Research Library

With the recent approval of Mexico's energy reform and the current enthusiasm of South American governments to attract foreign investment in oil, one might be tempted to conclude that the tide of resource nationalism is receding in the region. Nevertheless, the cycles of investment and expropriation that have characterized the oil sector in Latin America are unlikely to go away.

Latin America has witnessed an unprecedented natural resource boom in the last decade. However, the macroeconomic and social achievements cannot hide the significant challenges and some negative effects of the mining boom, including the so-called resource curse.

Venezuela is a textbook example of a resource-dependent country. Nevertheless, Venezuela currently combines an economy that is stagnant, despite high oil prices, with an increasingly authoritarian government.

With a favorable market and nearly inexhaustible resource base, Venezuela has a historic opportunity to boost its oil industry. However, the industry faces serious policy hurdles, and the potential of this investment is likely to be wasted.

The significant influence of governors in the national policymaking process in Latin America can potentially generate uncoordinated and contradictory policies.

Latin America recently experienced a new wave of nationalization in the hydrocarbon sector with tax increases and the participation and control of the state. There is considerable variation in the specific policies that Latin American countries implemented, however.

The 1990s witnessed a significant increase in investments in the oil and gas sector in Latin America. Recently, however, the region has experienced a new wave of resource nationalism, with increases in the government's take and state control. This recent trend is largely the outcome of the rise in the international oil price.

The political institutions that established Venezuela's democracy in the 1960s were deliberately set up to generate a cooperative equilibrium with low stakes of power. The recent political reforms, increasing the stakes of power, have stimulated a complete breakdown in cooperation and a highly polarized political system.