Expert warns Ecuador’s economy will continue to languish without private development of oil reserves

By Liam Higgins

“Ecuador must change its approach to oil production or face decades of economic stagnation or even decline,” economist Joselo Andrade said in recent newspaper column. The Executive Director of the Ecuador Institute of Political Economy explains why Ecuador must allow private companies to help boost production.

An operation in the Sacha oil field.

Citing the recent collapse of the Sacha oil field deal with Chinese and Canadian countries and the public vote to end oil production in the ITT block of Yasuní National Park, Andrade says the government and the citizens of Ecuador must accept the fact that it needs the income from oil production of fund public services and to expand the economy.

“There must be a commitment to allow private oil companies to be part of the project since the national company [Petroecuador] does not have the expertise or funds to do it by itself.”

Andrade says the country needs to follow the advice of former president Rafael Correa in developing its oil reserves. “His was a pragmatic approach that involved combining efforts of private and public companies to open new fields.”

Correa was also right, Andrade says, in pointing out the country cannot afford the “extreme environmentalist” proposal to end oil production. “He said the country would be mired in poverty if this happens and used the famous Tolstoy image of the beggar sitting on a bag of gold,” Andrade wrote.

According to Andrade, with the opening of new oil fields in Sacha and other areas, the country could produce as much as 800,000 to 900,000 barrels of oil a day with the help of private companies, up from the current 450,000 barrels. “Even with the closure of the ITT Yasuní block, this is possible, but it requires the resolve of the government and of the people.”

Andrade elaborated on his position in a recent interview with Ecuavisa.

Q: How can Ecuador transition from a state-run oil model?
By liberalizing the sector and allowing private companies to manage operations. This means removing legal and regulatory barriers that hinder private investment. Citizens must also be made to understand that state control of oil has led to inefficiency, corruption, and stagnation. There must be a smart, coherent information campaign to explain to the public the need for a new strategy. After this, the government must stand up to extremist minorities.

Joselo Andrade

For over the past 30 years, oil production in Ecuador has essentially remained stagnant, with production rates of between 440,000 and 500,000 barrels a day, due to low investment and frequent policy shifts as a result of the change of governments. The result is that the country’s economy is weak and social and infrastructure needs go unmet.

Q: Politically, what should elected officials consider to transform the oil sector?
Policymakers must prioritize efficiency over ideology. A radical shift in oil management can improve Ecuadorians’ quality of life. Building consensus across political and social factions is crucial. Engaging those who traditionally oppose private investment will require ongoing dialogue to highlight the economic benefits — and the necessity. Reform can reduce corruption, attract investment, create jobs, and stimulate economic growth.

Q: What urgent legal changes are required?
Four reforms are necessary:
1. Update regulations on private investment, participation contracts, and operational conditions.
2. Establish clearer regulatory frameworks.
3. Improve contract oversight and ensure transparency in concessions or privatization.
4. Define consultation procedures for resource exploitation in sensitive areas to prevent legal challenges.

Q: Without production increases in Sacha and with the Yasuni ITT’s closure, output could drop by 27%, which could be devastating for the economy. Why hasn’t this spurred change?
As long as oil remains under state control, bureaucracy and inefficiency will persist. Over the past two decades, new policies with each political cycle have prevented long-term planning. Ideological interests, unfortunately, have dominated decision-making. We are seeing this now with the opposition to the Sacha project. There are some political players attempting to placate and accommodate a small minority that want to stop oil production altogether.

We must learn the lessons of Venezuela’s failed approach to oil production since this clearly illustrates the dangers of politicizing policy. Sustainable, technical solutions there were sidelined in favor of short-term political agendas.

On the other hand, we see neighboring countries benefit from rising oil production. Ecuador needs to follow the policies adopted in Peru, Colombia and Brazil.

Q: How can the misuse of “sovereignty” in oil policy be countered?
Sovereignty is often misused to justify state control, blocking private investment. True sovereignty means maximizing national benefits from resources, not imposing state management. Private investment increases production while minimizing financial risk for the government — an aspect frequently ignored by opponents of liberalization. Public education on the economic realities is essential.

Q: Some advocate abandoning oil altogether. How should citizens understand this issue?
This is unrealistic in the short and medium term. Oil contributes about a quarter of Ecuador’s tax revenue, funding critical services like health, education, and infrastructure. Without oil, Ecuador would face increased borrowing or higher taxes, burdening citizens, not to mention sky-rocketing poverty rates.

Additionally, oil is crucial for producing plastics, fertilizers, and medicines, which remain in high demand. For so many reasons, Ecuador must embrace a pragmatic, investment-friendly approach to oil, ensuring sustainable economic growth.