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Unrest In Colombia Could Disrupt A Vital Source Of Heavy Crude Oil

This article is more than 4 years old.

Hundreds of thousands of protesters have filled the streets of Colombia this week, proclaiming their desire to upend the way things are done. Could unrest impact Colombia’s economic relationship with the U.S.? Crude oil is Colombia’s biggest export. And despite a glut of domestically produced light crude from shale fields, U.S. refineries are hungry for heavy crudes they need for blending — just as unrest elsewhere in the world is taking other heavy sources offline. 

“There is no substitute right now,” Anas Alhajji, an energy expert in Dallas and former chief economist at NPG Energy Capital told me by phone. “No one else has heavy crude to sell and therefore Colombia is more important right now.”

Supply is constricted by Venezuela’s collapse, upheaval in Iraq and Iran and an ongoing railworker’s strike in Canada. Heavy crude makes heavy products like diesel, fuel oil and lubricants. The US shale oil boom pumped up mostly light crude. 

That’s why Alhajji said that although Colombia’s exported oil remain relatively minor in quantity, “it is extremely important and significant in terms of quality.”

It’s also Colombia’s top export, accounting for nearly 30 percent of products sold overseas in 2017. 

So what puts access to that heavy crude at risk? 

Hundreds of thousands of Colombians have marched for five days straight now in opposition to the government and to business as usual in this tropical Andean nation. Already the upheaval has produced a popular protest movement like Colombia has never seen. It is energized by recent eruptions in Ecuador, Chile and Bolivia where protesters forced major concessions from governments. 

This could be a turning point for the closest U.S. ally in Latin America. Emerging from a 50-year civil war that ended in 2016, Colombia seems finally able to take up the civil and developmental issues that were long sidelined by war. 

Part of Colombian business as usual has long been a tight relationship with the U.S. and open access for big global business, a philosophy that protesters here call neoliberalism. 

While many Latin American nations have made dramatic swings between left and right governments since the early Cold War, Colombia has remained pretty consistently under center right rule with a smoldering civil war for three generations. 

In the 1990s the U.S. Drug War brought a major American presence to Colombia and one of the largest U.S. embassies in the world. The last two Colombian presidents studied at U.S. Ivy League colleges. President Duque, 43, spent more than 10 years of his career in Washington DC. 

Although demonstrators hold signs condeminding Duque, many at the marches have told me they are protesting qualities that have grown steadily throughout the last few administrations. 

The data shows that Colombian  imports increased fivefold since 2000, a period which saw the trade deficit grow from $0 to $1.2 billion. 

That model is stinging now after a 20-month decline of 28 percent by the Colombian peso against the dollar. 

“Those who govern this country have bet on foreign production and imports over the nation’s farmers,” one head of an agricultural sector association told me at one of the recent marches.  “Foreign producers have subsidies we don’t have, highways, technology, good ports — a thousand things that Colombian farmers don’t have.” 

Although agriculture makes up a relatively small 7 percent of the Colombian economy, it covers much of the country and the small farmers are a critical segement of Colombian society. They inhabit the vast countryside where underdevelopment and the cocaine economy have kindled violence for so long.

As long as Colombia’s small isloated farmers can’t make a living legally, they will farm coca - the base ingredient of cocaine, the cultivation of which is practically at an all time high. As long as there is coca, armed groups will have the lucrative funding to dominate the trade and oppose the state.

The era of stability ushered in by the 2016 peace accords that ended Colombia’s 50-year-civil war could proove fleeting if structural causes of conflict aren’t addressed.

The protests like Colombia is seeing these days were possible while the country was preoccupied with war. Now that peace has allowed Colombians to look critically at their governing and economic systems, energized by the examples in their neighboring countries, there could be a new style of management in store - if not immediately then likely after the 2022 presidential election. 

If the country opts for a system more protective of small local producers and less open to global markets, it could complicate the economic relationships that today make Colombian heavy crude an important part of U.S. supply.