Colombia elects its first leftist president, which is bad news for oil and gas

LLatin America swung further to the left last week as Colombian voters opted to send Gustavo Petro to the country’s presidential palace. In August, the former mayor of Bogotá and former member of the violent guerrilla organization M-19 will join the region’s growing list of left-wing leaders in a political shift that some liken to the “pink tide” of the late 1990s. 1990s and early 2000s.

Although voters in several Latin American countries managed to turn their countries back towards neoliberalism and free market capitalism after the pink tide, it seems that a new wave of populism has again caused a change in political appetite. .

Besides Petro, we have seen the recent elections of leftists like the Mexican Andrés Manuel López Obrador (AMLO), the Peruvian Pedro Castillo and the Argentinian Alberto Fernandez.

Meanwhile, in Brazil, former President Luiz Inácio Lula da Silva, who took advantage of the pink wave to rise to power, leads the polls against incumbent President Jair Bolsonaro. Brazil’s President Trump, whose popularity has been hit by high inflation and soaring fuel prices, is reportedly considering increase monthly allowances to millions of poor families in a bid to improve his chances of re-election in October.

Parts of Central and South America have yet to recover from the economic damage caused by the pink tide 20 to 25 years ago.

Nicaraguan President Daniel Ortega, who ‘won’ a fourth term in November last year after jailing his political opponents, has turned the tiny Central American country into the region’s third full-fledged dictatorship after Cuba and Venezuela. In March, Nicaragua’s own ambassador to the Organization of American States (OAS) courageously condemned the Ortega government to roll back human rights and nullify free speech and political dissent.

I wrote several times on Venezuela– once the richest country in Latin America, now home to hyperinflation and near-universal poverty due to the failed socialist policies of Hugo Chávez and Nicholas Maduro.

Oil and gas companies could find it even harder to operate in Colombia

Daniel Ortega from Nicaragua, Nicolás Maduro from Venezuela, Gustavo Petro from Colombia

This brings me to Colombian Petro, who would become the country’s first left-wing president. As implausible as it is, there is a legitimate fear that it could Venezuelan Colombia, one of the United States’ closest allies in the Western Hemisphere. I say “unbelievable” because, as things stand, the Colombian president serves only one four-year term. But as they’ve proven time and time again, autocrats find a way to hold on to power, no matter the cost.

Writer Maya Angelou once said that when someone shows you who they are, believe them the first time. Petro, 62, has shown us that he is no friend of property and personal freedoms. He has praised Hugo Chávez several times and says he plans to normalize relations with Venezuela.

Embarrassing, the elected president retweeted a March 2021 article by liberal economist Paul Krugman in which he attempted to demonstrate that trillions in money printing had not caused inflation in the United States A year and a half after that original tweet, prices are rising to their fastest pace in 40 years.

Despite the fact that crude oil is Colombia’s number one export, Petro has vowed to be hostile to the oil and gas industry and pledged not to award any new exploration contracts. He would like to turn Ecopetrol, the country’s main oil producer and biggest company of any kind by revenue, into a wind and solar provider. As Bloomberg reports, the Colombian government owns 85% of Ecopetrol, so there’s not much to stop Petro from accomplishing this.

Shares of Canadian oil producers operating in Colombia fell last Monday, the day after the election. The largest of these, Parex Resources, fell more than 10% in intraday trading before closing down 5.6%.

Shares of Parex Resources fell after Gustavo Petro won the Colombian presidency

The growing favor of Latin Americans for cryptos

The only positive I see from a Petro presidency stems from his surprising Bitcoin support. As a decentralized asset, Bitcoin generally does not appeal to socialists like Petro, who seek to control all areas of the economy. However, he seems to like cryptocurrency since it takes the power away from the banks and eliminates the need to trust a third party.

To be fair, Petro’s favorable attitude towards Bitcoin is shared by a growing percentage of Latin Americans, many of whom have embraced crypto to circumvent currency controls and send money across borders, not to mention saving their money for maybe the first time in their lives. Lives. In a report just released by Mastercard, an incredible 51% of Latin Americans made a transaction using digital assets, including Bitcoin. I expect this number to increase significantly over the next few years.

Climate policies have driven much of the inflation we are seeing now

Petro’s anti-fossil fuel ambitions face not only the constraints of a single four-year term, but also a potentially uncooperative Congress.

But for the sake of discussion, let’s say he succeeded in stopping all exploration and production in the country.

Such a move would surely add to the fuel price inflation we are experiencing. already know around the world. According to the International Energy Agency (IEA), global oil demand is expected to reach pre-pandemic levels next year as more and more people start to travel again for leisure and business. At the same time, global investment in oil and gas projects has not fully recovered, nor is he expected to do so for the rest of the year.

Take a look at the table below. It shows you the 2016-2021 investment increase in research, development and demonstration (RD&D) budgets for selected areas of the total global energy sector. Fossil fuels lag behind all other areas, receiving less new funding than energy efficiency, nuclear, hydrogen and fuel cells, renewables and even “transversal”, which includes “women’s participation in clean energy”, “clean energy education and empowerment” and other activities.

Global investment in fossil fuels lags behind all other areas of the energy mix

Again, this is all incredibly inflationary. Without adequate investment in traditional energy sources, we will continue to see fuel prices soar.

Oil falls below key 50-day moving average on recession fears

That said, oil traded lower last week on concerns that a possible recession could dampen demand. The price of Brent, the international benchmark, has fallen below its 50-day moving average, a possible bearish signal. Brent still seems to have strong support as you can see from the 200 day moving average, so this could be a fake.

Brent crude oil falls below its 50-day moving average

A significant drop in fuel costs would be good news for everyone, especially for all transport-intensive businesses, from trucking to airlines to container shipping. Airlines have had to raise fares recently to offset soaring fuel prices, while shipping fares are starting to recover after falling from their peak in September 2021.

The inflation of the 1970s is here. Find out what investors can do about it by by clicking here!

Originally published by US Global Investors on June 27, 2022.

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