Mark Krikorian is an NRO contributor and executive director of the Center for Immigration StudiesThe Latin American Oil Connection: The tale of gasoline



How oil in a foreign well ends up as fuel here

SANDY TOLAN
Special to the Tucson Citizen






GARY GAYNOR/Tucson Citizen


Hernando Martinez pumps gas at The Thing? He is going back to Delisias, Chihuahua, with his family after a visit with relatives in Tucson. He was not impressed the gas he is buying comes from South America. He said he is glad "it is cheaper here than in Mexico." His son, Jose, 11, is at right.

Next time you're staring into a smoking tailpipe at a gridlocked Tucson intersection, consider the crude oil source: The Middle East?

Probably not.

Far more of those fumes, and the petroleum that generated them, had their origins in Latin America. That region pumps more oil toward the U.S. than the Middle Eastern countries combined.

Four Latin American nations - Mexico, Venezuela, Colombia and Ecuador - generate more than a third of U.S. oil imports. Add Canada, and the total is about half.

The United States makes up roughly 5 percent of the world's population, but consumes a quarter of its oil. This thirst dictates an energy policy requiring a diverse supply of producers around the world. And even though most of the world's oil reserves lie in the Middle East, in the short term, at least, Latin America is far more important to the U.S. energy mix.

The discovery of oil deposits in Latin America was expected to bring countries like Mexico and Venezuela into the ranks of First World nations.

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For Latin Americans tired of living in the shadow of the United States, the prospect of economic independence was finally palpable.

"We went from being poorer than almost any nation in the world to having one of the best standards of living," says Robert Bottome, a leading economic analyst in Venezuela.

"We were nipping at the heels of the First World countries."

In Mexico, the nationalization of the oil industry in1938 brought hopes of progress and a wave of patriotism tied to the neophyte state oil company.

In Venezuela, the country behind the creation of OPEC in 1961, high oil prices in the 1970s brought a windfall of cash and a grand development plan. In Ecuador, oil discoveries meant an escape from the vagaries of the agriculture market.

Some of these dreams did bear out: By and large Latin America's oil exporters are more modern, have larger middle classes, better infrastructure and better education than their neighbors.

But the gains have been modest and carried a steep price: corruption, political instability, social inequality, and environmental devastation, all dangerous side effects of sitting on one of the world's most coveted resources.

The cumulative effect, according to Stanford professor Terry Karl, is a "Paradox of Plenty," the title of her book examining how in Venezuela and other oil-producing nations, vast mineral wealth coexists with endemic poverty and political chaos.



Photo by JULIAN FOLEY/Special to the Tucson Citize


An oil rig in the Melones field near San Tomé, Venezuela.

In Venezuela, the dreams came crashing down in the 1980s, when a world oil price collapse, combined with excessive state spending on unproductive industries, threw the country into deep debt and civil strife.

"And from then on, in instead of being a country that's been growing, we've been a country that's been going downhill," says Bottome. "Measured in terms of income per capita, we're down 40 percent since 1978. It's ghastly."

In Mexico, the world's fifth largest oil producer, poverty hovers at more than 50 percent, and the country's proven oil reserves are dwindling.

Even if it succeeds in securing foreign investment for crucial new exploration - a huge constitutional challenge, given the 1938 ban on foreign oil companies working on Mexican soil - the nation will still face immense challenges to overcome deepening poverty and ongoing corruption at PEMEX, the state-run oil company.

In Ecuador, oil development has meant irrevocable environmental damage to the country's Amazon region, cultural loss for thousands of Amazon Indians, and the rise of an indigenous resistance that could provoke violent confrontations with a government intent on developing the state-owned resource.

U.S. dependence on Latin American oil is inextricably linked to the social, political and economic realities of these countries.

But if Latin America is now more crucial to the U.S. energy mix than the Persian Gulf, why all the focus on Middle Eastern oil?

The answer can be found under the ground. Oil analysts say three of the top four Latin American suppliers to the U.S. - Mexico, Colombia, and Ecuador - could cease exports because of declining reserves within the next 10 to 15 years.

Others insist new discoveries will significantly extend the timeline. But sooner or later, the U.S. will have to depend more heavily on oil from the Middle East, where two-thirds of the world's known reserves lie.

Is this ultimately bad news for Latin American oil-producing nations?

Not necessarily, says Bottome, the Venezuelan analyst. "Without the oil in the ground," the country would have pursued a more diverse national economic strategy.

"Easy money distorts anybody," says Bottome. "Oil has been a Midas curse."

Julian Foley and Angel Gonzalez contributed to this article