And Then The Oil Price Dropped

Published on: September 1, 2016


Keeping the oil under the ground is causing a direct social and economic disaster in Loreto, but is it also an opportunity?

Text by Sarah Kerremans

Loreto, Peru’s northeastern-most region, is a place of superlatives. It is the country’s widest region and contains over half (55%) of Peru’s rainforest. Many who have witnessed ecosystems being destroyed all over the world would immediately admire this almost virgin land as “a paradise lost”. In Loreto, you can spot thousands of extraordinary birds and learn from 27 indigenous groups who practice their traditions and ancient wisdom. This is where Chaikuni works, to the beat of Mother Earth’s heart, to empower local movements to ensure her protection and to safeguard her treasures.




However, the very qualities that make a paradise unique, also attract the kind of attention that can lead to its destruction. Indeed, Loreto’s richness and beauty have been coveted by many exploitative industries over the centuries. After the rubber boom and the fur trade, another extractor settled in during the 1970s: the oil companies. The historic oil lot 192 (former 1AB) has always been Peru’s most important oil-producing block. Production reached a peak in the 1990s but in 2015 oil lot 192 was still good for approximately 17% of the country’s oil production. Although the extraction has been hugely profitable for the country’s national economy, indigenous communities who have been living with the oil lot on their territories have denounced the development as an environmental and social disaster. This has been compounded by the tyranny of distance. Because indigenous territories are relatively far away from the administrative centers, it has been too easy for civil society and politicians to ignore their suffering.

According to Loretenean economist Roger Grandez, approximately 30% of Loreto’s economy is driven by the oil industry. In addition, regional and local governments have benefited from the so-called canon petrolero, a monthly transfer of a percentage of the oil-production revenues and commodities. It is an important income for the regional decision-makers and that is why they and even local civil society would rather accuse the indigenous peoples of disturbing “development” with their protests than actually listen to them.




But has the oil era contributed to the region’s development? It seems not. Despite the considerable availability of oil dollars during the golden years ‒ with the peak in the 1990s ‒ apparently only a small group, relatively speaking, benefitted: the majority of Loreto’s population are still suffering extremely poor conditions with devastating statistics in the areas of poverty, education and malnutrition, especially in the communities from where the oil is sourced (also read our July 2015 report on ‘Dependency on oil’).




And then the oil price started to drop. With a barrel of oil still valued around $US120 in 2014, by May 2016 one barrel was only worth $US40. In 2015, oil production in Loreto decreased by 32% with a loss in production value of 500 million Peruvian soles; for Loreto’s governments, that represented a loss of about 73 million Peruvian soles in lost canon. In 2016, Loreto is living in even darker days. In January 2015, Loreto’s local governments received transfers worth 11.3 million soles; by April 2016, it dropped to an historic low of 617,959 Peruvian soles.

This low was not only due to decreased oil prices but also to the minimal production in Loreto. Since mid-February, the 1300-kilometer-plus-long (over 800 miles) northern Peruvian pipeline that connects the Amazon with the Peruvian coast was temporarily shut down. That followed two major oil spills in the pristine Loreto forest earlier this year that drew worldwide attention, thanks to a Tweet from Oscar winner Leonardo DiCaprio. Later in 2016, two more oil spills occurred on the old Peruvian northern pipeline, and these spills have become commonplace for the peoples of Loreto. Even the authorities have admitted in official reports that the pipelines haven’t been replaced or responsibly maintained over the last 40 years, causing irreversible damage to Loreto’s forests and inhabitants. It is unclear how long the pipeline will shut down, and, moreover, what measures will be taken to avoid further human and environmental suffering in the future.




The near shut-down of the oil industry is rapidly turning into an economic and social disaster in Loreto, demonstrating the extreme vulnerability caused by decades of oil dependency. In 2015 alone, employment dropped 11.7% (around 42,000 people lost their jobs) and there is obviously more to come in 2016. In the administrative heart of Iquitos, crime numbers have increased and on every street houses have been put up for sale. Indigenous students living in Iquitos were affected at the start of this academic year when the National University of the Amazon (UNAP), the only public university in the Amazon, doubled entrance fees. UNAP receives 5% of the canon. The famous scientific investigation center, the Peruvian Amazon Research Institute (IIAP), which receives 3% of the monthly canon, had to reduce its team. Meanwhile, the regional and local governments are begging Lima for an urgent solution and invoking Loreto’s right to compensation.




On oil lot 192 itself, in the native communities of Andoas (Pastaza river) and Doce de Octubre (Tiger river), the community companies have only a few jobs left and the local oil-driven economy is almost paralyzed, while local grocery stores, mostly run by urban people, will not drop food prices. Indigenous people in the zone, faced with incredible food insecurity, have been obliged to restart hunting, growing and fishing activities, but 40-plus years of oil contamination is making such a transition extremely hard: fish are contaminated, crops do not grow properly and animals fled a long time ago. It was not for nothing that four river basins of oil lot 192 were declared an environmental and health emergency by the Peruvian state itself.




On top of all this, indigenous organizations representing the four river basins of oil lot 192, who have shown an amazing capacity for dialogue during the four-plus years of endless meetings with the Peruvian state, find themselves now knocking on closed doors. The agreements reached, first in a Multi-sectorial Commission and later during the prior-consultation process, are not being honored or are being poorly executed. Slowly, the indigenous organizations are starting to see the full consequences of the broken promises to the peoples upriver.




In May 2015, Chaikuni was called to be part of the prior-consultation process for the new concession to be granted in oil lot 192 by the Kichwas of the Tiger river and their organization, FECONAT. We will continue to stand with FECONAT to advocate for adherence to the agreements reached. We will also be part of their search for justice for the environmental and social disasters of the past, and join them for the ‘warm up’ round of negotiations towards a renewed oil concession in 2017. This will be a major challenge within the context of decreased oil prices, corroded pipelines, and with a newly elected national government that took power in July 2016. The new President, Pedro Pablo Kuczinsky, who has strong connections with the private sector, declared that he will visit the communities to share his experiences on the benefits of oil and mining projects if necessary. At the same time, he promised that the voices of the communities will be heard and respected. The first 100 days of his government will reveal what is to expect for the next five years.




Though ‘keeping the oil under the ground’ is causing direct suffering, it could possibly open new pathways for Loreto. It could start promoting alternative economic models of sustainable living, a movement away from today’s extractivism. In May 2016, a Multisectorial Commission was implemented in Loreto to start thinking of alternatives and solutions. The Commission is led by the Presidency of Ministers and integrates voices of local authorities, enterprises and civil society. The newly elected President seems to be willing to continue this so important dialogue on Loreto’s future.

As FECONAT President Fernando Chuje states: “We can hardly remember how it was before the oil companies came to destroy our way of life. Now we should remember to value all we have, including our culture and knowledge, and become a true model of responsible stewardship and management of what’s left for future generations. This is not only important for the indigenous people but for the whole planet.”


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