07 Feb Between liberals and nationalists: The ideological pendulum in Bolivia’s hydrocarbon sector – 20th and 21st Centuries
The history of hydrocarbons in Bolivia has been defined by a persistent oscillation between state control and private participation, shaped by the ideological and political currents of each era. Since the early 20th century, the sector has experienced cycles of boom and decline, driven by the adoption of either liberal or nationalist policies.
In the early 1900s, under liberal policies, foreign investment was encouraged, with the Standard Oil Company Bolivia (SOCB) playing a crucial role in oil exploration and production. However, following the Chaco War (1932-1935), rising nationalism led to the first hydrocarbon nationalization in 1937, marked by the expropriation of SOCB’s assets and the creation of Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). During state management in the 1940s, production expanded significantly due to the exploitation of previously discovered fields. By the end of the decade, however, output began to decline, exposing the limits of state-led exploration and the depletion of initial reserves.
In the 1950s, during Víctor Paz Estenssoro’s first administration, the Davenport Code—a liberal regulatory framework—revitalized foreign investment. Gulf Oil Company’s entry led to the discovery of key fields such as Colpa and Caranda, sparking a new growth cycle in liquid and natural gas production. Yet by the late 1960s, nationalist policies resurfaced, culminating in the second hydrocarbon nationalization in 1969, with Gulf Oil’s assets expropriated and transferred to YPFB. Under state administration, Gulf Oil’s discoveries were further developed, supplying the domestic market with liquids and Argentina with natural gas. However, by the late 1970s and early 1980s, production once again declined.
The economic crisis of the 1980s ushered in a new wave of liberal policies, affecting the hydrocarbon sector as well. The 1991 and 1996 Hydrocarbon Laws were crucial in revitalizing production and enabling the discovery of new gas reserves to fulfill Bolivia’s export commitments to Brazil. These laws introduced structural reforms, including new contract modalities, a flexible tax system, institutional restructuring, and the division of the sector into three segments: exploration and production, transportation, and commercialization. YPFB assumed a key role in contract administration and as an aggregator in the gas export contract with Brazil.
This new regulatory framework attracted a fresh wave of foreign investment, bringing in companies such as Total, Repsol, BG, and BP, which discovered significant reserves, including the Margarita/Huacaya field. The certification of these reserves enabled the launch of natural gas exports to Brazil in 1999, generating substantial revenues, particularly during the surge in global oil prices.
However, at the turn of the millennium, Bolivia entered a period of political turbulence that once again reshaped the sector. The 2005 Hydrocarbon Law and the 2006 “nationalization” decree overhauled the industry’s legal framework, modifying exploration and production contracts, introducing the Direct Hydrocarbon Tax (IDH), strengthening YPFB, and reducing private sector participation. Unlike previous nationalizations, this one did not expel foreign companies but instead renegotiated their contracts.
Since 2006, the sector has followed two distinct trends. Until 2015, production growth was driven by the exploitation of previously discovered reserves, boosting gas exports to Brazil and securing a renewed contract with Argentina. However, from 2015 onward, declining investment in exploration, coupled with falling global oil prices, signaled the beginning of a downturn. This resulted in shrinking gas exports, rising petroleum derivative imports, and a decline in royalty and IDH revenues, plunging the sector into a deep crisis.
This historical overview of Bolivia’s hydrocarbon sector reveals a recurring pattern throughout its republican era. Initially, policies attract foreign investment to spur exploration and production, leading to significant increases in reserves and output. This is followed by a nationalist phase, characterized by criticism of foreign involvement and a shift toward greater state control, with higher royalties and taxes displacing private investment. The final phase unfolds in two stages: first, production expands, fueled by earlier discoveries; then, as output declines, the private sector is once again called upon to revitalize the industry.
Are we doomed to this perpetual cycle?
S. Mauricio Medinaceli Monrroy
Bogotá
February 7, 2025
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