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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Cuba Faces Oil Crisis As Venezuela Crumbles

When Venezuela’s opposition leader Juan Guaido earlier this week said he had decreed the suspension of all crude oil shipments to Cuba, he explained the move with the massive power outage that plunged a lot of Venezuela into darkness. Yet the call to turn the tap off for Cuba may re-emerge, this time as a more permanent goal on the opposition’s agenda.

Venezuela is Cuba’s largest oil supplier under a barter deal sealed by the late leaders of the two countries, Hugo Chavez and Fidel Castro. The deal envisaged Cuba getting regular shipments of crude in exchange for its highly trained doctors and other professionals to work in Venezuela.

At one point during this partnership, Cuba was receiving more than 100,000 bpd of Venezuelan crude, an analysis by Oliver Pieper for Deutsche Welle said. Now, however, this is probably down by a half as Venezuela struggles to keep its fields producing. Even so, Venezuelan crude is an important part of Cuba’s energy mix and its elimination from this mix would almost certainly lead to power outages for Cuba as well.

This urgent call by Guaido for a halt of oil exports to Cuba is not the first one. The Wall Street Journal’s John Otis reported in late February that the self-declared interim president of Venezuela and president of the opposition-dominated National Assembly had already set his sights on this particular portion of exports with the argument it was irrational especially amid the economic crisis raging at home.

Yesterday, Guaido tweeted that Venezuela was sending 47,000 bpd to Cuba and these were worth US$2.58 million that would be better put to good use at home rather than in Cuba. Related: The Small Asian Nation With Big LNG Plans

“Venezuela needs more than ever to leverage its resources, rather than fund dark purposes. For years, Cuba's interference was allowed, justifying with an ideological brotherhood that was nothing more than giving away our oil,” Guaido said in the tweet.

The Venezuelan crisis has already forced Cuba to adjust its energy sources and the country increased its imports from Russia and also last year signed a contract for more oil product deliveries from Algeria, another long-term partner. Yet Venezuelan oil has continued to play an important role in Cuba’s energy supply not least because it has been, from a certain perspective, free.

Cuba is not lacking in its own oil resources, though. Last year, Australian Melbana Energy—the only foreign company with a presence in the Cuban energy sector—said it had estimated the potential reserves of a single block at 12.7 billion barrels, with a 14-32 percent chance of striking oil in it. Drilling is set to begin this quarter.

Yet developing its own crude oil resources will take time that Cuba might not have, so chances are it will remain import-dependent in the observable future. If the U.S. steps up the pressure on the government in Caracas and with the help of Guaido’s opposition stops Venezuelan oil deliveries to Cuba, it will probably be Russia that will take the place of Venezuela. This will cost Havana more than it cost it to import Venezuelan oil but it will help it avoid outages.

By Irina Slav for Oilprice.com

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Leave a comment
  • Anonymous Anon on March 18 2019 said:
    What about all the crude oil that was piling up in Venezuela because there were no buyers? Why can’t that oil be shipped to Cuba?
  • Bill Simpson on March 18 2019 said:
    Let Russia support them all. And let the South Americans take care of problems in South America.
  • Todd Krokom on March 19 2019 said:
    "Last year, Australian Melbana Energy—the only foreign company with a presence in the Cuban energy sector"

    FYI Melbana is not the only foreign company working in Cuba's energy sector.

    You may want to have a look at Sherritt International out of Canada which has been producing oil in Cuba since the 1990s and is the largest independent producer on the island.

    Sherritt also constructs and operates significant power generation facilities as well as nickel mining in eastern Cuba.
  • Eric Mills on March 22 2019 said:
    Bill Simpson: "let the South Americans take care of problems in South America."

    Agreed. North Americans should stop making problems worse.

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