Via STRATFOR, a report on Ecuador’s oil production:

In Ecuador, nationwide protests risk disrupting oil production, potentially impeding the country’s economic growth and ability to mitigate its growing debt burden. Ecuador’s state-owned energy company Petroecuador has suspended exports of Oriente crude, its most popular hydrocarbons export, as part of a force majeure issued on June 29. The announcement comes three days after Ecuador’s energy ministry warned that the country could soon suspend all oil production amid ongoing anti-government protests led by the powerful activist group Confederation of Indigenous Nationalities of Ecuador (CONAIE). The Indigenous-led protest movement, which began on June 13, is calling on President Guillermo Lasso’s government to lower fuel prices and decrease unemployment, as well as halt the expansion of extractive industries (including oil and gas) due to their environmental impact on the country’s Indigenous communities. The demonstrations have since become increasingly widespread and violent, with protesters vandalizing oil infrastructure, blocking key roads used to transport fuel, and engaging in clashes with police that have so far led to eight deaths. 

• On June 26, the Lasso administration lowered the price of gas and diesel by 10 cents, but protest leaders called the move insufficient. 
• In an attempt to build off the growing wave of anti-government anger, Ecuador’s opposition-led National Assembly held a vote on June 28 to remove Lasso from office, but the motion failed to garner the two-thirds majority needed to impeach a sitting president.

The targeting of oil infrastructure and roads by protesters could lead to temporary fuel shortages in Ecuador. The Indigenous-led marches show no sign of slowing, with Lasso’s government recently calling off talks to negotiate with leaders from the activist group CONAIE after a police officer died in clashes on the street. As the protests rage on, Ecuador will likely use its strategic reserves to ensure fuels remain available to the public in the short term. But if protesters block roads to reserve storage sites, shortages could start to emerge. 

The disruptions will likely also lead to a sustained decrease in Ecuador’s oil exports, affecting supply to the United States and China. Demonstrators are likely to continue targeting oil infrastructure and blocking access roads to oil wells. In addition to halting Oriente crude shipments, state-owned Petroecuador has so far been forced to close 996 of its oil wells.180 privately-run wells in the country have also been temporarily shuttered amid the unrest. Since the protests began on June 13, Ecuador’s daily oil production has already fallen by over 50%. A prolonged decrease in output would almost certainly trigger an economic slowdown in Ecuador, as the oil and gas industry accounts for roughly a third of the country’s exports. The United States and China, meanwhile — which are both major consumers of Ecuadorian oil — are almost certain to experience interruptions to their own supplies as the protest-related disruptions take more exports offline. Moreover, the loss of any Ecuadorian exports from the global energy market risks further driving up already high oil and gas prices by adding to the disruptions being caused by Russia’s ongoing war in Ukraine. 

A loss in oil revenue would make it all the more difficult for Ecuador to repay its growing foreign debt and comply with the fiscal deficit targets outlined in its deal with the International Monetary Fund (IMF). In just the past 17 days since the protests began, the disruptions to oil production have already cost the Ecuadorian government an estimated $120 million in fiscal revenue. Even brief interruptions in that crucial revenue source could impede the government’s ability to pay its sovereign debt, which reached 65% of GDP in 2021 amid COVID-related increases in public spending. Decreased oil revenue, combined with protesters’ growing demands for increased investment in healthcare and education, could also keep Ecuador from hitting the targets outlined in its IMF program, which is predicated on increasing oil production and cutting fiscal expenditures. Quito may, in turn, be forced to restructure its extended faculty fund with the IMF to prolong the timeline of fiscal consolidation measures, which would likely further decrease investor confidence in the country.

• For the first time in Ecuador’s history, the Indigenous-led Pachakutik party is the second-largest group in the National Assembly, winning 27 seats in the Feb 2021 general election. Pachakutik opposes oil production on national and reserve land; the party’s newfound prominence will thus likely further complicate the development of Ecuador’s extractive industries. 
• In September 2020, Ecuador secured a $6.5 billion two-year loan package from the IMF. A year later, Quito and the international institution restructured the country’s debt to avoid an unpopular tax hike. 

Regardless of whether the Lasso administration reaches an agreement with CONAIE, the growing political influence and anger of Indigenous communities will likely continue to impede oil operations in Ecuador. Even if the nationwide strike launched by CONAIE subsides, the Indigenous communities living in the Amazonian areas of Ecuador — which is where a majority of the country’s oil wells are located — may still seek to forcibly stop operations in an effort to pressure the government to increase environmental protections or financial assistance to local communities. Lasso has already struggled to pass his policy agenda due to his fraught relationship with Indigenous and populist coalitions in the legislature, where his Creating Opportunities Party lacks a majority. With the added momentum garnered by the CONAIE-led protests and Pachakutik leading the Indigenous opposition in the legislature, any policies that promote the development of Ecuador’s extractive industries will likely continue to be blocked.