In the span of just a few days, the earth has begun quaking beneath South America’s leading resource nationalists. Hugo Chavez’ successor as the Bolivarian revolution’s leader, Nicolas Maduro, stands to lose his grip on Venezuela´s national assembly in tense 6 December elections. Argentina’s Cristina Fernandez de Kirchner will reluctantly hand the presidential scepter to her foil Mauricio Macri on 10 December. And formally as of this week, Brazil´s Dilma Rousseff faces possible impeachment.
These regionally-influential commodity-rich countries appear to be in the throes of a seismic political shift. As earnings from oil and commodity sales collapse, more than a decade of state intervention and wealth redistribution could start to end, replaced by market-oriented policies that would toss resource nationalism in the dustbin. Yet the political structures and culture that burgeoned over more than a decade will not easily crumble, even though the commodity down-cycle is gutting revenue.
Maduro is threatening to govern “with the people in a civilian-military alliance” if his party loses. Employees at oil company PdV and other state-run enterprises are pressured to each deliver 10 additional votes to the government coalition. Yet PdV itself can barely deliver its crude for lack of cash.
Kirchner is making a slew of eleventh-hour decisions that have raided the treasury and installed allies in key government positions. A rocky handover of power would aggravate difficult policy adjustments and make it even harder for state-controlled oil company YPF to attract meaningful shale partners aside from risk-tolerant Chevron. Even when the dust settles, Argentina is beleaguered by costly operating conditions for oil and gas.
And, despite her lack of charisma, Rousseff is not likely to walk away quietly with so many influential political and business figures implicated in a corruption scandal rooted in state-controlled Petrobras. While the impeachment proceedings drag out, new legislation needed to revive the oil, gas and mining sectors is likely to remain stalled.
Transition will be painful. And governance itself will be a challenge in the face of the mammoth economic and political adjustments that lie ahead. Reaction, possibly violent, from entrenched interests bred on systemic corruption will be swift. For investors, the scenarios range from unprecedented opportunity to chronic instability. The reality could be a lot of both.
Venezuela’s Orinoco belt, Brazil’s sub-salt, and Argentina’s Vaca Muerta shale formation —these South America countries are awash in hydrocarbons. But such abundance now seems almost irrelevant. And not just because they may cost too much to extract at today’s crude price, but also because, once again, plenty has proven to be a curse.
The earth may be shaking, but the resource nationalist narrative could prove resilient. If oil prices recover in a few years’ time, as many in the industry expect, windfall revenue streams could revive the political attraction of leveraging natural resources for radical social and economic reform. But the huge political changes afoot in Venezuela, Argentina and Brazil may usher in an alternative that endures.