China And America Clash Over Latin American Energy

China is on the move in Latin America, and America is taking notice. China and oil-rich Ecuador recently signed a 20-year oil production contract, giving China’s state-owned Sinopec access to the Sacha oil field. The deal would have enabled Ecuador to access the funds and technology necessary to enhance the efficiency of its oil production process while drawing it closer to Beijing’s orbit. The deal set off alarm bells in Washington, fresh off a victory lap after coercing Panama into abandoning China’s Belt and Road Initiative, that Beijing’s influence in Latin America isn’t receding.

America struck back: not only has the Sinopec deal been mysteriously voided due to a lack of payment from China, despite years of negotiations and competition that included defeating bids from several American companies, including Baker Hughes. Now, Ecuador is planning on hosting American troops, ostensibly to combat drug traffickers, for the first time since 2009. America and China are already in a quiet battle for influence over energy in Ecuador and the rest of Latin America. This competition not only portends the future of many other countries but also what great power competition will look like as energy evolves.

China’s Growing Footprint

Chinese energy projects in Latin America under the BRI signal a shift in the region’s geopolitical and economic landscape that has been slowly unfolding over the past two decades. Starting in the early 2000s, a string of center-left and left-wing governments in Latin America, colloquially known as the “pink tide,” nurtured relations with Beijing as China’s capacity for external investment climbed. Washington’s comparative disinterest in its southern neighbors and China’s initially apolitical investments helped China gain ground quickly in a region where, historically, the U.S. has been the dominant external power.

For Beijing, now is the ideal time for China to capitalize on this “honeymoon period” with Latin America, especially Ecuador. China’s contract with Ecuador came on the heels of instability with the assassination of presidential candidate Fernando Villavicencio, ordered by the head of the Los Lobos gang, continuously high rates of violence, and environmental court cases or concerns that look to slow oil production. These factors contribute to a high investment risk for private ventures while simultaneously tarnishing the image of liberal states that espouse Western ideals. China’s state-led models of investment and strategic aims make engagement more palatable and locally appealing.

Chinese offerings have provided the opportunity for Latin American economies to grow and address pressing issues. For example, China has built several hydropower plants across Ecuador, which despite construction issues, continue to act as major sources of energy. Dealing with China has enabled several Latin American countries to build the infrastructure necessary to utilize raw materials that they would otherwise have been years away from accessing. China has invested more than $73 billion since 2000 in Latin American refineries and processing plants for coal, oil, natural gas, uranium, lithium, and various other raw materials. The trade war waged with China during the first Trump administration also led to the U.S. losing market share to Brazil, which gained a significant portion of the agricultural exports to China, a loss in market share that the U.S. has still yet to regain.

Dr. Andres Sandoval, a University of Amsterdam-based researcher from Ecuador, explains that while PetroEcuador, Ecuador’s state-owned oil company, controls about 80% of the country’s oil production, Chinese companies rank second, holding around 7%. The significance of the recent deal is enormous, as the Sacha oil field alone accounts for 16% of the country’s oil production. For this reason, this deal has attracted intense scrutiny, as public finances heavily rely on revenues from this single oil field. Moreover, Dr. Sandoval comments that “in addition to oil, the Chinese state-owned company CRCC-Tongguan already operates Ecuador’s largest copper mine, Mirador. The recent surge in Chinese investment in the energy and mining sectors has sparked environmental and social tensions with local communities.”

America is already finding itself less competitive and lagging. Several Latin American countries suffer from crime to the point that it often impacts political stability and energy investments. The rationale for introducing American troops into Ecuador is to fight gangs. Unsurprisingly, China has signed agreements with several countries in Latin America to tackle crime by using Chinese surveillance technology from Huawei and ZTE. It is unlikely that American troops can ultimately substitute for these agreements.

American Efforts

The shift across Latin America away from the U.S. and towards China will accelerate in the coming years if the Trump administration continues to dismiss the prospect of enhanced relations and ties in the region. Coercive actions, such as the recent fiascos involving Panama and Colombia, may achieve short-term policy objectives at the expense of long-term leverage. The U.S. spat with Colombia over tariffs and immigration may have resulted in the Trump administration claiming victory in the back-and-forth, but it caused Latin American leaders observing from afar to think twice about doing business with the United States.

American soft power has further eroded in the region as the U.S. cut USAID programs and foreign media operations early in Trump’s second term, leaving only economic engagement to build influence. This isn’t something that can be relied upon to come up America’s way. In 2009, China wasn’t the top trading partner of any country in South America. In 2023, it was the largest trading partner of 5 of the 12 countries. Energy propelled these changes, acting as the entry point for Chinese investment.

The Biden administration attempted to revamp America’s presence but with mixed results, drawing skepticism from Latin American leaders. Biden-era initiatives failed to match the developmental advantages of Chinese assistance due to the American government’s inability to compel investment as part of any political arrangement, and didn’t address the myriad historical animosities between the United States and Latin America. China, as the relative newcomer in the region, is not encumbered by any historical legacy.

Strongarming countries, introducing troops, and providing security assistance is an impactful but unsustainable course for U.S. policy in Latin America. By not directly competing with energy-based alternatives, the U.S. is losing its grip on the primary geoeconomic megatrend that will define the 21st century and risks ceding the future of energy to China if it doesn’t engage directly. Diplomatic leverage and military power are not substitutes for energy and soft power competition.