Oil property regimes: some brief Latin American case studies

At the heart of the discussion on the natural resource property regimes, a question seems recurrent: is the public or private control over natural resource an ideological choice? Perhaps the answer is yes, but not as a mere economic decision on the most desirable way of organizing social production, but as a logical result of quite obvious political interests, especially in producing regions such as Latin America.

The role that energy resources play in the functioning of national economies confers a strategic meaning to their management in such a way that it integrates the economic issue into their own national security and the reproduction of power relations at multiple levels. Currently, oil supply is about one-third of the world primary energy mix, and in countries like Mexico and Venezuela this proportion exceeds 50%. Moreover, the 12 world’s largest producers alone had offered more than 72% of the world’s total in 2014, among which are Mexico, Venezuela and Brazil. Therefore, to understand the contractual production arrangements, one needs to grasp the political and economic peculiarities of each country on at least two levels: their relationship with the international system and their domestic political game.

Internationally, the political dimension of the economic exploitation of oil became clear to the actors of the international system at least since the Arab embargo of 1973, causing the first major oil crisis. In the terms coined by Keohane and Nye[1], the “complex interdependence” among national economies involves “vulnerabilities” and “sensitivities” in relation to the international political and economic system. In the case of oil, sensitivity refers to its intensive use in the primary mix, while vulnerability is linked to the ability to withstand sudden cuts in supply. For no other reason, in the 1970s, the main consumer countries inaugurated the practice of keeping strategic reserves. Thus, the control of oil production is a source of power in the purest sense of the definition laid down by Robert Dahl: it gives its holders the ability to compel others to act differently than they would act otherwise.

On the domestic front, the level of state ownership of oil revenues, whether through the exclusive exploration or the different forms of taxation, should be considered as any other public policy. The greater the potential for income generation, the higher is the incentive for its “search” by private or public agents, either for personal gain or for the clientelistic channeling. This behavior results from at least four elements: its own endowment resources; the immobility of sector assets, which easily subjugates them to taxation or nationalization; the heterogeneity level of social cleavages, which is associated with the “cost of repression” by excluding these demands from the final policy choices; and the level of political “decisiveness” conferred by constitutional arrangements on the mechanisms of legal reform.

The three largest economies in Latin America, Brazil, Mexico and Argentina — besides Venezuela, which holds the largest proven reserves in the world —, are the cases highlighted here. In common, at the domestic level, the four countries have presidential democratic regimes, marked by strong centralized decision-making, as well as significant social pressures for redistribution. But the similarities stop there.

At the international level, these countries present very distinct conditions. Mexico and Venezuela, as net exporters, have low vulnerability, although the abundance of oil significantly increases the intensity of its use in the primary energy mix. In both, the international dynamics is presented as a heavy pro-tax vector and/or industry nationalization, since the direct control of resources allows for its use for both secondary political ends in the diplomatic level and the administration of domestic prices, cushioning sensitivity to exogenous shocks in the international commodities market. Some of the key indicators are presented in the table.

grafico-1texto3-tabela1

Following a worldwide trend to reduce the supply of oil in the primary energy mix, which in 2001 was 36.5% and in 2013 was already 31.1%, these countries’ net trade suffered a major setback over the years, except for the Brazilian case. Mexico and Venezuela, which do not import, saw their exports fall 40% and 17.5% respectively. Argentina, which in early 2000 was a net exporter of oil, practically zeroed its trade balance, keeping the balance by redirecting its production, which has remained stable for domestic consumption. However, Brazil, whose commodity trade balance was negative in the early 2000s, reached self-sufficiency and saw its exports grow rapidly from 2003 onwards.

Domestically, differences are also relevant. Brazil and Argentina have diversified industrial matrices and thus more heterogeneous domestic business lobbies, although the security of the domestic supply is a common interest to all sectors. Still, they have a lower relative resource endowment, although the expansion of Brazil’s potential with the pre-salt oil field has high incentives for the strategic orientation of the property policy in the country. Until then, the lower political and economic opportunity costs were favorable to the adoption of more market-oriented property regimes in both countries during the neoliberal consensus of the 1990s, a process reversed from the 2000s on.

In 1991, the Plan Argentina released the new discoveries of reserves from being shared with the state-owned Yacimientos Petrolíferos Fiscales (YPF). In the process of privatization since 1992, the sale of the company’s assets was completed in 1999 with 98.23% acquired by Spain’s Repsol. Since 2002, when the country was experiencing a reasonable surplus with oil exports, the government established a 20% tax on exports of crude oil and 5% on derivatives, followed by a series of resolutions to accommodate domestic price stability and supply. Until 2007, the tax was expanded, and after that there came to be a declared policy of appropriation of the extraordinary profits for the financing of state policies[2]. With the gradual shift towards domestic consumption, even the low prospect of income generated in the sector did not interrupt the process of progressive intervention, and in 2012 the Argentine government decided to expropriate 51% of YPF, a process which ended in 2014 with the compensation agreement to Repsol. The oscillation of the Argentine policy shows the result of a perspective of uncertain or relatively small gains, but focused on ensuring domestic supply.

The same liberalization process of the 1990s reached Brazil when the country’s potential as a player in the sector was still debatable. By 1995, Petrobras had a monopoly of all activities related to the national territory, when a constitutional amendment allowed the entry of private capital into the sector. The deregulation of the oil market was defined in 1997 with the so-called Petroleum Law, which also created the National Petroleum Agency (ANP), responsible for public auctions of exploration wells. If, on the one hand, it can be said that the country has maintained a market-oriented policy in the period, it is also true that it was a moderate orientation, because Petrobras continued being mostly a public company, besides the fact that the formal monopoly industry belongs to ANP. With the discovery of reserves in super-deep areas, there was a new perspective for the country in relation to the global supply and to the potential income generation. The country could become the planet’s sixth largest holder of reserves, so it is not surprising that a new system has been built for the specific operation of such wells. The so-called system of “production sharing” presented a change of direction: instead of the operator company that controls the well to own the resources, paying royalties to the Brazilian government, the government became the legal owner of the resource even after being extracted.

In Mexico, also endowed with a heterogeneous production matrix, the more centralized institutional arrangement with the long duration of the Partido Revolucionario Institucional (PRI) in power (1929-2000) combined with the high-potential income of the sector, resulting in stable publicly owned strategic policies for decades. The state-owned Petróleos Mexicanos (Pemex) was the owner of the monopoly of all the hydrocarbons industry stages in the country since the Constitution of 1917. From that moment on, all state-owned investment decisions had to go through Congress, with the initiative of the executive. However, this high operative centralization has also become one of the favorite explanations for the lack of investment and the fall in production, eventually leading to the increased support in the private capital and to the sale of securities in the international market. Since 1995, it began to allow private operation in the distribution and then production of natural gas, a movement that preceded the opening of the country to private exploitation of oil reserves in 2013. The pro-market movement seems contradictory in a country with such production potential, but it gets its support from the significant drop in export revenues and in the Mexican role as an international player as well as from the encapsulation of its foreign policy interests and its economic pseudo-annexation in the North American context.

Finally, Venezuela has the most centralized arrangement from the political decision-making point of view, a less heterogeneous society from the productive and socio-economic standpoint, and a strong demand for redistribution of its huge oil revenues. The result is a property policy strongly controlled by the state, with a strategic bias. Monopolized by the state company Petróleos de Venezuela S.A. (PDVSA) since its nationalization in 1975, oil production in the country had its opening to private capital in 1991, with public-private partnerships in marginal fields, such as the Orinoco Belt, endowed with low-quality heavy oil. In 1995, the Venezuelan Congress approved risk explorations and new areas, but with production still under the sharing regimes. Thus, until 2001 PDVSA was only 35% state-owned, a process reversed again in 2002, when governmental ownership throughout the upstream phase was extended to a minimum of 51%. On the other hand, the downstream stage received a double regulation, allowing the refining by private equity in any proportion, but the commercialization would be a public service. Final prices are thus determined by the government according to its goals, while the Constitution establishes that the State, for reasons of national convenience, including economic and political sovereignty, preserves full ownership of the shares of PDVSA.

The fact is that one cannot speak of an appropriate and universal ownership model of energy resources. Understanding the political and economic dynamics at multiple levels is a necessary condition to understand that public intervention is much more than mere ideological orientation, corresponding to disputes and concrete interests which are peculiar to each nation-state.


[1]  KEOHANE, R.; NYE, J. Interdependence in World Politics. In: KEOHANE, R.; NYE, J. Power and interdependence: world politics in transition. Boston: Little Brown and Company, 1972. p. 3-22.

[2]  CAMPODÓNICO, H. Gestión de la industria petrolera en períodos de altos precios del petróleo en países seleccionados de América Latina. CEPAL. Santiago. 2009.