Brazil's Future Going the Way of Oil
SAO PAULO — Brazil is poised to take its place among the world's petro-powers. Estimates of its newfound oil reserves place it in eighth place among oil-producing nations, ahead of Nigeria as well as Brazil's rival for influence in Latin America, Venezuela. Such newfound wealth is normally a source of celebration. But Brazil's President Luiz Inacio Lula da Silva, perhaps fearing the infamous "resource curse" that has blighted the development of so many countries blessed with mineral wealth, is determined that the new oil wealth not be turned into "nonsense."
In 2007, huge oil deposits were discovered off Brazil's coast. Modest estimates put these reserves at around 30 billion barrels. Credit Suisse and other investment banks say that 50 billion barrels are available.
The discovery is the result of a strategic policy maintained through successive Brazilian administrations, something unusual in Latin America. In 1989, when the Iraq-Iran war sent shivers among oil-consuming nations, Brazil began to explore for energy both within and beyond its 200-nautical-mile protected zone. The size of the oceanic areas involved was enormous, thus earning the term "Blue Amazonia."
The discoveries are the largest oil reserves discovered in the ocean in recent years. For a while, the United States tried to question Brazil's ownership by trying to force a discussion of the "internationalization" of the oceans and their mineral resources. But the U.N. would have none of it, and Brazil's ownership was recognized.
Lula's government has thought long and hard about how to manage the oil wealth, and has devised a unique program. First of all, it wants to spread the wealth by pursuing a new model of regional integration through energy and infrastructure. It is planning to create a fund, backed 70 percent by Brazilian financial resources, that will be dedicated to projects such as rehabilitating roads in Uruguay and Paraguay in order to enhance its neighbors' capacities and correct economic imbalances.
Balanced economic development — national and regional — is essential for Brazil. Indeed, Lula's government is planning ways to ensure that the benefits gained from oil and gas are not limited to Sao Paulo, Rio de Janeiro, Minas Gerais, Parana, and other regions of the developed coast. It thinks it is essential to locate refineries, industries, and additional energy-generating units in parts of the country that are both suited for such development and in need of it. An additional benefit of dispersing these productive resources will be greater interaction with Brazil's South American partners.
Brazil's new oil reserves will certainly affect regional geopolitics. Mexico's oil fields are diminishing, which means that it may need to look for external supplies. Tensions in the Middle East, and growing rivalry between the U.S. and Venezuela, will make Brazil an attractive supplier.
Brazil is already testing its appeal as an energy power through the actions of its powerful state energy company, Petrobras, which is now as active in Africa as it is in Argentina. Indeed, Petrobras is now producing 100,000 barrels a day in both Angola and Nigeria, with the oil marketed locally.
But the discoveries place Brazil at a crossroads. Oil revenues can be controlled by the state to be used, in part, for social programs, as in Venezuela. Or private capital can be granted a bigger say, and trust placed in the market to provide for society.
This ongoing debate has impeded decisions on the future of deep wells in Blue Amazonia. Lula's administration has even thought about creating a new national oil company to deal only with the new fields. But this idea has created confusion among Brazil's trading partners and investors, and does not appear to be making headway.
There is an even more complex question. Brazilian growth will soon rest on the shoulders of a product that is the main source of global warming. Indeed, Brazil's embrace of an oil-fired future reverses its long-standing policy of reliance on biofuels.
So Brazil is on a collision course with the future. The size of the new oil reserves adds even more weight to Brazil's growing global influence. But it will no longer be able to condemn the U.S. for not signing environmental treaties, or point a finger at China for its massive output of pollution. Much less will Brazil be able to demand from its neighbors a commitment to sustainable development. Oil, it seems, will not only transform Brazil's economy, but its very role in the world.