The Peruvian oil market has had a complicated reopening after two years marred by the Covid-19 pandemic, in which oil & gas fields were shut down. In addition, Petroperu’s 200,000 barrels per day (b/d) Oleoducto Norperuano (ONP) pipeline was also shut down as protestors occupied the facility and demanded social investment in the northern Amazon jungle. The ONP has since been reopened. An oil spill the size of Paris off the Peruvian coast highlighted the industry’s challenges and reinforced anti-oil sentiment and energy nationalism.

The Crisis in the Amazon

ONP’s takeover by protestors represents a broader social movement at odds with energy interests. Oil firms stand accused of exploiting rising oil prices to push through laws that cement their hold on the country and allow them to conduct activities that harm the environment and hurt the interests of indigenous peoples. The Anglo-French firm, Perenco, has sued the government to repeal a law that creates a Napo-Tigre reserve for isolated indigenous people. These uncontacted people are especially vulnerable to communicable diseases and violence when they contact outsiders. Perenco not only wants to prevent this reserve from being created, it wants to be involved in any procedure which affects the creation of any such reserve in the future. Indeed, the firm disputes that these uncontacted Peruvians exist, despite evidence of their existence. Perenco has a financial interest in ensuring that this reserve is not created because the reserve runs over its concessions. The Asociación Interétnica de Desarrollo de la Selva Peruana (AIDESEP), a Peruvian indigenous people’s rights organization, condemned the move, citing the “enormous amount of evidence” of uncontacted peoples, and calling for Peru to realize its “moral and legal obligation” to create such a reserve. 

Meanwhile, Perúpetro, a state-owned company in charge of promoting, negotiating, signing, and supervising contracts for the exploration and exploitation of hydrocarbons in Peru, proposed a bill that would allow it to sign short-term contracts without seeking Congressional approval. This is seen as a move that would allow it to resume operations on the Block 8 oil concession, where there have been numerous ecological disasters over several decades. 

These initiatives are examples of efforts made by the oil industry to impact the fate of the Amazon. Opposition to these initiatives is likely to make it difficult for the industry to operate normally or accrue reputable international partners, at least in the West, where ESG investing and other impact investors have worked to remove capital from the industry, punish bad actors, or change the course of bad actors. 

The oil spill earlier this year led to the president barring four oil executives from leaving Peru for 18 months. President Pedro Castillo declared an environmental emergency. The executives are all employees of the Spanish energy company Repsol, which is responsible for the spill: Jaime Fernández-Cuesta, the general manager of the La Pampilla refinery, and three company directors, Renzo Tejada, Gisela Posadas, and José Rey. The emergency measures were in place between January and early April. 

Peru has since sued Repsol for $4.5 billion, as it seeks to make the company pay for this massive ecological disaster, which saw 10,000 barrels of oil spilled into the Pacific Ocean, covering an area of about 40 square miles (106 square kilometers), or the size of Paris. 

According to the Guardian, the oil spill harmed “one of the world’s richest marine ecosystems; killing fish and invertebrates, leaving more than 1,000 seabirds coated with oil, several hundred dead, and a toll on marine mammals such as endangered sea otters”. 

The crisis will likely force the government to be at loggerheads with Repsol and other oil firms and commodity firms that are seen as harming the environment. 

Energy Nationalism

Pedro Castillo’s election to the presidency of Peru signals that energy nationalism is back. This is not because the president’s actions have been particularly left-wing but because he got to power with far-left rhetoric, showing that there is a sizable number of Peruvians who are discontented with the status quo. Castillo, a former school teacher and trade unionist, beat an impressive array of candidates, such as Keiko Fujimori, the daughter of the former president, Alberto Fujimori, the famed economist Hernando de Soto and a former president, Ollanta Humala. 

His unlikely success came when Peru had Latin America’s second-highest Covid-19 related death rate. Furthermore, all the candidates were somehow associated with Fujimori, whose austerity policies and neoliberal economic doctrine had widened inequalities in the country, deepening poverty in Peru’s poorest areas. 

Castillo promised to revise the country’s constitution to allow the state to generate more revenues from Peru’s strategic resources, partly by re-nationalizing the country’s oil & gas fields and mining rights. Since he became president, Castillo has disavowed his association with the Marxist Free Peru party, leaving the party in June 2022 and governing as an independent, saying, “the one who is going to govern is me.” There will be “no communism” in Peru under his government. He has drifted toward the center as president, espousing a more moderate set of policies, but his rise suggests that the appetite for energy nationalism is vital in the country. The president has already faced efforts to remove him, and his support is weak. Still, his presidency suggests that a future energy nationalist could run and win elections in the country. 

Conclusion

Although oil and other commodity prices are rising, clashes over the future of indigenous peoples, the Amazon, and the environment as a whole, are creating an environment in which oil firms and commodity producers are likely to suffer some adverse measures in an attempt to limit their harm. This could be in the form of nationalization, caps on expansion, and windfall taxes, among other measures. The risk inherent in holding stocks in these companies is significantly hiring. Legal liabilities alone are a reduction in the value of the business. The future is very uncertain and not very positive.