In bucketfuls of it

Mar 17, 2025 Features / Columnists, Peeping Tom

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Peeping Tom…

Kaieteur News- It was a great economist, who, when asked about the fate of a nation’s economy, famously replied, “Well, it depends.” This, of course, is the kind of insightful wisdom that makes economic forecasting such a thrilling sport.

And in Guyana’s case, it seems that all our oil dreams depend on one thing: a barrel of oil staying above the magical $50 mark. If it goes below that, well—let’s just say we’ll all be in bucketloads of you know what.

Vice President Bharrat Jagdeo, ever the economic maestro, has assured us that the model for our oil wealth is built on this $50 per barrel assumption. Not $49, not $51—exactly $50. Now, if the price of oil drops below that, we know the implications: it could throw the entire model into disarray. “Disarray” is a wonderfully diplomatic word that economists use when they mean we are all in bucketloads of you know what.

As it stands, Guyana’s economy has developed a rather unhealthy obsession with oil revenues, much like a gambler who is convinced that the next spin of the roulette wheel will bring him untold riches. Over the past month, the earnings per barrel of oil have started to decline—not drastically, but enough to make the folks in high places sweat.

Global oil prices are being nudged downwards by a mixture of geopolitical concerns and a certain trade war initiated by a man with a penchant for golden skyscrapers and Twitter rants. These fluctuations should have been anticipated, but apparently, our oil prosperity was designed around the assumption that the world would never change. Ever.

The implications of a price drop are dire, particularly when it comes to cost recovery. For those unfamiliar, the oil companies operating in Guyana have the remarkable ability to deduct up to 75% of their revenue each month as “cost recovery.” It’s a magical accounting trick, akin to a restaurant owner taking three-quarters of the cash register earnings every night to cover the cost of the tablecloths.

If oil prices drop, then even with their generous 75% cut, it will take longer for these companies to recover their costs. And thanks to our contract’s lack of ring-fencing, new projects don’t even have to start fresh; they can just keep shoveling more costs into the giant, bottomless pit called “the cost bank.”

Jagdeo, ever the optimist, tells us that the government has outlined improved terms for new oil contracts. This is fantastic news, except for one small problem—these improved terms do not apply to the existing mega-rich Stabroek Block operators. Nor have they attracted any new investors. Why, one might ask, would a fresh-faced oil company enter Guyana under the new contract terms when ExxonMobil and its pals have a far sweeter deal? It’s a bit like opening a lemonade stand right next to a billionaire handing out free mauby.

The result? No significant increase in Guyana’s oil take per barrel, no additional economic windfall, and certainly no security against oil price fluctuations. But fear not! The Vice President assures us that he has everything under control, which, historically speaking, is the exact moment when one should start to panic.

If per chance oil prices continue to slide downward past this ominous $50 threshold, then we are in problems. First, government revenue shrinks, causing alarm at the Finance Ministry, where officials will suddenly find themselves rationing office stationery. Next, social programmes that were promised with great fanfare will quietly disappear, including the part time labour programme. Infrastructure projects will stall, while ministers develop an urgent passion for overseas conferences where no one asks difficult questions. And of course, the people—the very ones who were told they would be basking in oil wealth—might begin to realize that they were sold a grand illusion.

Meanwhile, ExxonMobil and its associates will remain largely unaffected. Their cost recovery will continue unabated, and their profit margins will remain intact. After all, they’re not the ones banking on Guyana’s economy to keep their lights on. If the price dips, they simply adjust their spreadsheets, diversify their investments, and move along. We, however, are left clutching at straws, waiting for oil prices to rebound.

The truth is, no country should ever tether its entire economic stability to a single commodity, particularly one as fickle as oil. It’s like planning your retirement around winning the lottery. And yet, here we are, desperately hoping that global markets stay kind, that oil remains above $50, and that no unforeseen events disrupt the grand plan.

Of course, history suggests otherwise. The world has an uncanny habit of being unpredictable. Throughout history, crude oil prices have experienced significant fluctuations, with several notable periods where prices dipped below US$50 per barrel. In 1986, oil prices collapsed to $10 per barrel due to reduced demand and overproduction. The 1998 oil crisis saw prices fall to $11 per barrel. During the 2008 financial crisis, prices plummeted from over $140 to below $40 per barrel. In early 2015, a supply glut led to prices falling below $50 per barrel. The COVID-19 pandemic in 2020 caused an unprecedented drop in demand, with prices turning negative for the first time in history. These events highlight the oil market’s volatility and its susceptibility to economic and geopolitical factors.

And so, as we watch the price of oil fluctuate, we must ask ourselves: what is the backup plan? If the government has one, it has yet to be unveiled. And if it doesn’t, then we are all simply passengers on a wild minibus ride, which we have no control over. Because at the end of the day, nothing about this situation offers Guyanese people any real hope that their oil wealth will amount to anything more than a fleeting dream.  Unless, of course, the Vice President can assure us that oil will never, ever drop below $50 per barrel. In which case, when asked, he might say “Well, it depends.”

(In bucketfuls of it)

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)                       

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• bucketloads, economy, Oil revenues, oil wealth, Peeping Tom

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