Caribbean Energy Security Summit – Washington D.C. – USA
January 26-27, 2015
Photo Credit: Caribbean News
Global oil prices rise and fall for all kinds of reasons. Credit or blame for the current fall goes to increased shale oil production, led by the United States. Contrary to what one would imagine, for small developing nations like Guyana and other member states of the Caribbean Community (CARICOM) that depend on oil imports to fuel their economies, the current low price is cause for concern.
Guyana, together with nine other members of the Caribbean Community, buys oil from Venezuela, South America’s largest oil producer. Under the PetroCaribe preferential payment program, members pay from 40 to 60 percent of the invoice value in cash upfront. The balance can be converted to a 25-year loan with interest rates from 1 to 4 percent.
The brainchild of the late President Hugo Chávez, PetroCaribe has provided an important source of financing for many small Caribbean nations. Through this regional oil alliance, Venezuela sought to gain political clout and support in regional and international forums.
With oil shipments representing 96 percent of its total exports, Venezuela’s oil revenue has plummeted, aggravating the country’s already troubled economy. News surfaced in early December that the cash-strapped Venezuelan government was negotiating with the US investment bank Goldman Sachs to sell part of its PetroCaribe oil debt at a steep discount. Under consideration are the oil debts of the Dominican Republic and Jamaica, accounting for a total of US$7 billion.
In spite of Venezuela’s economic woes and internal opposition to PetroCaribe from his political opponents, President Nicolas Maduro told reporters in Caracas on January 14 that his government is “going to…transform [PetroCaribe] into a large economic zone… It is one of the major economic areas that must continue to be pursued.”
Should President Maduro fail to maintain this commitment to PetroCaribe, member states face the risk of losing their preferential payment terms. CARICOM members like Guyana, Jamaica, and Haiti would be hard-hit. As shown in the chart below, Guyana’s annual deferred payments with PetroCaribe amounts to over 40 percent of its GDP.
PetroCaribe – Caribbean States Energy Security
Photo Credit: The Economist
While Venezuela’s economy is floundering, the United States is positioned to benefit from the fallout. On January 26 and 27, Vice-President Joe Biden launched the first Caribbean Energy Security Summit held in Washington D.C. The proposals set out in the Joint Statement serve to wean the region off its dependence on oil. In adapting more cost-effective, alternative, and renewable energy sources, the region would reduce its energy costs with gains in competitive prices for its industries.
To accomplish this transformation, member states would have “to facilitate” the introduction of new technologies, greater clean energy investment throughout the region, and access to finance for cleaner and climate resilient energy projects and infrastructure.
Perhaps the vagaries of the global oil market will spur the Caribbean Community to end their oil dependency and commit to cleaner energy sources. For small struggling island economies such a transformation will come at a great cost.