Ecuador’s Risky Energy Grab

With oil prices so high, it’s not surprising that Ecuador has joined fellow energy-rich Latin American countries Bolivia and Venezuela in booting foreign oil companies or drastically raising royalties and taxes. In all three countries, the majority of the population is poor and needs better schools, hospitals, and highways. Governments want to get their hands on more of those oil profits to pay for these popular programs.

But Ecuador’s decision to expel U.S. oil company Occidental, the country’s biggest foreign investor, is a risky move that not only could disrupt oil production but also hurt nonoil exports by scuttling trade agreements with its biggest trading partner, the U.S.

Ecuador may be gambling that high oil prices mean numerous suitors will line up to take Oxy’s place. The Chinese have been investing heavily: In February, a joint venture of Chinese state companies paid $1.2 billion for a share in an oil pipeline and oil fields that had been operated by Canada’s EnCana.

” But even the Chinese may balk at the constantly changing rules and taxes that Latin America’s oil nations are imposing. “The Chinese are the new boys in town and are seen as an alternative to the oil majors,” Tissot says. “Right now they are focused on buying reserves, but their economic analysis of investments might change in the future.”

Business Week