A sticky business: oil is enduring a spell in the Latin American political limelight

That the penalty—which was originally imposed on Chevron in February 2011 and relates to the polluting effects of its activities in the Amazon some two decades ago—was upheld has in itself come as little surprise.

The judgment certainly did not catch Chevron itself off guard.  A combative statement issued by the company following the court’s ruling read: ‘Chevron does not believe that the Ecuador ruling is enforceable in any court that observes the rule of law.  The company will continue to seek to hold accountable the perpetrators of this fraud’.

Meanwhile, in another regional capital it is the government facing demands for compensation, as Venezuela finds itself having to fight off a host of victims of the Chávez administration’s nationalisation programme.

The newspaper El Universal estimates the number of aggrieved companies seeking reparations at at least 20.  Having taken its case to the International Chamber of Commerce, Exxon Mobil was last week awarded $908 million as a result of the expropriation of its assets at a project in the Orinoco oil belt in 2007.

That figure falls a considerable distance short of the $7 billion the company had originally sought.  Moreover, the Venezuelan state oil company PdVSA has refused to pay up more than $255 million.

It is not just among the ‘usual suspects’ that this caustic dynamic is in evidence.  The Economist last week turned its fire on the myriad of threats of legal action prompted by an oil spill in November at a well operated by Chevron off the coast of Brazil.

And in Peru, local level confrontations with an international mining giant have presented Ollanta Humala with the first major challenge of his premiership.

There, however, while neighbouring countries are busy positioning themselves at loggerheads with the oil multinationals, the president has adopted a rather different approach.

In reacting to public protests against the gold and copper mining activities of US‑based Newmont Mining Corporation in the northern Cajamarca province, Humala opted to declare a state of emergency and send in the troops.  He has subsequently reshuffled his cabinet, ousting some of its more conciliatory voices.

Factor in the catalytic effect of oil exploration in the continuing dispute between Argentina and the United Kingdom over the Falkland Islands (Islas Malvinas)—one which has recently enjoyed renewed prominence—and here is a region on whose consciousness the mining industry is bearing heavily.

Such a state of affairs is almost inevitably bad news for the multinationals concerned, operating as they do in an industry for which no news is generally good news—and indeed vice versa.

But for the states involved—and their people—the impact is more ambiguous.  The Ecuadorean verdict appears to be a significant victory for the Amazonian people, but the likeliest outcomes remain either a long journey through the international courts or a settlement for a considerably lesser sum.

Setting aside the question of the beneficial effects—or otherwise—of Chávez’s expropriations in general, there also remains a long road to walk in Venezuela.  Despite the government painting the Exxon outcome as a success story, the company has already taken its case to the World Bank for arbitration and the list of aggrieved parties in the president’s in‑tray contains some even larger financial claims.

In Brazil, the Economist perhaps inevitably concluded that the government’s perceived heavy‑handed approach could result in ‘a pullback of foreign companies [that] risks hurting Brazil’s prospects of becoming a new oil power’.

Add to this the now‑renewed protests in Cajamarca and the prominence of the extractive industries in Latin American political debate seems to be producing few winners.

What it also tells us is that notwithstanding its innovation in environmentally friendly hydroelectricity and biofuels technology, the region remains intimately connected to fossil fuel extraction.

The diverse experiences of Ecuador, Peru, Venezuela and Brazil suggest that two key issues warrant addressing: the environmental impact of mining; and the balance between state and multinational‑run operations.  Focus on these and present a rational case to the electorate and it ought to be possible to turn a lose‑lose state of unrest into a mutually beneficial relationship for such a resource‑rich part of the world.  Unfortunately, this is a challenge that Latin America has long struggled with and which is likely to continue to tax it.