In October, Venezuela announced that more than half of Guyana belonged to it, had always belonged to it, and that they intended to take it back.
Dubious claims, to say the least.
But, recently, a lot of oil was discovered in Guyana. Hmmm.
Finding oil, for the last 150 years, has been like having a gold rush in the years before that: all the crazies come out.
Lastly, political maps have meaning. When you live in one country (like, us living in the U.S.) you tend to accept the maps that are published in your country. You may not realize that other countries have their own maps (because you don't see them in sources commonly available in your country). But they can tell you a lot about whether one state regards another country as legitimate, existent, or whole (see Chapter VI Section A in the Handbook if you do not understand the distinction between a state and a country). Venezuela has published new maps that say half of Guyana is theirs. In realpolitik, there's an aphorism: when bad actors say they're going to do bad things, believe them.† ‡
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Historically, that long coast of South America that faces north-northeast was one of the most inhospitable parts of the continent: poor harbors, lousy soil, jungle, a big nasty plateau region reminiscent of southern Utah (featured in the movie Up), and sometimes even drier desert-y areas.. The Spanish colonists worked their way slowly east from Colombia. The Portuguese worked their way slowly north from Portugal.
In the end, the Dutch, and French landed in the middle first and set up small outposts (in areas claimed by Spain) that grew into colonies. The British got involved officially because English settlers arrived on their own, and eventually the British peeled off the western part of the Dutch lands to form their own colony. Today, these are Guyana, Suriname, and French Guiana (going east from the border with Venezuela). Guyana and Suriname have been independent for decades.
French Guiana is an interesting digression. It's not considered a colony, but rather it's part of France: more like, say, Hawaii than Puerto Rico for the U.S. I usually have to briefly touch on it later in the semester because it's actually shown as part of France in the colored maps in your Handbook. It also makes the news more than you'd think: the EU's spaceport is there. It was also the location of the infamous French prison for people both convicted and also exiled for their crimes: Devil's Island (there was a big movie in the 70's about this named Papillon).
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There is a longstanding border dispute in the region. It was first raised by Spain around 1800, and that claim was adopted by Venezuela in the 1820's after its successful fight for independence.
This was regarded as largely settled by diplomatic efforts in 1899.
No one ever worried much about this much, since the disputed region was largely inhospitable, and mostly inhabited by indigenous peoples (who may not like or care about Venezuela or Guyana), and gold seekers (who are usually unsavory to begin with).
But it may have mattered to the Venezuelan state more than was recognized. They felt bullied by the British Empire, and had some evidence that they were cheated.
Anyway, Guyana gained independence in the 1960s based along the 1899 borders. And leftist governments in the region relaxed their positions: preferring us against the big and rich countries rather than neighbor vs. neighbor. Then oil was discovered. And now that's changed.
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That's just background: when oil is involved, it's more about macroeconomics than politics.
It's a common macroeconomic myth that natural resources are what makes rich countries what they are. Not so. So this fits right in with the class discussion started by AL on Friday.
Physically larger countries tend to have more natural resources (and they look important when taking a naive look at a political map): think Russia, Canada, China, the U.S., Australia, Brazil, Congo, even Saudi Arabia.
But the world is full of smaller countries that are rich and often don't have much in the way of natural resources: most of Europe, Japan, Israel, Singapore, and so on.
The numbers for the U.S. surprise most people. You can get value added by industry: 1% for agriculture, forestry, fishing, and hunting combined, 2% for mining, 2% for utilities that burn natural resources, and not much else.
So what gives?
I think there's three reasons: one is personality, a second is about property rights, and the third is about ignorance about how businesses work. Oil triggers all three.
First, maybe I'm cynical, but I think you can go a long way by attributing decisions of government officials (particularly unelected ones) to control issues. Superhero movies often feature villains who say something along the lines of "once I control all of X I will rule the world". I think a lot of government officials think that way about resources, particularly oil, and maybe going forward: lithium.
Second, in the U.S. we're used to having good property rights, but most countries don't. And even if places with good property rights, the ownership of what's under the ground if often with the government (a legal principal called "split estate" that may be familiar to those who know something about water rights in Utah). That ownership only gets asserted when valuable resources are discovered.
Third, the naive view outside of business schools, and functional corporate offices, is that revenue and profit are basically the same thing. But the reality is that about 90% of revenue usually goes to cover costs. And here's the real macroeconomic kicker: those costs usually get paid out to the people nearer to you, and one firm's cost is some household's income. The real macroeconomics beauty of a natural resource is that it helps support a whole bunch of employees, vendors, and so on.
On that third point, I think a lot of leaders around the world thinking that their country will turn into Saudi Arabia if only they discover oil. But the handful of Arab countries that have oil are different: lots of oil and not too many people. The rule tends to be the opposite: not much oil spread over a lot of people. So perhaps a fourth element of magical thinking should also be invoked.
...
So. Venezuela. Thirty years ago this was the richest country in Latin America. Oh ... and there were no Venezuelan restaurants in the U.S. I'd never even met a Venezuelan until I was in my forties: no one was trying to emigrate out of that country.
Oil wealth helped: Venezuela has lots of oil, and a middling population only about that of Texas, so the success recipe worked fairly well for them.
The rest is well-known. Chavez takes over, the economy of Venezuela takes a steep nose dive, his hand-picked successor Maduro takes over, and doubles down on that plan. Oh and there's some kleptocracy and nods towards socialism along the way.
There's been a ton written over the years about bad policies undertaken by Chavez and Maduro, and how their socialist leanings ruined everything. But the business economics explanation satisfies Occam's razor: they wanted more profit from their oil industry, so they cut costs on maintenance, and their revenue went down too, until all three were close to zero.
And now oil has been discovered in a disputed part of Guyana. The old claims are pulled out, because the only way the Chavez/Maduro government has ever generated excess funding for government is by looting an oil industry. It worked once ...
One of the few things that's clear is that Guyana is unlucky to be next to Venezuela at this point in history.
† Another worry spot that I intend to cover is China, Taiwan, and the South China Sea. China has been making good on enforcing its territorial claims to just about the entire South China Sea. These are mostly based on a single map, first published in China, by the government of China at that time (1947). Other interested countries weren't consulted about this.
‡ The pro-Hamas chant that has been in the news the last few months is based on maps produced in the West Bank and Gaza by Fatah and Hamas for the local audience (including schoolchildren). These maps are deemed offensive because show an absence of the country of Israel, make no mention of the nation of Israelis, or the state of Israel.
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