Economic Fragility and Resource Mismanagement in Ecuador
Amazonian Antipode, written just slightly over two years ago was an exciting piece to research and write mostly because it provided a great opportunity to learn about Ecuador.
It dove deep into the origin of some of the oil imported for use to Californians, who live in a state that’s infamously trying to eliminate its use of hydrocarbons in part by relying on greater amounts of foreign imports including from the Ecuadorean Amazon.
To those interested in anything resembling environmentalism, the terms “oil” and “Ecuadorean Amazon,” should stop them in their tracks. To rub more salt in the wound, that oil, along with most of the state’s imported oil from both the US and abroad comes to the state’s ports on massive oil tankers which aren’t known for their stellar emissions. These ships often sit for days off the coast of places such as the Port of Los Angeles and Long Beach helping contribute the area’s notorious air pollution. Amazonian Antipode traced the trajectory of one of those tankers, the Sea Hope. Ecuadoreans, unlike Americans, Canadians, or Norwegians see little that oil wealth because its used to service international debts to the Misery Industry.
Even if California were to have a change of heart by trying to import more US-based oil, both the Jones Act and the lack of interstate pipelines to the state would impede such efforts. This is why some people, myself included, label California an “energy island.”
California has phenomenal reserves of oil too which if the industry were allowed to touch, even with the state’s notorious environmental rules, could unlock thousands of high paying and meaningful jobs and billions in tax revenue.
Under the current regime, such sense is all but a pipe dream.
In three years, California has reduced some of its foreign imports from Ecuador. In 2021, which was the latest year cited in the piece, Ecuadorean crude composed of almost 18% of the Golden State’s non-US imports or in that year per the CA Energy Commission about 52.6 million barrels of oil.
In this short time period, things changed.
Most notably, one major geopolitical event changed one country’s official count from 6.17% (18.35 million barrels) down to zero (ignoring refined products and “oil laundering" of course) and Ecuador’s share decreased by two percentage points or down to 46.9 million barrels.
Shown visually and over a greater time scale:
While Californian wallets continue to suffer at the expense of the US’s highest gas prices while funding the destruction of the Amazon and will likely look forward to blackouts thanks to the state’s increasingly unstable grid, things don’t look so hot in Ecuador either.
Actually, they’re a lot worse.
This can be seen by just typing the term “Ecuador” into Google which provides a subtle recommendation to append the search with the term “cortes de luz,” which translates roughly from Spanish as “electricity cuts” or “blackouts.”
The Google suggestion is likely because Ecuador is in the middle of a serious energy crisis.
The term “cortes de luz” is a link on the top banner of one of the country’s largest newspapers and several articles on the front page are stories about the blackouts.
Media sources in Ecuador publish times, dates, and locations of scheduled blackouts so that Ecuadoreans can prepare and plan around the events. No amount of published schedules makes the situation any better for Ecuadoreans, however.
And no, Sammy Roth, these blackouts aren’t “good for the planet” either.
Small businesses, which form the backbone of Ecuador’s economy, are particularly hard-hit by the blackouts. Many lack the resources to invest in generators or alternative power sources, leading to lost income and productivity. Hospitals, schools, and public transportation systems struggle to operate under these conditions. The blackouts disrupt essential services, further eroding what’s left of any public trust in the government of which millions of Ecuadoreans show deep satisfaction with. Protests are becoming more frequent, adding to the political instability and complicating efforts to address the crisis. Ecuador also has a serious organized crime problem with narco gangs often out-gunning both everyday people and law enforcement.
According to one of the articles from that newspaper, 53% of surveyed Ecuadoreans in a poll said the black outs affected their daily lives. Those in the poll stated they shopped less, went to other places such as cinemas and gyms less, and reduced their dining outside their homes.
Ecuadorean Paz Gómez who writes for Impunity Observer in How Ecuador Descended into 14-Hour Blackouts elaborates on the impacts further.
The first month of the most severe energy crisis for Ecuador in three decades has led to $4 billion in economic losses for the industrial sector and $3.5 billion in the service sector. Nationwide blackouts have reached up to 14 hours daily. There have also been a couple of full days without electricity for the three industrial zones in the Quito metro area. Ecuador already experienced two-hour daily blackouts at the end of 2023 and up to eight hours without electricity per day in June 2024.
Ecuador’s Business Committee estimates that the private sector loses about $12 million per hour without electricity, and over 8,000 formal jobs have already been lost. Further, the lack of governmental coordination and assertive communication has led to an unpredictable schedule of power outages.
Relief from the blackouts are coming, at least temporarily, to Ecuadoreans as multiple media sources indicate the last of the scheduled blackouts are today, 19th December. Weather conditions have improved, the country is receiving electricity imports from neighboring Colombia (which opens a new set of problems), and energy resources have largely been restored.
But what are the reasons for Ecuador’s energy woes and why did I write above that relief is likely temporary?
For one, it goes back to oil. Ecuador’s economic reliance on oil revenues has long been a double-edged sword. While oil has been a major source of income, its volatile prices and declining production have created fiscal instability. The drop in Ecuadorean oil production is in part due to the Yasuni referendum, which ended oil drilling in a key part of the Amazon yet has strained the economy along with sending shockwaves through industry and among investors. Interestingly, people in some of the regions where the oil extraction occurs largely voted against the referendum while people from other parts of Ecuador voted against meaning similar to Chile’s constitutional referendum two years ago where savior types in the cities voted against the interests of the people they were claiming to save. For a country already struggling with high debt to both the Western (IMF) and Chinese Misery Industry and limited fiscal space, this decision creates immediate challenges, even if it aligns with long-term environmental goals to reduce or eliminate oil extraction from such an environmentally sensitive area. While conservationists and environmental groups, especially those abroad, celebrate the Yasuni decision, the economic fallout exacerbates the country’s resource crisis. The government has yet to present a viable alternative to replace oil revenue, leaving the economy vulnerable. In an alternative universe, Ecuador could have done what Norway’s done by using part of their oil revenues for a Sovereign Wealth Fund.
Just as Ecuador is immensely reliant on one source for revenue and debt servicing, the same does for electricity. The country is blessed with a mixture of mountainous terrain and in many parts high amounts of precipitation making it an excellent place for hydropower which accounts for over three quarters of the country’s electricity sources. But Ecuador’s blackouts show the risks of over-reliance on hydropower sources, which were not as available due to an ongoing continent-wide drought.
The Coca Code Sinclair dam is the flagship hydropower project of the age. Funded by the Chinese Misery Industry, it was meant to symbolize Ecuador’s renewable energy ambitions along with increasing China’s grip on the region. Instead, it has become a cautionary tale. Cracks in the dam’s infrastructure due to construction defects and suboptimal output have rendered it incapable of meeting demand and that was before the drought.
From Amazonian Antipode:
To this day China has loaned Ecuador more than $20 billion USD all for the supposed purpose of building , roads, bridges, schools, hospitals, and of course - dams. The most prominent dam is the Coca Codo Sinclair, a run-of-the-river dam located on the Rio Coca under the shadow of the active Reventador volcano and adjacent to several fault lines the latter of which caused carnage of their own on the areas’ oil infrastructure in the late 1980s.
Known for its shoddy construction quality resulting in cracking in the structure itself, Coca Codo Sinclair’s impact on the local water system was either poorly studied or obscured. The erosion due to the change in the flow of the river itself is believed to have been the cause of the 2020 disappearance of San Rafael Falls, the largest waterfall in Ecuador. To add insult to injury, the nearby sinkhole that formed as a result caused ruptures in the SOTE pipeline resulting in none other than a massive oil spill into a major tributary to the Amazon.
Ecuador must pay China back regardless all while the CCP establishes their presence in the country in more ways than one including the installation of a secret police station in the capital.
Despite its renewable energy rhetoric, Ecuador has failed to invest in alternative energy sources including expanding the use of natural gas or considering nuclear energy. Even the bread and butter renewables long wanted by environmentalists have seen little penetration amounting to a rounding error of the country’s electricity production. This lack of diversification leaves the country’s power supply highly vulnerable to drought and technical failures. The over-reliance on a single energy source that’s ultimately weather-dependent reflects broader issues of mismanagement and short-term (fiat) planning, which have left Ecuador ill-equipped to respond to crises.
Ecuador is a developing country long waiting to join the ranks of the developed world but those efforts are hampered financial issues and dependency on the Misery Industry which deserves further discussion. Much of Ecuador’s financial struggles stem from its heavy reliance on international loans. These loans, largely tied to oil revenues, have created a vicious cycle of dependency. Along with debt to the IMF and World Bank, Ecuador owes billions to China, much of it secured by future oil exports. This arrangement has not only limited fiscal flexibility but also deepened the country’s reliance on resource extraction. The need to prioritize debt repayment diverts funds from critical infrastructure projects and public services. With limited resources available for maintenance or investment in part because they’re siphoned away to the Misery Industry, Ecuador’s energy infrastructure has deteriorated over time. The government’s inability to address these deficiencies has left the country vulnerable to the kind of systemic failures that contributed to the energy crisis. This financial dependency constrains domestic policy and the government must to prioritize Misery Industry creditors and their interests over that of Ecuadoreans.
Corruption in the energy sector has resulted in inflated project costs and incomplete infrastructure development all while prices to consumers are subsidized to prices with the intent of being affordable to the population. Public funds meant for energy projects have been siphoned off, leaving the grid ill-prepared for growing demand. The impeachment of President Guillermo Lasso and the recent election of Daniel Noboa reflect ongoing political instability. Such volatility which existed long before recent times hinders long-term planning and delayed reforms needed to stabilize the energy sector. These governance failures have compounded the technical and financial challenges facing Ecuador, leaving the country in a state of perpetual crisis.
Ecuador’s energy crisis cannot be resolved with short-term fixes or dependence on better weather and neighboring Colombia however. The country faces a delicate balancing act: addressing immediate energy needs, keeping the socioeconomic conditions from getting worse, and servicing external debt.
Gómez suggests a list of improvements including general diversification of electrical energy supplies (no mention of nuclear sadly), increasing the use of Public Private Partnerships, streamlining permitting, ditching price controls, diverting more resources towards existing infrastructure maintenance, and tackling overall corruption. All of these are uphill battles especially as the Ecuadoran government seems to have little interest in sensible and free market economic policies.
Holy lizard counting…. The insane policies are unbelievable……
You sure know how to find some great topics and you have an excellent way of summarizing them. Thank you for sharing your knowledge. Substack is a wealth of information and education!