By Sheila Dang and Kemol King
HOUSTON/GEORGETOWN, May 30 (Reuters) – Guyana was already the world’s fastest growing economy before the U.S.-Israeli war on Iran drove up oil prices. Now, the tiny Caribbean nation of nearly 1 million people will reap an even bigger bonanza as the conflict reshapes global energy markets.
The war that caused one of the largest energy disruptions in history highlights the growing importance of countries including Guyana that offer political stability and geographically unrestricted access to their estimated 11 billion barrels of oil reserves. This growing windfall from crude brings pressure from business owners and locals on the government to use its billions of dollars to boost other parts of the economy.
“The world has seen too many energy booms that left behind ghost towns, depleted forests and bitter populations. Guyana will not be that story,” President Irfaan Ali said in an address at Rice University’s Baker Institute this month.
Rapid development by an Exxon Mobil-led oil consortium, which controls all of Guyana’s oil production, grew output to over 900,000 barrels per day in just seven years, a pace without recent precedent as offshore projects can typically take twice as long just to produce the first drop of oil. Guyana’s GDP more than quadrupled to $27.5 billion between the time the taps started flowing in 2019 to 2024, according to World Bank data.
Guyana was previously one of the poorest countries in South America and oil-fueled growth can be seen across the capital of Georgetown, where construction is taking place on new modern office buildings, upscale hotels and rows of single-family homes that resemble those that could be found in U.S. suburbs. Exxon billboards and ads for other petroleum companies play on the radio, serving as reminders for the industry that helped enable the growth.
MORE MONEY, MORE PROBLEMS?
The government’s long-term challenge is to fortify the country against an implicit pitfall – the economic cycle of boom and bust oil prices. Guyana needs to look no further than its neighbor Venezuela for an example of how political dysfunction and overreliance on oil money can cripple an economy despite having one of the largest estimated oil reserves in the world. One of Guyana’s strategies is its 2019 sovereign wealth fund holding all oil revenue which allows the government to draw funds for development projects at a steady rate.
Crude prices, up 30% since the start of the Iran war in late February, could further swell Guyana’s oil revenue. Assuming an oil price of $100 per barrel through the rest of the year at current production volumes, Guyana’s share of oil revenue could be worth roughly $4.3 billion, 67% higher than last year, according to Reuters calculations.
More importantly, Guyana is poised to start receiving a significantly larger share of oil production earlier than expected. The Exxon consortium currently takes 75% of the oil to recoup its initial exploration and development costs. And now, the consortium could recover the costs this year, Exxon has said. When that happens, the country’s share of the profit oil will climb from 12.5% to 50%.
Ali cautioned that expectations needed to be managed, as any windfall due to higher oil prices would be offset by higher import costs for nearly all goods including fuel and fertilizer.
“This is the complexity of the messaging when people wake up every morning and see the headlines that you’re flush with money, it drives a certain expectation,” he said in his Baker Institute address.
Some local infrastructure has not improved at the same pace that the oil industry has developed. Open sewage drains line the streets of Georgetown and electricity outages remain a common occurrence.
A ‘CHANGED WORLD’
Guyana sits at the center of a region that includes the established oil and gas economies of Venezuela and Trinidad and Tobago, as well as Suriname, where the sector is emerging. The area benefits from direct, unrestricted access to the Atlantic, without maritime chokepoints vulnerable to blockades like the Strait of Hormuz.
Guyana’s low break-even prices in the $25 to $35 per barrel range, and proximity to U.S. markets that are supportive of fossil fuel development, further compound long-term advantages, said Tarron Khemraj, a professor of economics and international studies at the New College of Florida, who has studied Caribbean countries including Guyana.
Spot prices for Guyana’s four crude grades – valued for their light to medium sweet quality – have surged over the past three months, with the Liza benchmark reaching a high of $120 per barrel from $68.98 on February 27 before the conflict in the Middle East began.
Even if traffic through the Strait of Hormuz resumes soon and oil prices return to pre-war levels, experts say Guyana’s track record as a geopolitically stable source of oil will further solidify.
“The war may end next month, but it will be a changed world,” Khemraj said.
Still, numbers that look like a boom may belie the full reality of the broader economy.
While Guyana has recorded double-digit percentage GDP growth each year since oil production began, most of that expansion has been concentrated in the petroleum sector, rather than broad-based activity. Oil and gas and support services accounted for more than 75% of the country’s GDP last year, according to government data.
SHARING THE WEALTH
As part of its effort to make sure more of the oil revenue trickles down, the government is also moving to expand its local content law, originally passed in 2021, that requires oil and gas firms to contract with Guyanese-owned suppliers and vendors in a number of specific areas, such as janitorial, food or transportation.
The regulation requires petroleum companies to procure a certain percentage of services from Guyanese businesses, for example, 25% of medical services and 90% of catering services. The government is considering amendments to add more service areas and increase the percentage requirements for some existing ones, Michael Munroe, director of the local content secretariat, said in an interview.
Business owners say that expanding the requirements will help support more jobs and the development of skilled labor.
“We’re able to provide all of the same medical services as an international company,” said Ayesha Wilburg, founder and CEO of a Georgetown-based health clinic.
Rising oil activity has also led to a similar explosion in demand for private transportation services in Georgetown, where residents often travel by cab.
Nazim Baksh, general manager of Sean’s Transportation Services, said the company expanded from seven employees to about 20 and also upgraded its fleet from sedans to add more SUVs.
Challenges remain, however, including complaints from Guyanese business owners about so-called fronting. Panelists at the Guyana Energy Conference in February acknowledged the problem, where foreign companies use local entities but retain actual control of the business.
Vanita Ally, medical director and founder of Phoenix Clinicare, a Guyanese-owned medical center, said that receiving a certificate to provide services to oil firms has not resulted in much additional revenue and inflation is also increasing her operating costs.
“International companies are benefiting a lot more than local people (from the oil industry),” Ally said.
Drivers are now paying more at the pump, like other countries, adding to cost of living concerns. Guyana lacks a refinery and must import gasoline, diesel and other refined products.
“For Guyana, as a country that is now a net producer and exporter of energy, (higher oil prices) can mean positive things, but of course, that isn’t necessarily what people see and feel every day because it means that energy prices are going up,” said Alistair Routledge, president of Exxon’s Guyana operations at a press conference in March.
“We recognize this is a mixed blessing for people in Guyana.”
(Reporting by Sheila Dang in Houston and Kemol King in Georgetown; Editing by Nathan Crooks and Anna Driver)
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