assessments

As Venezuela Falters, Cuba Works to Avoid Another 'Special Period'

5 MINS READOct 13, 2017 | 17:32 GMT
Car ownership in Cuba lags behind other Caribbean nations. Nevertheless, the loss of Venezuelan oil could hamper the country's budget.
(JOE RAEDLE/Getty Images)

Car ownership in Cuba lags behind other Caribbean nations. Nevertheless, the loss of Venezuelan oil could hamper the country's budget.

Highlights
  • Cuban President Raul Castro will hand power to a successor, likely Miguel Diaz-Canel, by February 2018. The new president will likely maintain Cuba's current policies toward Venezuela and the United States.
  • Cuba's government will attempt to wean itself off Venezuelan energy shipments while trying to diversify its import sources. In the meantime, Cuba will keep importing oil and fuel from Venezuela at current levels for as long as it can.
  • To accomplish this goal, the Cuban government will continue to try to keep pro-Cuban Venezuelan officials, such as President Nicolas Maduro, in key positions of power.

In Cuba, austerity is threatening to make an unwanted comeback. The island's government is planning for an immediate future of budget cutbacks with little chance of financial relief. At the root of Cuba's slide into austerity is the Venezuelan economic crisis. Cuba receives around 55,000 barrels per day of mostly crude oil from Venezuela — down from more than 100,000 barrels per day only five years ago — as well as an unknown amount of financial assistance. The decline in Venezuelan energy shipments has forced the Cuban government to seek to diversify its import sources and to cut back on imports of higher-grade gasoline and diesel.

In this sense, Cuba's new austerity is a far cry from the "special period" of the early 1990s, when its primary source of foreign assistance and trade, the Soviet Union, disintegrated and the Cuban government's income declined precipitously. In 1993 alone, Cuba's gross domestic product fell nearly 15 percent. Venezuela's economic crisis will not affect Cuba as dramatically or as rapidly as the Soviet Union's collapse did, but declining oil and fuel shipments from Venezuela will raise the financial burden on Cuba's central government.

Facing a New Necessity

Since 2000, when the two countries signed an energy cooperation agreement, Cuba has enjoyed access to low-cost (and often free) Venezuelan oil, gasoline, diesel and fuel oil, providing medical care and training in return. In addition, Cuban intelligence and internal security services have worked with their Venezuelan counterparts to monitor and thwart any threats from Venezuela's political opposition or armed forces. As a result of the agreement, Havana has not had to budget meaningfully for energy expenses for nearly two decades. This dependence was mutually beneficial as long as both governments were capable of keeping up their ends of the deal. But the steady degradation of Petroleos de Venezuela's oil production and refining capacity since the mid-2000s has loomed over Havana's relationship with Caracas, and once the collapse of global oil prices in 2014 plunged Venezuela into economic crisis, finding a new energy patron became a necessity for the Cuban government.

Cuba has several advantages when it comes to dealing with the domestic effects of Venezuela's economic decline. As an authoritarian state with virtually no private sector, it can quickly dial down energy consumption by refusing to import or distribute some fuel shipments. Subsequent shortages might breed discontent, but not necessarily to a point that would threaten the government. Private vehicle ownership in Cuba isn't as high as it is in other Caribbean or Latin American countries, and the government's reputation in managing dissent would keep most would-be protesters in check. Cuba likely will try to keep the decline in Venezuela's fuel shipments gradual, while Venezuela, for its part, will likely reduce shipments to other Caribbean states before cutting off Cuba's subsidized energy.

A sudden change of government in Caracas or a shift in priorities from the ruling United Socialist Party of Venezuela could alter these likelihoods. The first scenario would require a coup, and the second would occur only if party factions hostile to Cuban interests were able to decisively influence Caracas' stance toward Havana, if, for example, a political figure such as Diosdado Cabello, a former military officer not closely linked to Cuba's government, pressed for a quicker reduction in Venezuelan assistance to Cuba. To mitigate these risks, Cuba will continue to support the efforts of Venezuelan intelligence services to detect threats from within, to protect pro-Cuba political figures, such as President Nicolas Maduro, and to defend their influence over the National Constituent Assembly and other government institutions.

A Steady Extraction

For Havana, the trick will be managing Cuba's energy consumption amid Venezuela's economic decline and growing political instability. A gradual decline in Venezuelan oil supplies would allow the Cuban government to slowly wean itself off that source and steadily substitute imports from other state and private companies. That effort could become easier if a plan by Mexico's government to substitute Venezuelan energy shipments with its own comes to fruition. On the other hand, the financial burden of a sudden loss of Venezuelan oil and fuel lifeline would be extremely high. At current prices, losing Venezuela's energy shipments would cost an extra $1 billion to cover. That amounts to about 50 percent of the Cuban central government's entire budgeted income.

Miguel Diaz-Canel, a career politician and member of Cuba's Politburo, is in line to succeed the aging Raul Castro as president by February 2018. There is no reason to expect Diaz-Canel to significantly change Cuba's policy toward either Venezuela or the United States. The lifting of the U.S. economic embargo on Cuba is off the table for the foreseeable future, given that the administration of U.S. President Donald Trump moved to tighten sanctions on the Cuban government and pulled its diplomats from Havana after a series of suspected sonic attacks against them by an unknown actor. This deterioration in political ties means that Cuba's finances are unlikely to receive a sudden windfall from a further influx of U.S. tourists in coming years. The Cubans will keep supporting the Venezuelan administration because its energy consumption and domestic finances depend on the survival of Maduro's government.

For Cuba, the near future presents major financial obstacles that it will attempt to overcome by trying to steadily extract itself from its relationship with Venezuela. But cementing a new trade relationship with the United States is likely off the table for now. The upcoming leadership transition in Havana is unlikely to change that situation. Instead, Cuba will try to steadily supplant Venezuelan oil and fuel with shipments from other sources while hoping its energy patron doesn't suddenly cut off its energy supply.

Connected Content

Regions & Countries

Article Search

Copyright © Stratfor Enterprises, LLC. All rights reserved.

Stratfor Worldview

OUR COMMITMENT

To empower members to confidently understand and navigate a continuously changing and complex global environment.

GET THE MOBILE APPGoogle Play