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Energy experts debate how long Cuba could get along without Venezuelan oil
CubaNews / June 2012

By Larry Luxner

Cuba’s near-total dependence on Venezuelan oil and economic support makes the island again vulnerable — just as it was with the Soviet bloc two decades ago — to a sudden change at the top in the benefactor state.

That vulnerability is further underscored by the disappointing news that Spanish oil conglomerate Repsol-YPF SA will pull out of Cuba after its first offshore well came up dry.

The May 29 announcement by Repsol President Antonio Brufau follows a $100 million effort by the oil giant, which in 2004 explored off the Cuban coast but even then failed to detect hydrocarbons in commercially viable quantities.

“At this point, we don’t think it is worth continuing to drill, at least not in our blocs,” said Repsol spokesman Kristian Rix.

All eyes are now on Venezuelan President Hugo Chávez, whose health has visibly deteriorated only five months away from presidential elections which he had hoped would keep him in power at least until 2019.

What if Chávez vanishes from politics and a successor — or even the opposition — weakens or even revokes the oil subsidies that keep Cuba afloat? A look at bilateral trade patterns, prevailing market prices for crude prices over the past few years and Cuba’s benefits from Venezuelan oil imports hints at an answer.

In October 2000, Fidel Castro and Hugo Chávez signed the Convenio Integral de Cooperación Cuba-Venezuela (CIC), a barter accord under which Cuba delivers goods and/or services to Venezuela in return for crude oil and petroleum products.

As explained by Cuba energy expert Jorge Piñón of the University of Texas, the agreement also provides long-term credit of up to 25 years at very low interest rates for a portion of the oil delivered and not bartered.

At $100 per barrel, the value or financial benefit to Cuba under this deal alone on an annualized basis exceeds $3 billion.

State-run Petróleos de Venezuela SA also exports 20,000 to 25,000 b/d of crude as its equity share (49%) of the Cuvenpetrol SA refinery in Cienfuegos; Cuba’s Cubapetróleo owns the remaining 51% of this joint venture.

That venture, in turn, sells some of its products to Cupet for domestic consumption; Cuvenpetrol then exports whatever is left. Cupet’s gross refinery margin share is estimated at $6 million per year, said Piñón.

“These two agreements should not be confused as to their intent and economic impact on Cuba. Clearly, the loss of those payment subsidies would have a major impact on the Cuban economy,” he cautioned in an email to CubaNews, though he declined to comment on what exactly that impact might be.

In the beginning, Venezuela was shipping 53,000 b/d to Cuba under the CIC, while Cuba in return sent Venezuela doctors, nurses, teachers, animal vaccines, technical expertise and — perhaps most importantly though not explicitly disclosed in the pact — military, civil intelligence and security services.

Since then, bilateral trade has skyrocketed, jumping 86% annually in the last decade. Venezuela is now by far Cuba’s main trading partner — well ahead of second-place China.

In 2010, bilateral trade of $6.03 billion exceeded the combined trade volume of the next nine countries on the list: China, Spain, Brazil, Canada, United States, Netherlands, Mexico, Italy and France.

Yet it’s not a balanced trade by any means. Rather, it represents a chronic deficit for Cuba that today reaches 43% of total business volume between the two countries.

It isn’t clear how the professional services provided by Cuba are valued or how really indispensable some of them (including agricultural advisors, sports instructors, economists or environmental specialists) are for the oil-rich nation.

Rather, it seems that — just as it was with raw sugar exports during the Soviet era — Cuba is highly overpaid for its part of the bargain, which is a way to subsidize the island. Because the accords are regularly updated and upgraded, Venezuela exports to Cuba 113,000 barrels of Venezuelan crude per day (up from 112,000 b/d in 2009). That’s more than twice the original volume, representing around 60% of all available oil in Cuba.

Part of this flow never reaches Cuban ports because in all likelihood it’s being forwarded to other consuming nations.

In recent years, Venezuelan shipments of crude oil to Cuba under CIC have risen slightly, from 92,500 b/d in 2006 to a high of 97,800 b/d in 2010, dipping to 96,300 b/d last year.

A glance at average market prices over the past decade shows how well Cuba’s economy has been insulated from price volatility and wild growth, especially after 2003.

If not for Venezuelan aid, these imports — assuming an average price of $98.61/bbl from July 2007 to September 2008 — would have cost Cuba around $4 billion. That is clearly beyond the limits of the cash-strapped, credit-deprived island, and would have represented over 50% of all imports in that time period.

From January 2011 to April 2012, oil prices averaged $106.21/bbl, representing $5.8 billion in imports if Venezuelan crude were bought on the open market. Cuba has not released recent details on its foreign trade, but using 2010 — the latest year with available statistics — as a reference, that amount would have represented 40% of Cuba’s total import bill since January 2011. Armando Portela contributed to this article.

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