Guyana – Political Risks in Check, for Now

It is now eight months since President Mohammed Irfaan Ali took office, ending a protracted political crisis sustained by the recognition that whoever claimed victory in last year’s election would inherit an oil-powered economic boom and a massive financial windfall, both of which would position the winner to remain in power for a very long time. The very high stakes amplified the racial tensions that have long been a feature of Guyanese society and are reflected in the political realm by the close correlation between ethnicity and party affiliation.

Ali has refused to hold a dialogue on political reforms unless opposition leader Joseph Harmon, a member of the PNC-R, acknowledges the legitimacy of the PPP-C’s victory. The PNC-R’s history of repeatedly refusing to affirm the legitimacy of PPP-C governments is likely guiding the strategy, and the fact that Caricom is not applying pressure on the president to give ground, despite Harmon’s direct appeal to the organization, suggests that Ali’s regional counterparts support Ali’s position.

The absence of moral support from Caricom or the international community more generally may deter the PNC-R from adopting a more militant approach if the president refuses to budge. As long as partisan battles are fought within the confines of the institutions of governance, the PPP-C’s one-seat majority in the 65-member National Assembly will be enough of an advantage to keep political instability in check.

At this point, the rather favorable numbers for the PPP-C probably reflect public disdain for the PNC-R more than any deeply felt satisfaction with the incumbents, but with oil production projected to gain momentum and crude prices moving higher after a steep fall in the first half of 2020, the Ali administration will have ample resources at its disposal to build goodwill with the electorate.

The biggest near-term threat to the anticipated oil bonanza stems from Venezuela’s long-standing claim to be the rightful owner of some 70% of Guyana’s territory and the associated offshore oil reserves. The dispute is unlikely to be settled in Venezuela’s favor through peaceful channels, an assumption that has fueled speculation that embattled President Nicolás Maduro might decide to make use of his country’s overwhelming military superiority to force a favorable outcome.

However, investors appear to be assuming that Maduro will opt for some form of negotiated resolution. In recent weeks, ExxonMobil has announced that its Guyanese assets will be the company’s operational priority in 2021, and Hess has reportedly sold off $150 million of Danish holdings with the aim of freeing up capital to plow into its activities in Guyana.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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