, the silent giant of South America, known more for its bright future, than sharp words-as compared with its erstwhile friendly regional rival, Venezuela, is positioning itself to join the ranks of the major oil producers. Recently, the largest discovery of oil in the Western Hemisphere for a generation, was discovered 180 miles of its coast. This, along with other large-scale, back-to-back, oil finds, has caused Brazil to reinvent itself from being a net oil importer, to inquiring about OPEC membership criteria. Brazil’s new oil find is some of the most challenging oil to produce, requiring advanced technology and specialized skills, something that the national oil company, Petroleo Brazileiro (Petrobras), has in abundance. But Brazil is a shining anomaly in a region that has other mature oil producers losing their gloss. Mexico’s national oil company, PEMEX, is losing the production battle, while Mexico is facing going from a net oil exporter- approximately 1.6 million barrels per day, to an importer within the next decade. Venezuela’s national oil company, PDVSA, under the stewardship of President Hugo Chavez, is slipping. It went from 3.1 million barrels per day in 1999, to 2.6 million barrels in 2007. The production drop is at least partly attributed to the drag of the social welfare spending which Chavez champions, instead of oil field reinvestment. Petrobras, however, has invested heavily in its deep water drilling expertise and technological skills, which has thus, so far, enabled it to navigate past the ills afflicting the other Latin American national oil companies. If Brazil exercises the mature leadership that has garnered it accolades from the international community since the end of its brutal military dictatorship in 1985, it will be an example to all of South America. It will illustrate that the poor governance that results from the “oil curse,” is not necessarily preordained.