Photo credit: Xinhua, https://images.app.goo.gl/rBnL1kuwMixrzmCh7
Ecuador’s struggle to move beyond oil is deeply tied to its financial obligations—especially to China. Over the past 15 years, oil revenues have not only funded public spending but also serviced billions in external debt, locking the country into a path of continued extraction. This tension was already visible when the Yasuní-ITT Initiative collapsed in 2013: efforts to protect the rainforest were ultimately sidelined as social spending and budgetary needs remained—if not deepened—the country’s dependence on oil income. A decade later, Ecuadorians voted to halt drilling in the same region, but implementation has slowed. While officials have cited fiscal pressures and legal complexities, it is also clear that a significant portion of Ecuador’s oil production remains tied up in long-term prepayment arrangements—including those linked to past oil-for-loan agreements with Chinese lenders.
Following Ecuador’s 2008 debt default, China quickly emerged as the country’s primary financier. According to the China-Latin America Finance Database, since 2010 Chinese policy banks—primarily China Development Bank and Eximbank—provided over $18 billion in loans to Ecuador. Many of these were backed by future oil shipments. The structure followed a two-track model: financial agreements with policy banks, and parallel supply contracts with PetroChina or Unipec. In practice, this meant that while Chinese banks lent Ecuador billions in cash, PetroEcuador committed to deliver oil to Chinese traders as repayment—regardless of market prices at the time of shipment. This arrangement locked in large volumes of crude in exchange for upfront cash. By 2013, nearly 90% of Ecuador’s oil exports were committed under term contracts with Chinese buyers, giving Beijing outsized leverage over the country’s oil trade.
These deals have had long-lasting implications. By committing barrels years in advance, they reduced Ecuador’s ability to adjust production in response to new priorities—such as conservation mandates or global price shifts. Pricing terms further undercut the country’s earnings. Although contracts referenced international benchmarks like West Texas Intermediate (WTI) or Brent, additional fees, quality discounts, and opaque delivery terms often meant Ecuador received significantly less than market value. In fact, in 2017 Petroecuador sought to renegotiate oil-for-loan contracts with Chinese firms precisely to secure better pricing and reduce the volume of barrels exported under onerous terms. A 2022 audit cited by Infobae estimated that Ecuador lost nearly $5 billion in revenue due to oil sold at below-market prices under those contracts; up to 87% of crude exports were tied to formulas that paid less than the spot market could have yielded.
Independent investigations by journalists have also found that Chinese firms profited by reselling Ecuadorian crude at higher prices, while Petroecuador captured only a portion of the potential revenue. Contractual provisions—such as repayment accounts held abroad and sovereign immunity waivers—further limited Ecuador’s flexibility to renegotiate terms without risking legal or financial penalties.
In this context, many of the barrels extracted today are already earmarked through older pre-sale deals. This complicates efforts to curb drilling, even when doing so in response to a clear public mandate. Contractual rigidity—not just fiscal reliance—has narrowed the government’s policy space. Reversing course isn’t just a matter of political will; it requires untangling years of embedded financial commitments.
The 2022 debt restructuring with China offered a glimpse of what greater flexibility can unlock. By renegotiating loan maturities and rescheduling oil deliveries, Ecuador freed up dozens of cargoes that had been tied to repayment. Instead of shipping them under discounted terms, the government was able to sell them on the open market—during a favorable price window—generating millions in additional revenue. The volume of oil remained the same. What changed was when and how it could be sold. This shift in marketing autonomy directly expanded Ecuador’s fiscal space, without requiring increased production or new drilling.
While extractive arrangements remain deeply entangled with prior commitments, recent developments suggest Ecuador is gaining modest room to pursue a different path. In mid-2025, the country secured $400 million from China’s PowerChina—part of a broader $1 billion renewable energy package that also included Spanish financing—to support solar and energy storage projects. This marks a shift in Chinese engagement away from fossil-backed infrastructure toward cleaner investments. At the same time, Ecuador has turned to debt-for-nature swaps to ease financial pressures without expanding oil production. Although these were led primarily by multilateral lenders and NGOs, they reflect a broader shift. The 2023 Galápagos blue bond refinanced $1.6 billion in debt to fund long-term marine conservation, while a second swap in 2024 unlocked $460 million for Amazon protection. Together, these efforts point to the possibility of more climate-aligned partnerships—offering early glimpses of how Ecuador, with support from external actors, including China, might gradually move beyond extractive dependence.
Three lessons stand out. First, oil-for-loan deals may offer quick liquidity, but they impose long-term constraints that complicate democratic and environmental decision-making. Second, transparent and flexible oil sales consistently outperform opaque pre-sale contracts weighed down by discounts and delivery restrictions. And third, while China’s engagement has historically centered on extractive finance, recent shifts—such as investment in renewable infrastructure—suggest there is room for more climate-aligned and cooperative models. Deepening this kind of engagement, alongside support for flexible financing tools like debt-for-nature swaps, in line with its constitutional commitments, could help Ecuador reduce oil dependence.
There is no easy path out of an oil-dependent economy for Ecuador. Oil still plays a major role in the country’s budget. But the choice is no longer between drilling or defaulting. The 2022 restructuring showed that smarter financing—focused on freeing future production from rigid terms—can create space to act on social and environmental goals. Greater control over the extractive model would not mean extending Ecuador’s reliance on oil, but rather using what production remains in a more strategic and limited way. This includes regaining flexibility over how and when oil is sold and ensuring that any revenues are used to actively support, rather than delay, the transition toward a more diversified and sustainable economy. The 2023 vote to halt oil drilling in the Yasuní reserve signaled a shift in public priorities. Whether Ecuador—and its partners—can align financing with that vision will determine whether Yasuní becomes a turning point or just another deferred promise.
Edgar Aguilar is a Researcher at the Center for Latin American and Latino Studies and a graduate student in International Economics at American University
Edited by Rob Albro, Associate Director, Research, at the Center for Latin American and Latino Studies
*This post continues an ongoing series, as part of CLALS’s Ecuador Initiative, examining the country’s economic, governance, security, and societal challenges, made possible with generous support from Dr. Maria Donoso Clark, CAS/PhD ’91.