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Oil needs stable institutions
Guyana's boom
Guyana discovered its oil reserves in 2015, and they are far less abundant than what Venezuela has. Its GDP has increased roughly 500% in less than a decade. It now produces over 900,000 barrels per day, roughly what Venezuela was managing before the intervention, from a fraction of the reserves.
What Guyana had
What Guyana had was reliable international investment, primarily from ExxonMobil, and an industry built out under stable institutional conditions.
Venezuela's missing confidence
Anybody who wants to do business with Venezuela lacks that kind of confidence in the country's ability to maintain a stable economy or stable relationships with its partners. Whichever government takes power after elections would need to establish the kind of institutions that give investors confidence, and that would be what makes the difference.
Why did Guyana's economy grow so fast?
Offshore production began in late 2019 from the Stabroek Block, operated by ExxonMobil with partners. Guyana's economy was small beforehand, so new oil revenue produced very large percentage jumps. The International Monetary Fund reported growth above 30% in both 2022 and 2023. A small base makes the same dollars of new output look dramatic in percentage terms.
How do stable institutions draw oil investors?
Oil projects cost billions and take years to pay back, so investors price in the risk that contracts will be rewritten or assets seized. Countries with predictable courts and contract law pay a lower risk premium for capital. Economists Jeffrey Sachs and Andrew Warner reported in 1995 that resource-rich countries tended to grow more slowly, and later research pointed to the quality of institutions as the dividing line. Norway created its sovereign wealth fund for oil revenue in 1990.
Why can Guyana pump so much from less oil?
Output depends on the quality of the oil and the capital behind it, not only on the size of reserves. Guyana's offshore crude is light and low in sulfur, so it flows and refines easily. Venezuela's extra-heavy oil in the Orinoco Belt is often mixed with lighter diluent so that it can move through pipelines, and it needs upgrading before most refineries can use it. Guyana's first crude grade has an API gravity of about 32 degrees.
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