Brazil, Trying to Avoid the Iran-Iraq Curse After Newfound Oil Riches

Brazil's Petrobras robot Luiz Inácio Lula da Silva, the president of Brazil, proposed the review of the current oil exploitation model and the creation of another company to manage the so called pre-salt oil fields which are believed to hold anywhere from 50 to 70 billion barrels of light crude.

Edison Lobão, Mines and Energy minister revealed this weekend that the government was considering how to address management of the pre-salt oil fields, but that Brazil "has no interest in breaking contracts" and anticipated a long battle in Congress over the issue, according to reports in the Rio de Janeiro press.

"The president had decided Brazil should not be tempted by the "Dutch curse," which has punished so many countries where huge oil deposits have been found such as Saudi Arabia, Iraq, Iran where instead of industrializing and diversifying their economies, they simply pumped the crude overseas," said Senator Aloisio Mercadante from the ruling Workers' Party.

"A current typical example of the Dutch curse is Equatorial Guinea a small African countries which exports 400.000 barrels per day and ranks 127 in human development," added Marcadante.

The Senator said Brazil was looking to the Norwegian experience, which was extensively debated in Parliament and finally a sovereign fund of US$ 400 billion was created "which has Norway second in human development because they have learnt how to exploit a non renewable resource."

The idea is that "this vast wealth has an intergeneration impact and brings benefits in the future," as happens in Norway said the Senator.

A special inter-ministerial group is expected to make an official presentation next September 19 of the new oil exploitation model referred specifically to the recently found reserves off the coast of Rio and São Paulo but at a depth of over 5.000 meters in the so-called pre-salt area, which means drilling a thick layer of rock and salt, a formidable technological and most expensive challenge.

In recent statements on his weekly broadcasted program, president Lula has said he favored the creation of a "second oil company, parallel to Petrobras."

However, the announcements have brought reactions from private investors who feel that new legislation on hydrocarbons would mean "changing the rules of the game" and the international standing of Brazil.

But Senator Marcadante said that current legislation was based on a concession auctioning model, which "was appropriate when Brazil was a country of high exploratory risk and low productivity fields."

Minister Lobão is quoted by daily O Estado de S. Paulo saying that the Brazilian government will honor all contracts of all private companies including those that have stakes in the so called "mega-fields." New legislation will apply for wells not yet auctioned.

Petrobras, the state-controlled oil and gas multinational, has become a world leader in deep water exploration. The Brazilian government has the voting control of Petrobras while 62% of the company's total stock is in private hands.

Once the pre-salt mega fields are developed, not before 2012, Brazil should be among the world's eight leading oil and gas producers.



  • Show Comments (12)


    A noisy blog?
    For some reason… I can hear the loud words printed around here whenever a certain blogger enters a comment
    Yet, somehow it does not sound like any native of central Europe… What could that be? hmmmmmm…. 🙂
    That’s right! It sounds like… a ….. H Y E N A 😀

  • ch.c.

    To all !
    Joao :
    My dereliction ? Noooo my erectile function is fine ?

    Ric :
    your ” But normally the people who buy tickets are losers”
    You are somewhat right but in France at their lottery their motto is “100 % of winners have played”
    Which also mean the one who doesnt try CANT win ! The same is as true for R&D or whatever business, technology, goods, foods or exploration. All of these have high failures first like non winning lottery tickets that must be amortized with the winning ones and still then generate a current profit for years !

    What is sad in the nationalizations is that all the risks are for the others, and if and when it become a winning ticket, this ticket is not for those who paid ALL the tickets ! A tricky game played by tricky players such as ALL OPEC countries.
    the interesting thing is that NOOOOOOOOO OPEC nation is a developed country even today. Some became wealthy because they have a relative small population with a lot of oil, but most are still poor today.
    And with the idiots who have written here and there that developed countries have pillaged over the decades their country, I cant stop laughing ! Do they really believe we are pillaging them today ? They will say Noooo ! Then guess what the genes they will transmit to their own children when in 30 years oil will cost Us$ 500.- per barrel. The family genes will resurface and we will hear again how they were pillaged in 2008 when oil was at US$ 120.-
    Yessss idioty is transmitted from generation to generation. Lazyness too.
    Where else do the OPEC nations invested outside of their infrastructure itself made by foreign engineers and foreign workers ? In Computers R&D ? Drugs R&D ? Telecommunication and communication R&D ? In their own cars/trucks R&D ? Software R&D ? New machinery R&D ???? Of course not ! They have invested in the FOREIGN companies because they are too ignorants and degenerated, even in 2008 ! They only have money made from our money and brains BUT not made with empty brains !

    This said high or low oil price is good for the investors who dont care as long as they make money using their brains in investing.
    If I am bullish I can buy Exxon/Petrobras/Schlumberger or simply OIL for example.
    If I am bearish I can short the above or buy shares in industries that should benefit from a low energy price ! Such as carfs manufacturers, airlines, truckers and food companies.
    But I can be wrong too.
    That is called the risk/reward that every entrepreneur or investor try to figure out, some with better averages than others !

    Simple…but no soo in investing !
    😀 😉 😀

    Finally, looking at the world perspective, somewhat funny (in fact not so) but my country with no oil/iron ore/no metals precious or not undergound (so far- smiles), no sea access, small and mountainous country, bad climate remains one of the world wealthiest nation.
    Oil and whatever commodities are just the base to stimulate our brains. We will then develop or buy tools to make something out of these commodities. In fact so good are our products is showned in our total exports that are the same than Brazil. Except their population is 25 times bigger than our population.
    Therefore emerging nations can continue to boast themselves, but even by tripling their exports, these exports per capita will remain low, very low ! And we will continue to have a current account surplus at around 15 % of our GDP against a record high
    DEFICIT….. in Brazil.

    We dont need to grow as fast as the emerging countries. We have the internal inflation under control for decades. This allows us to have one of the world lowest interest rates not the world highest or second highest such as Brazil. And despite our low rates we still have the world best currency on a secular basis. No currency in the world, has increased against my currency over the last 40 years. None ! All devalued by at least 75 % except the DM and the JY. Most devalued between 90 to 99,99999 % !
    And guess what is the weakest currency of all over 70 years : the country where citizens sing like chickenSSSSS of how good they are :
    B R A Z I L !

    😀 😉 😀 😉


    Simply a modest contribution…
    Following the Iran/Iraq model would certainly be the most unwise (if not absurd) decision which any civilized country could ever consider pursuing… Without access to the type of data, which some À¢€œalleged expertsÀ¢€Â claim, it is quite evident, even for inexpert eyes, to conclude that either of these barbaric nations have wasted immense resources (and continue to do so), while contributing trifle amounts in significant projects (either industrial, infra-structural, or educational) designed to eventually reduce their complete dependency on a limited resource.

    I suppose these individuals/groups in position of authority in any of these countries (nearly all bound to be corrupted) are likely to be too busy concentrating on other “activities” other than further developing their national industries and infra-structureÀ¢€¦ More than likely, those individuals or groups elect to spend valuable resources on official À¢€œprojectsÀ¢€Â designed to enhance their power and/or wealth, fomenting hatred towards opposing ethnic/religious groups, and, most importantly, buy weapons and fomenting the never-ending hatred towards Israel.

    As for Brazil, the main issue for most of us (who do not visit to just criticize), presuming that the so-called immense reserves are proven to exist and/or accessible (and if so, provided that such extraction is economically viable), the resulting resources should clearly be applied to the Achilles Hill’s of Brazilian society:
    1) Providing significant security (currently almost absent) for the general population and private corporations (thus generating the most crucial À¢€œbusiness climateÀ¢€Â required for growth, development & prosperity), and
    2) Recovering, rebuilding and/or extending the crucial, decaying national infra-structure (inadequate roads, limited railway network, inefficient airport facilities/ airline network/air traffic system À¢€“ all of which extremely deficient À¢€“ representing three of the most important aspects which crossed my mind at this moment)

    Finalizing this limited these modest views, I find my position regarding this particular issue relatively similar to the unfriendly Swiss BloggerÀ¢€¦ Yet, IÀ¢€™m relieved by identifying at least on crucial exception to this common view: although IÀ¢€™m a strong supporter of Classical Capitalism, following the À¢€œoverallÀ¢€Â views expressed by Adam Smith (author of The Wealth of Nations À¢€“ 18th Century), whereby the government should refrain from direct interference on its private sector (in order to permit the À¢€œinvisible handÀ¢€Â to handle economic matters), there are special sectors of the economy which should be exempted from such wise precepts, as matters of National Interest:
    -Energy related industries (such as gas & oil), and
    -Mineral extraction & its subsequent processing(iron ore/ steel)
    In essence, because of their crucial importance for the national well-being, I would fully endorse the nationalization of Petrobras and Vale do Rio Doce, provided of course that mutually acceptable agreements for due compensation are reached.

  • Ric

    Well, they could do what Alaska has done and rebate a fixed amount to each citizen on a yearly basis; or what Saddam did, spending it on whatever he wanted to, for himself or any project he wanted; like some countries who mismanage and lose most to corruption; many models exist.

    Or make it a model of private enterprise, attracting investment with good management and dividends.

  • João da Silva

    [quote]It remains to be seen what an influx of unearned and unmerited billions would do for a country like Brazil. Use your imagination.[/quote]

    My imagination is as good as yours, Ric!! That was the reason, why I said long ago that China would never spend Billions on developing the Brasilian infrastructure.

  • João da Silva

    [quote]But normally the people who buy tickets are losers, and when they win, sooner or later their life is more messed up than before and now they are in debt big time.[/quote]

    Not always Ric. Some buy just out of fun, like going to the horse races once in a while . But many winners make it a point to blow their trumpets on the News media and then all the”well wishers” come in to check what they can get out of it.

    Of course, I am talking about the Brazilian scenario and some cases I know about.

  • Ric

    On Rare Occasions
    Once in a while a savvy small businessperson will win millions in the lottery.

    He then becomes a savvy big businessperson.

    But normally the people who buy tickets are losers, and when they win, sooner or later their life is more messed up than before and now they are in debt big time.

    It remains to be seen what an influx of unearned and unmerited billions would do for a country like Brazil. Use your imagination.

  • João da Silva

    Where the heck were you for the past two weeks? Went AWOL , which in our opinion, is a gross dereliction of your duties. 🙂 😀 😉 🙁 🙁 😮

  • ch.c.

    “which has punished so many countries where huge oil deposits have been found such as Saudi Arabia, Iraq, Iran where instead of industrializing and diversifying their economies,”
    But lazy people always expect others to do the investments, provide the technology, build the production capacity and then……nationalize everything.
    Proven facts that none of the countries mentioned are developed even 40 years later.
    A few of them became wealthy but not developed simply because a lot of oil was found and wealth shared with a small population.
    But that is not the case with larger population countries.
    Iran for example, despite being a large crude oil exporter remains poor and still import a majority of its transportation fuel, because they not only dont even have enough refineries but the existing ones are old making them non competitive to imported fuel.
    Somewhat laughable that in the summer of 2007, transportation fuel in Iran was in shortage, and the government had to ration the individuals and commercial users, resulting in vast street demonstrations.
    And of course everything is deeply subsidized. In 2007 their stations pump prices were at 20 U.S. cents per gallon, somewhat similar to Venezuela.
    Ohhh and despite such a low price they cant even compete and produce manufactured goods competitively !

  • João da Silva

    I am happy to inform you that Ch.c is alive, well and kicking. Though he has decided to keep his profile low and is commenting under articles of absolutely no interest to us. 😉

  • João da Silva

    [quote]In a few years the country will know where it is going with this, as right now it is hypothetical and speculative of the true nature of the size of the reserves. The extraction is going to be expensive and challenging with only a third of the total reserve successfully exploited in this geological environment[/quote]

    Did anyone ask your opinion? Nevertheless, you are permitted to continue to express your (unsolicited) views. 😉

  • jon

    In a few years the country will know where it is going with this, as right now it is hypothetical and speculative of the true nature of the size of the reserves. The extraction is going to be expensive and challenging with only a third of the total reserve successfully exploited in this geological environment

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