The Latin American Oil Shock

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This is the fourth post in a series based on papers presented at workshop held in Banff, Alberta by Petra Dolata and David Painter called “Everything, Everywhere, All at Once: The Oil Crises of the 1970s and the Transformation of the Postwar World.”

The Oil Shock had profound repercussions in Latin America, an often ignored fact when recounting the region’s recent history. Perhaps this is because the Latin American Oil Shock was different than in the developed world: more akin to the Central American wars and the Sandinista Revolution than no-car days and long lines at the gas stations. When considering this different kind of Oil Shock, it is important to link the significant economic pressures brought on by the dramatic change in global energy prices and the instability and violence that swept through the region during the 1970s and 1980s.

There is a growing interest in the Oil Shock of the 1970s. The recent conference “Everything, Everywhere, All at Once: The Oil Crises of the 1970s and the Transformation of the Postwar World” at the University of Calgary, hosted by Petra Dolata and David Painter, gave a panorama of the significant and differentiated ways the Oil Shock transformed the world. In the case of Latin America, scholars like Duccio Basosi have produced groundbreaking scholarship on monetary flows and institutional responses to the crisis. At the same time, books like Energy in the Americas, edited by Amalia Kiddle, have made profound inroads into energy history in the American continent.

Within Latin America, the oil shock had different impacts depending on the role of the countries in the energy system. Producer countries like Venezuela, Mexico, and, to some extent, Trinidad and Tobago and Ecuador saw their national treasuries expand. Likewise, their regional and political ambitions also expanded. Meanwhile, energy-dependent countries suffered under the weight of inflation and high energy prices.

Petrodollars transformed inter-American relations. The government of Venezuela, in particular, led by Carlos Andrés Pérez, an extravagant president with a propensity for political conspiracy, sought to reshape Latin America into a significant geopolitical bloc, promoting economic independence, regionalism, industrialization and democracy. To a lesser extent, Mexico also promoted state-led industrialization and moderate political opening. In both countries, the Oil Shock facilitated a more aggressive foreign policy to counteract right-wing dictatorships and military juntas.1 Venezuela and Mexico, inspired by the hazy tenants of the New International Economic Order (NIEO), attempted to carve an independent Latin America bloc, echoing the discourse of the Non-Aligned Movement. Venezuela poured hundreds of millions of petrodollars into pharaonic industrialization projects. Its resources flowed into multilateral financial institutions—almost 2.5 billion dollars to the World Bank, International Monetary Fund, Inter-American Development Bank, and many more, ensuring a powerful voice in Latin American monetary matters. It lavishly spent resources on regional integration initiatives like the Latin American Economic System (SELA) and the Latin American Energy Organization (OLADE), which today are mostly forgotten. Perhaps most ambitiously, it sought to reconfigure the Latin American political order.2

A large white banner with hand-painted red letters reads "Solo los obreros y campesinos Iran hasta el fin." The banner is held up on poles in front of a wall with a mural of two men holding a hammer and a machete.
Susan Ruggles, Chinandega – May Day banner, Sandinista Workers Federation (CST),  CC BY 2.0 Deed Attribution 2.0 Generic. Flickr.

To a greater or lesser degree, Venezuela and Mexico embarked on a mission to transform regional politics. They attempted to reintegrate Cuba into the inter-American system (expelled since the Cuban missile crisis of 1962). They reasoned that by including Cuba back into the Latin American “family,” it would stop supporting radical movements. Most importantly, Mexico and Venezuela spent considerable time and resources limiting the influence of the United States on Latin American matters. They promoted the reform of the Organization of American States (OAS) for more equitable treatment, supported the Puerto Rican independence movement, and strongly supported the return of the Panama Canal, one of the last colonial enclaves in the Americas, to the Panamanian government.3

The oil shock also had a profound impact on relations between the U.S. and Latin America. In the context of the oil shock, the United States government considered maintaining good relations with Mexico and Venezuela a matter of national security. As a memorandum for the American Secretary of State considered in early 1979, “our bilateral relations with Mexico and ready access to Mexican oil have rapidly emerged as extremely important U.S. security interests.”4 This position, real or imagined, gave both countries significant leeway in dealing with the United States in a period of great anxiety and uncertainty characterized by the Ford and Carter presidencies.

For Latin American consumer countries, the consequences of the oil shock and its accompanying economic problems betrayed an opposite image. Whereas Venezuela and Mexico considered the opportunities of the new period, South American and Central American countries faced enormous limitations. Government budgets had to be adjusted, and workers could not cover essential goods as they were squeezed by high fuel and food prices. The 1973 oil shock caused a spiral of inflation that, in turn, was compounded by the high energy prices that cut deep into workers’ salaries throughout the region.5

Throughout Latin America, ideas of scarcity, neo-Malthusianism, and anxieties about explosive population growth echoed those in the United States and Europe. However, these worries were compounded by seemingly out-of-control inflation and labour unrest throughout the Andes, and especially in Argentina. According to right-wing conservatives and the military, this situation was prone to exploitation by the communists, waiting at the margins of this instability, poised to take advantage of a deteriorating society. Such fears seeped through the anticommunist rhetoric of the Argentine Military coup. They also provided justifications for the atrocities of the Chilean Junta and the labour crackdown of the Brazilian military governments.6

Both sides of the Latin American Oil Shock clashed in Central America, initiating one of the worst armed conflicts in Latin American history. Central America’s economies depended heavily on agricultural export products that required large extensions of land and industrialized inputs such as machinery, fuel, and fertilizers. The prices of all these vital inputs increased dramatically during the Oil Shock. To compensate for the decreasing profits, landlords often turned on the rural populations, especially in the late 1970s and early 1980s, depriving peasants of their land.7 In the cities, newly urbanized populations required ever-increasing amounts of social services, all of which required growing energy inputs: from lighting to vaccines to refrigeration, a growing standard of living needed more energy. The governments in Guatemala, El Salvador and Nicaragua, uninterested in the general well-being of their peoples and with tight budgets, neglected demands for higher living standards, decent housing, water, sanitation and, most of all, comprehensive land reform. All of these factors compounded the already complicated problems of poverty and abuse.8

A hand-painted mural depicting five people behind a brick wall at the end of a street. Two hold up a banner. One is crouching preparing explosives. One holds a rifle. The last holds a handgun and points towards a fire burning in the street. The banner reads "Bienvenidos al III Aniversario Monimbo - de Neustra Revolucion - Masaya"
Susan Ruggles Masaya-Mural commemorating third anniversary of revolution,  CC BY 2.0 Deed Attribution 2.0 Generic. Flickr.

Increased social tensions in Central America were compounded by the international schemes of countries like Venezuela and Mexico, all too willing to expend their petrodollars to support revolutionary movements. Every month between November 1977 and March 1979, the Sandinistas received $USD100,000 from the Venezuelan Interior Ministry to support the Nicaraguan Sandinista Front for National Liberation (FSLN).9 The Mexican government and its ruling party also made similar contributions in meetings at luxurious restaurants and private offices. Notably, distant oil-rich nations like Iraq and Libya also contributed to the Nicaraguan struggle. The funding the Sandinistas received was the direct result of the immense wealth brought on by the dramatic increase in oil prices in late 1973

These oil-rich countries also used their growing international influence to lobby European and Latin American countries to promote the revolutionary struggle, especially those with an energy dependence on them (Costa Rica, Panama, Caribbean and the Andean Countries). Secondary effects from the oil shock, like the reintegration of Cuba into the inter-American system, also played a large part in this, as did the significant retreat of the United States from the region in the late 1970s.

On June 19, 1979, the Nicaraguan guerrilla columns poured into Managua, the capital of Nicaragua, ousting the dictator Anastasio Somoza. After their victory, Mexico mobilized its oil power to protect the Revolution, providing vital energy resources and international credit to keep the economy afloat. Between 1982 and 1983, Mexico provided almost all Nicaraguan oil needs, with a peak of 13,000 barrels daily. Venezuela did the same to shield the Social Christian governments of the region from the escalating conflict. When Mexican and Venezuelan aid ran dry, the Soviet Union became Nicaragua’s most important energy and arms supplier. The last gasps of Soviet assistance to the Third World were financed, in large part, by revenue from Soviet energy exports.10

A group of eight young men dressed in army fatigues. Five sit around a tree taking a break. Two stand facing the camera, including one who smiles and holds a rifle.
Tiomono (talk), ARDE Frente Sur Commandos take a smoke break after routing FSLN base at El Serrano. Southeast Nicaragua 1987  Creative Commons Attribution-Share Alike 3.0 Unported. Wikipedia.

More research is needed to better understand the link between the turmoil of the Latin American 1970s and the global Oil Shock. However, one thing emerges: oil played a significant part in the onset of the conflicts in Central America and the triumph and survival of the Sandinista revolution during the 1980s. Historical precedents like these might be important to consider when we study the potential effects of our energy transition and future energy shocks.

Feature Image: Estelí – Schoolchildren. Nicaragua. 1984. 0027. Susan Ruggles. Flickr Commons.


1. Alfredo Peña, Conversaciones con Carlos Andrés Pérez, Editorial Ateneo de Caracas, 1979, p. 229

2. CIA, Directorate of Intelligence, Venezuelan Internationalism. Oil and influence, 1977.CIA-RDP79B00457A000400030001-6.pdf

3. See for example, José López Portillo, Mis tiempos. Biografía y testimonio político, México, Fernández Editores, 1988; Alfredo Peña, Conversaciones con Carlos Andrés Pérez, Caracas, Editorial Ateneo de Caracas, 1979.

4. FRUS, Foreign Relations, 1977–1980, Volume XXIII, Mexico, Cuba, and the Caribbean, Memorandum From Secretary of Defense Brown to Secretary of State Vance (154), January 27, 1979.

5. Tulio Halperin Donghi, “Los tiempos que corren”, Historia contemporanea de America Latina, Alianza, 2005.

6. For example, Carassai, “Armed violence (1970-1977)”, Argentinian silent majority, Duke University Press 2014.

7. Robert G. Williams, Export Agriculture and the Crisis in Central America, Chapel Hill: University of North Carolina Press, 1986, p. 162-163.

8. Gilles Bataillon, Génesis de las guerras intestinas en América Central (1960-1983), México, Fondo de Cultura Económica, 2008.

9. Sergio Ramírez, Adiós Muchachos, México, Alfaguara, 2015, p. 134

10. CIA, Nicaragua: Oil problems and prospects, 1985.

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Gerardo Sanchez Nateras

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