Energy
Monday, December 4th, 2023 3:34 pm EDT
Key Points
- Venezuela’s Sovereignty Claim in Referendum: Venezuelans participated in a referendum to assert sovereignty over a significant portion of Guyana, specifically the Essequibo region. The voters were asked to support the establishment of a new state in this contested area, which constitutes two-thirds of Guyana and is rich in oil reserves. The referendum marks an escalation in a longstanding territorial dispute between the two nations.
- Historical Dispute and Recent Tensions: The Essequibo dispute dates back over a century, with an 1899 international tribunal awarding the territory to Britain when Guyana was a British colony. Despite this ruling, Venezuela has actively disputed the sovereignty of the region. Tensions between the countries intensified in 2015 following oil exploration activities, especially by companies like ExxonMobil. Venezuela contends that Guyana lacks the right to grant oil concessions in the maritime areas off the disputed territory. The recent referendum adds a new dimension to the historical conflict.
- International Impact and Market Response: The International Court of Justice (ICJ) ordered Venezuela to refrain from taking any actions that would alter Guyana’s control over the Essequibo. Despite the significant geopolitical implications and being critical oil hotspots, particularly with Venezuela ranking as the 10th largest producer in OPEC, the global oil markets haven’t reacted significantly to the planned referendum. Henning Gloystein, Eurasia Group Director, emphasized that as there has been no physical supply disruption, market impact remains limited. However, he noted that Venezuela’s actions are unlikely to improve relations with the U.S., which is crucial for Venezuela to enhance its own oil production. The U.S. had imposed oil export sanctions against Venezuela in 2019 in response to what it considered a sham election in 2018. Dan Yergin, Vice Chairman of S&P Global, highlighted the referendum as an “absurd” risk yet to be fully priced in by current crude markets. Yergin anticipated U.S. support for Guyana in the event of a Venezuelan attack, drawing parallels with geopolitical conflicts involving other nations.
Venezuelans voted on Sunday in a controversial referendum to assert sovereignty over a significant portion of Guyana, a neighbor endowed with extensive oil reserves. The disputed area, known as the Essequibo, covers 61,600 square miles, constituting two-thirds of Guyana’s territory. The referendum asked voters if they supported the creation of a new state in the contested region. Although the National Electoral Council counted over 10.5 million votes, the number of voters wasn’t specified, and reports suggested a low voter turnout.
The dispute between Venezuela and Guyana has been long-standing but intensified in 2015 when oil exploration activities, particularly by companies like ExxonMobil, escalated tensions. Venezuela contends that Guyana lacks the right to grant oil concessions in the maritime areas around the disputed territory. The Essequibo region is crucial due to its vast oil reserves off the coast, drawing increased attention as oil exploration operations expanded.
The century-old territorial conflict traces back to a 1899 international arbitral tribunal awarding the territory to Britain when Guyana was a British colony. Despite the ruling, Venezuela has persistently disputed the sovereignty of the Essequibo. In November, Venezuelan President Nicolas Maduro accused Guyana, the United States, and oil companies of engaging in “legal colonialism” to usurp Venezuela’s territory. Guyana maintains the legality and binding nature of the 1899 accord and sought the International Court of Justice (ICJ) to validate it in 2018.
In addition to the referendum question about sovereignty, other inquiries covered granting citizenship to current and future residents in the region and whether to reject the ICJ’s jurisdiction over the territorial dispute. The outcome’s enforcement by Maduro’s government remains uncertain. The ICJ, on Friday, ordered Venezuela not to take any actions changing Guyana’s control over the Essequibo.
Market reactions to the planned referendum have been limited, as no physical supply disruption has occurred so far. Henning Gloystein, Eurasia Group Director, expressed skepticism about immediate market impact, considering it unlikely unless a supply disruption occurs. U.S. West Texas Intermediate and Brent futures showed a marginal decrease, but market observers suggest that the geopolitical tensions haven’t significantly affected oil prices.
Guyana’s President Irfaan Ali reassured citizens of their safety, emphasizing vigilance to maintain borders. The ICJ’s order on Friday aimed at preserving the status quo in the disputed territory underscores the gravity of the situation. The potential impact on oil markets and geopolitical relations, particularly between Venezuela and the U.S., remains a concern. Dan Yergin, Vice Chairman of S&P Global, referred to the referendum as an “absurd” risk yet to be fully priced in by current crude markets. Yergin anticipates U.S. support for Guyana in the event of an attack by Venezuela, drawing parallels with global geopolitical conflicts.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/04/venezuelans-vote-to-claim-sovereignty-over-part-of-oil-rich-guyana.html
