PRS Pulse: The First Western Hemisphere War Since 2016?

[Postcards from the Florida Republic]( cross-posted a post from [PRS Pulse]( NAME} Garrett {NAME}Dec 13 · Postcards from the Florida Republic I'm taking a day off from Postcards and sharing with you the new work of PRS Group, a geopolitical risk group with whom I've partnered. This story out of South America is very important for oil and gas investors. We'll be digging deeper in the future on how to use PRS Group's data set to find great opportunities abroad. [PRS Pulse: The First Western Hemisphere War Since 2016?]( Chevron (CVX) finds itself in the middle of growing political instability in South America. PRS risk data showed a breakdown in data from Venezuela, which signaled this type of escalation. [PRS Group]( Dec 13   [READ IN APP](   Key Takeaways - On Sunday, Venezuelans voted to claim sovereignty over a large amount of contested land in neighboring Guyana. - Though the dispute over this land dates back over a century, tensions have increased after Guyana began offering permits to multinational oil companies to drill for large amounts of discovered crude. - Fears emerged that Nicolas Maduro could attempt to annex the oil-rich region by force soon. - Multinational oil giant Chevron ([CVX]( finds itself at the center of this dispute, given its ties to the Venezuelan oil market and its recent purchase of Hess Corporation ([HES]( which owns a large stake in a Guyana-based project. - The Western Hemisphere hasn’t seen a war since 2016, when the Colombian government and FARC rebels signed a peace agreement. [Pledge your support]( Venezuela is one of the world's most urbanized and oil-rich nations, but inflation is north of 300%, and the economy has collapsed under poor mismanagement. The country struggles with food shortages, crime, and unemployment, and more than 7.5 million citizens have fled to neighboring countries like Brazil and Colombia or made the trek to the United States in pursuit of opportunity. In 2024, President Nicolas Maduro is up for reelection. Although it’s nearly 100% that Maduro will win thanks to corruption and a moribund opposition with less-than-stellar support from the international community, the President is attempting to galvanize the citizenry by ramping up the rhetoric against its neighbor Guyana over a region called the Essequibo. Guyana (and its British colony predecessor) has administered this oil-rich territory since 1899. On Sunday, voters overwhelmingly approved a “pretext for annexation” for the region comprising two-thirds of the former British colony’s English-speaking territory. This region holds more than 200,000 residents with little to no cultural connection to Venezuela. The dispute is more than 100 years old, and most Venezuelans were taught at a young age that the Essequibo is part of the nation’s map. However, tensions increased in 2015 when oil producer ExxonMobil ([XOM]( discovered the Stabroek block -  a massive oil field off the coast of Guyana. The region has more than 11 billion barrels of recoverable crude, larger than OPEC member Kuwait's proven reserves. Guyana, on its own, would outpace Venezuela's production and make it the world’s largest oil producer per capita. Although the International Court of Justice (ICJ) ruled last week that Venezuela should not act against its neighbor, 95% of the nation’s voters approved the referendum. Even though Venezuela is struggling to produce its vast crude resources within its own borders, Maduro is crying “colonialism” as five international oil companies begin production in the Guyana fields. In September, Guyana auctioned off eight new offshore blocks for exploration. Maduro believes these fields belong to Venezuela and argues that the International Courts have no jurisdiction over the dispute. The Wall Street Journal reports that Brazil’s military is now on alert across the region and that U.S. special forces have met with Guyana officials to discuss the possibility of invasion. The dispute creates a lot of difficulties for a variety of geopolitical players. For example, China supports Venezuela but invests in offshore projects in Guyana. Cuba is close with the Maduro government but is also closely aligned with the Guyana government on matters related to the United Nations and the Caribbean. But there may be no more interested party than U.S. oil giant Chevron Corporation. [Pledge your support]( Chevron Caught in the Middle The development puts Chevron back in focus on both sides of this geopolitical flareup. For the last few years, Chevron has actively lobbied the United States government to scale back its sanctions against the Maduro government. In 2022, the Biden administration granted the oil giant limited authorization to resume oil production in Venezuela. The deal resulted from a humanitarian relief agreement that Venezuela would provide greater transparency and fairer elections. The authorization allowed Chevron to engage in joint ventures in the nation, not other direct activity with state-owned PdVSA. In addition, Chevron began sending oil tankers to Venezuela last year, with cargo bound for the U.S. refining network along the Gulf Coast. Meanwhile, Chevron surprised markets this quarter with the $53 billion acquisition of Hess Corporation. Many analysts believed that Chevron would purchase a sizeable oil-and-gas producer in the Permian Basin of Texas after its rival Exxon Mobil announced a $60 billion deal for Pioneer Natural Resources ([PXD](. Speculation built that Chevron may even purchase Occidental Petroleum (OXY), the largest landholder in the Permian Basin and a large holding of Warren Buffett’s conglomerate Berkshire Hathaway ([BRKA](. Instead, Chevron purchased Hess, which owns a 30% stake in a major offshore oil field in Guyana. The Stabroek block has roughly 11 billion barrels of recoverable oil. Chevron says this low production-cost project will help boost cash margins while delivering a lower carbon footprint than other potential targets. PRS Take Chevron’s decision to purchase Hess Corporation rather than build its Permian Basin acreage generated significant attention earlier this quarter. At the time, many questioned the decision to turn their attention to Guyana, which hasn’t generated much attention in the broader South American political economy. Yet, one can assume that Chevron conducted geopolitical risk assessments as part of its planned acquisition of Hess Corporation and its offshore project with other large multinationals. Before last weekend’s vote, Guyana was a stable region, scoring 36th overall (out of 141 countries covered) on The PRS Group’s International Country Risk Guide’s (ICRG) Composite Risk Rankings, supported by a generally stable executive branch of government and few incidents of significant internal turmoil. More importantly, Guyana’s financial risk rankings have remained stable all year, while the ICRG metrics that measure the country’s economic risk have unsurprisingly improved. The acquisition provided greater diversification for Chevron when it faced greater regulatory challenges from the Biden Administration over domestic crude production. Venezuela, meanwhile, has seen a decline in its ICRG Composite Risk rating – falling from 58 in December 2022 to 55 in November. An erosion in financial conditions, anchored by a surge in debt as a percentage of GDP to 183.9% and inflation north of 317% - are driving Maduro to seek a Wag the Dog approach to domestic economic affairs ahead of next year's election. While the odds of a full-scale war remain very low, a war-weary world may ignore any low-scale border skirmishes that put pressure on the more than 200,000 people who live in the contested region. As a result, the Biden Administration and other global bodies may fail to properly hold Maduro and his government accountable at a time when tensions are significant in Ukraine, Gaza, and the South China Sea.   [Like]( [Comment]( [Restack](   Originally posted on [PRS Pulse]( [PRS Pulse]( Group [Subscribe]() Political Risk, Quantified. PRS holds the distinction of being the only geopolitical risk firm whose work has successfully bridged the worlds of academia, investment, commerce, and public policy. © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()