Paraguay’s Petroleum and the Bigger Picture

José Martí, a Cuban poet and a revolutionary hero, once remarked how “the nation that buys, commands,” and “the nation that sells, serves.” Martí’s perspicacious observation holds especially true for oil-producing nations in Latin America today. Consumers in the United States constitute such an indispensible milieu for the consumption of international oil, and oil products, that competing in US markets seems a must for would-be suppliers. To that end, US consumption lends itself to private firms that largely dictate trade terms with developing world governments. Such dealings seldom benefit poor nations in earnest.

Regularly, the governments of Latin American nations that seek to capitalize on their oil stores find themselves deliberating costly extraction at the expense of the people they serve. One option is for the governments to secure public-private partnerships (PPPs) with big firms in order to make financing extraction more fiscally feasible. But there is no need to celebrate private firm assistance in such matters when rich-world technology is made largely unavailable to poorer nations for rather unneighborly reasons.

Increasingly, a globalization of capitalism-contrived poverty seeks to further indenture poorer nations, protracting limits on their economic sustainability as sovereignties. This goes beyond just the normal privation of indispensible technologies. Predisposing these resource-rich nations to initiating disadvantageous policy at home thus helps to make prices in US markets, for example, more ‘competitive’. In turn, profits increase for oil executives while simultaneously functioning to reward shareholders with increased share value. Furthermore, the ends of such capitalistic pillage in the Third World are far more important to big oil companies than the wellbeing of, or the future viability of, the countries that brace for extraction and mournful economic inroads. With few state-run exceptions, this is the reality.

Rapacious foreign interest targets oil powers in Latin America. They know that after years of oppression, nations have little recourse other than involving themselves with private firms—even if only for the simple need to attract foreign investment. Resources then fall to foreign plunder without serious economic benefits reaching impoverished denizens. Again, Latin nations have been impoverished for reasons not all their own; participating in the global economy is thus not so much a choice as it is an obvious essential for nations to merely subsist. Yet, firms know that any nation that can script its own economic future happens to be a nation that actually holds the power for self-determination. This capacity, to write the rules and to proffer pro-nation policy, is a menace to stratifying and repatriating profits. Private interest therefore whines that this discourages taking any interest in a given country, a country that dares to have its own good at the fore of its policy decisions rather than the enrichment of private, foreign entities.

One Latin American country landlocked in the Heart of South America epitomizes the developing world imperative to sell its oil in the bare bones desire for sustainable economic growth and sovereignty. Paraguay, a country with the landmass of Germany but a decimal the population, is currently busy exploring its potential albeit uncertain quantities of hydrocarbons. For now, the fingers of many Paraguayan politicians are crossed so hard that they are turning blue. Paraguay’s leadership has been especially avid about its potential hydrocarbon industrialization within the last two years. Last year, the government reported to newspapers that it had some 14 trillion cubic meters of oil and gas caches. Such numbers would place Paraguay ahead of the Saudi Arabia, Venezuela and the US. Despite other hyperbolic claims of having some of the largest reserves that the world has ever known, Paraguay may indeed soon be recognized as one of Latin America’s largest home for hydrocarbons.

One question many ask is why Paraguay has not endeavored more to capitalize on its allegedly unimaginable amounts of oil. Certainly there are consumers in the US—among other markets—that would pay for Paraguayan petroleum. For now, however, it seems that Paraguay’s oil proves a risky exploration for oil companies. Drilling costs several millions, and the size of Paraguay’s Chaco basin alone is intimidating. Paraguay drilled almost 50 oil wells from the late 1940s to the 2000s, and no significant oil was found. Even under Paraguayan dictator, Alfred Stroessner, policy was established in order to attract foreign investment with favorable regulation. But little has since materialized.

It is also important to remember Paraguay’s past. This eager South American nation, which was run by military dictatorship not so long ago, is still paving a tumultuous road toward what many hope will prove a blossoming democracy for a nation of many landless poor. Some aver that Paraguay has only begun exploring serious avenues to find and extract its oil. Undeniably, Paraguay’s political and economic future is largely caught up with what it stands to find regarding its reportedly substantial amounts of oil. Any pending policy concerning oil, or potential trade with the US, will invariably shape Paraguay’s future in approaching years.

Jose-Pablo Buerba, a political economist from Mexico City, recently spent a few months in Paraguay. He met with several of the political intelligentsia who are responsible for Paraguayan statecraft. Buerba suggests that Paraguay views its political and economic transition as one of modernization. He also reports that leadership in Paraguay espouses rhetoric suggestive of the fact that Paraguay views its current economy as “young.” Given so much of the political upheaval within recent decades, and especially the 2012 deposition of President Fernando Lugo (which left Paraguay $260 million in debt), this projected paradigm makes a good bit of sense. And while monetary devaluation has not perhaps plagued Paraguay like some of its South American neighbors, the country nonetheless seeks to further its democratic stability so as to ensure long-term economic stabilization.

Interestingly, it was just before former Venezuelan president, Hugo Chávez, cut short the Caracas Energy Agreement (ACEC) in 2012 that Paraguay received nearly 8,500 barrels of oil from Venezuela daily. Certainly, noteworthy amounts of oil in Paraguay’s own backyard would serve to bolster its own ability for political and economic determination to a new degree. While Chávez is no longer an autonomous presence in the region, Paraguay might flex its own political muscle a bit more without having to import 27,000 barrels of petroleum for consumption each day, including Venezuela’s former allotment. That is, should Paraguay find massive amounts of its own oil.

Experts like Buerba note that big name British firms, which sell their petroleum products to US markets, are also excited about survey finds in Paraguay. Unlike smaller oil companies that do not have access to enough credit to start exploratory drilling, these bigger firms have the necessary funds. Some estimates portend that Paraguay houses at least 1.1 billion barrels of extractible oil; others show that the Chaco region alone has several billion barrels. For an ocean-less country landlocked in the middle of South America, future profits from such stores promise a huge boon to Paraguay’s economy. Moreover, any PPPs that Paraguay currently considers would help ameliorate certain infrastructural deficits that arise, also mitigating Paraguay’s lack of sea access. Buerba notes, however, that there is still no need to outright assume that Paraguay intends to completely privatize any oil coffers. It already has policy in place (laws of fiscal responsibility) to ensure that state entities do not overspend or indebt the country past a specific limit. Indebting the nation all in the name of cheapening extraction for foreign private interest, is very much a concern to this nation that stands to gain so much.

While many already oil-producing nations and their governments rely on their respective regulated economies to supply US demand, the effects of trade with the US differ from one nation to the next. Paraguay is not immune to this fact, especially not as it stands to become a big player in the international oil game. As is the case with many poor Latin American nations lacking in refining and extraction technologies, Paraguay is free to involve itself with big oil’s private firms in the hopes of reaching the US as easily as possible. But despite any laws that Paraguay has developed to more safely capitalize on extraction, the underlying purpose of such policy is also to attract foreign firms with backing all their own. The results are sometimes cheap from the outset, but not necessarily the best for long-term development.

What makes Paraguay even more unique within the context of the current global energy game is that a large share of Paraguay’s energy comes from hydroelectric generation at the Itaipu Dam (on the border of Brazil and Paraguay). Paraguay itself does not depend so much on petroleum for its energy needs, as American markets have shown the US and other American nations to do. According to what the Paraguayan government tells experts like Buerba, the country only utilizes about one-fifth of its hydroelectric generation capacity. This also means that, with improvements in distribution, Paraguay might eventually further capitalize on hydroelectric energy, while also profiting from its hydrocarbons energies. For now, Paraguay still lacks in major infrastructural areas that slow its progress toward these ends.

The difficulties that come with developing nations having to navigate PPPs often resemble deregulation and economic liberalization. A developing nation’s poor often gets prostituted in order to reward foreign shareholders by the close of the stock market each day. But what many governments like that of Paraguay can do is choose to help their people achieve an equitable reallocation of profits. Revenue can then serve some social utility in many unprecedented ways. Furthermore, a radically democratic distribution of incoming wealth—most likely that of oil and gas—can replace domestic rich-world models that stratify revenue and foster welfare capitalistic policy that divides the poor, working class against itself. The first option has quite socialist ends, but ends that can truly help to develop a democratic and sovereign nation nevertheless. The second route is part of a long and doomed experiment with economic liberalization; it renders many poor nations yet servile to private foreign interest despite their wealth in resources and sundry commodities.

Ultimately, the economic benefits that stem from trade with such avaricious markets like those in the US can help developing nations like Paraguay—nations that hopefully seek to further democratize their societies early on in the 21st century. Democratically, the people can benefit from foreign consumption. The political potential of such economic maneuvering might even surpass the potential energy locked inside the hydrocarbon bonds that give rise to new political strength in the first place. The governments of such nations, however, must first and foremost have the people in mind when dealing with some of capitalism’s greediest entities. With them, it is the money that counts, not the many.