Cuba's Oil Equation: Short-term Pain for Long-term Gain?
While we are anxiously awaiting news about the verdict in the trial of Alan Gross, the jump in global oil prices last week got us thinking as well...
Cubans are feeling the aftershocks of turmoil in the Middle East and North Africa; not in the form of demands for greater democratization, perhaps, but at the pump, in the form of higher gas prices, as the price of a barrel of oil soars past the $100 market on global markets.
As reported by the Nuevo Herald, the Cuban government raised the price of regular gasoline from 1.15 ($1.06) to 1.20 CUC, ($1.11) last week, the second such hike in less than a year. The majority of Cubans don’t own cars, because they are both astronomically expensive – the average Cuban makes about $20/month – and their purchase is tightly controlled by the government. But the price increase isn’t just about those who pay to pump. Those cinco centavos will trickle down, placing added strain on already taut Cuban incomes in another sign of what’s to come as President Raul Castro moves to decrease the state’s control over the island’s decimated economy.
Just a few days earlier, Castro announced the government will punt on its self-imposed March 31 deadline for dismissing 500,000 state employees. Castro explained that the layoffs will instead proceed on a slower timetable, saying "[projects] of this magnitude, which affects in one way or another so many citizens, cannot be framed in inflexible periods." Surging fuel costs may have contributed to the change of heart -- taken in conjunction with the impending elimination of the libreta, or ration book, and the threat of massive government layoffs, rising gasoline prices are an added stress on an already beleaguered Cuban populace.
More than half of Cuba’s oil consumption goes not to fueling the island’s herd of old American gas guzzlers, but to its electricity demands. According to estimates from the U.S. Energy Information Agency, Cuba consumes approximately 162,000 bb of crude oil/day. Nearly two-thirds of Cuba’s oil demands are satisfied thanks to its “doctors for oil” agreement with Venezuela in which Cuba provides its citizen doctors to Venezuela’s low-income communities in exchange for highly subsidized Venezuelan oil. While the arrangement insulates Cuba, to a degree, from the sticker-shock of global crude prices, this week’s events prove that Cuba is far from entirely immune to at least the economic reverberations of democratic uprisings in the Middle East and Northern Africa.
But could Cuba one day find itself with the upper hand when it comes to global oil markets?
The surge in energy prices hurting Cubans’ pocketbooks could provide stronger incentives to tap into the roughly 20 billion barrels Havana believes to lie in underwater oil fields off its north-western coast. The U.S. Geological Survey estimates a more modest 4.6 billion. Whatever the number, it’s attractive enough to seduce foreign investors like Repsol, a Spanish oil company that, in partnership with Norway and India, plans to commence Cuba’s first full-scale exploratory drilling later this year. That is, of course, if the rig that was assembled for the job, Scarabeo 9, ever makes it to Cuba. Contracted through an Italian company and assembled in China, (thank you U.S embargo), Scarabeo 9 was scheduled to arrive in Cuba in September 2009. Nearly two years later, it is still en route, delayed again after taking on water while in transit from China to Singapore where it was to be completed last October.
All this and more is detailed in an excellent new report on the intersection of Cuba’s oil aspirations and current U.S.-Cuba policy, from the Center for Democracy in the Americas. The report explores the potential environmental, political and economic impacts a large-scale Cuban oil discovery would have on U.S.-Cuba relations, questions quite worthy of our attention.