The oil crisis in Ecuador: The search for an external solution, with special reference to the period 1979-1983.

In a bid to revitalise the country's flagging oil industry, oil policy in Ecuador during the late 1970's was directed towards stimulating foreign investment in exploration and development work. The transition to a democratic civilian government in August 1979 appeared to signal a change in the direction of oil policy, with the Roldos administration seeking to give fresh impetus to the state-led development of the oil industry. Although the need for some degree of foreign collaboration was accepted, the main burden of finding new oil reserves was to be assumed by the state oil company, CEPE. Foreign oil companies were merely to supplement CEPE's own efforts, with their exploration work confined to areas of high cost and high risk. The least risky and least costly areas were reserved for CEPE. State control over the CEPE-Texaco consortium was also to be progressively strengthened, with the state oil company assuming complete operational control from Texaco by 1985. To implement both policy objectives, steps were to be taken to restructure and capitalise the country's previously neglected state oil company. In the event, no steps were taken to restructure and capitalise CEPE and plans to strengthen the company's influence in the operations of the consortium were dropped. By 1983, CEPE's financial position had deteriorated to such an extent that it was barely able to supplement, let alone spearhead, the search for new oil reserves. The thesis examines why the attempt to give fresh stimulus to the state-led development of the oil industry failed. This will essentially involve a detailed analysis of government policy towards CEPE and the reasons for the collapse in the state company's investment capacity. The thesis looks at the role, if any, that international conditions played in shaping government oil policy and the Investment capacity of CEPE. Events in the domestic political arena are also the subject of analysis. The thesis will suggest that the reasons for the failure of the government's oil strategy may have less to do with international conditions than with the nature of the relationship between the state and CEPE, the priorities of the political elites and Texaco's continued presence in Ecuador. The thesis also looks at the subsequent shift in policy towards an external (that is, foreign) solution to the country's oil crisis. Although there has never been a state monopoly of the upstream sector in Ecuador, the process of attracting companies to the exploration play proved difficult. This reflected not only domestic political factors, but also a reluctance on the part of oil companies to invest in Ecuador, This reluctance was shaped by factors specific to Ecuador (contractual terms, geology and the country's previous history of acrimonious relations with oil companies) and by international conditions (the decline in world oil prices, changes in company investment strategy and the increasing number of exploration opportunities elsewhere in the world)