After years of impoverishment, Guyana is suddenly on the verge of prosperity. Since 2015, a consortium led by Exxon Mobil has developed at least 10 deepwater oil wells off Guyana’s shores, with a combined productive capacity of around 750,000 barrels per day. Exploration is ongoing, with most experts anticipating the country’s oil reserves exceed the current estimate of 5 billion barrels. One way to grasp the magnitude of these discoveries is that in 10 years, Guyana, with a population of slightly less than 800,000, could pump nearly a barrel of oil per person each day—more production on a per capita basis than Saudi Arabia today.

Still, there are unrealistic expectations. Take the prediction of Guyana’s minister of natural resources that, thanks to an oil-backed sovereign wealth fund in the works, “Each Guyanese is going to be a U.S.-dollar millionaire, or worth that, in a few years.” Of course, the spectrum of disasters linked to sudden oil windfalls, from Angola to Nigeria to next-door Venezuela, suggests otherwise. The oil curse hangs over Guyana, with risks of inflation, corruption and inequality, among other things.

Apparently aware of these traps, the government has not saddled itself with excessive borrowing ahead of the likely surge in petrodollars. 
Yet disputes over how to manage this budding oil industry have spilled into Guyanese politics, with a vote of no confidence in President David Granger in late December, driven by a backlash over how his government handled oil contracts. “They sold our patrimony” to Exxon Mobil, opposition leader Bharrat Jagdeo of the People’s Progressive Party said of Granger’s government. Although the vote triggered new elections within three months, the government is challenging it in court, adding to the political uncertainty. 

The discovery of oil, it was initially thought, might provide a remedy for one of South America’s poorest countries. Now there are fears not only about the possible economic dislocations of the oil boom, but its corrosive effects on the political and social fabric of a country with a history of racial divisions.

There are good reasons for concern. Membership in Guyana’s major political parties is mainly along ethnic lines, a legacy of its colonial history. The People’s Progressive Party, or PPP, which was in power from 1992 to 2015, is mainly comprised of Indo-Guyanese, while Afro-Guyanese dominate the People’s National Congress, which is a key member of the Partnership for Unity coalition that Granger headed when he won the presidency four years ago. Once elected, political parties have a tremendous advantage in perpetuating their stay in office, as the PPP did. Whichever party is in power when the oil revenues start coming in is likely to expand its patronage network to do just that. 

That is why oil has raised the political stakes. Well before December’s no-confidence vote, the opposition was questioning the agreements between Granger’s government and Exxon Mobil, calling them unusually favorable to the energy giant and demanding more transparency. An $18 million signing bonus was channeled to Guyanese officials, the opposition alleged—which turned out to be true, although Exxon Mobil claimed the payment was standard industry practice “in many petroleum agreements.” The production sharing agreement entitles Guyana to a 2 percent royalty on gross earnings, with the crude volume evenly split, but only after Exxon Mobil recoups its operational costs from oil sales, capped at 75 percent of total monthly production. Even the IMF considered the deal to be exceedingly generous to Exxon Mobil and advised the government to negotiate a higher share of crude proceeds and a more progressive tax regime in subsequent agreements. 

Despite the current gloom, it is not too late for a scenario in which oil is used to solve Guyana’s problems.

In the surprise vote of no confidence on Dec. 21, Charrandas Persaud, an Indo-Guyanese lawmaker from the Alliance for Change, broke from Granger’s ruling coalition and cast the deciding vote. Coalition members shouted at him to change his vote, and he was later escorted out of the building by police through a back door. Fearing for his life after the vote, and denying official charges from the government that he was bribed $1 million for it, Persaud, who also has Canadian citizenship, fled for Canada, where he remains. Guyana’s government then announced it would challenge the no-confidence vote on the grounds that Persaud was ineligible to serve in parliament because of his Canadian citizenship.

Granger’s government had taken some positive steps regarding oil. It published a “green paper” last August to advance the national discussion over how to manage the windfall and began building management and oversight mechanisms to deal with its commercial oil sector partners. It proposed a “natural resources” sovereign wealth fund and other steps to strengthen institutions. However, as outlined in the green paper, members of the sovereign investment committee would be appointed by the finance minister, potentially limiting the body’s autonomy. Such an arrangement would do little to alter the perception of ethnic favoritism in decisions regarding government jobs and investment, social programs, and state contracts.

With oil revenues still several years out, it is possible to imagine several scenarios. Perhaps the greatest danger for Guyana is the current political turmoil escalating to the point of tension between Indian and African communities. When the oil revenues finally arrive, they could go to patronage networks rather than the national interest. 

It is easy to imagine another scenario in which the Indo-Guyanese majority returns a PPP government to power in March. If Afro-Guyanese feel Granger’s government was brought down unfairly by Indo-Guyanese politicians, they might think that the democratic system won’t protect their interests. Such disillusionment could lead to escalations of communal violence, government paralysis, and expanded criminality and corruption.
Despite the gloom, it is not too late for a better scenario, in which oil is used to solve Guyana’s problems, rather than stoke old ones. Granger and Jagdeo met earlier this month and insisted that new elections would be called soon. “We don’t want our country to go into a constitutional crisis,” Jagdeo insisted. “The president said he doesn’t want Guyana to be seen as a failed state.” Yet the legal challenge to the no-confidence vote still hasn’t been resolved. Guyana’s High Court on Thursday ruled that the no-confidence motion was valid and that general elections must be held by March, unless parliament votes to extend Granger’s government, which is very unlikely. The government immediately announced it would appeal the court’s decision, taking it all the way to the Caribbean Court of Justice in Trinidad, if needed.