Repsol's Cuban Progress an Open Door for U.S.

Spanish energy company Repsol said its exploration campaign off the Cuban coast was moving pretty slowly. Started in February despite a backlash from U.S. lawmakers, the Cuban government said the drilling campaign could break its reliance on Venezuelan reserves. After a false start in 2004, Repsol said geological conditions were impeding Cuban developments. Perhaps the slow pace for Repsol provides time for a strategic reset for Washington if it's savvy enough.

Repsol began its drilling campaign off the Cuban coast in February despite calls from some lawmakers in the United States to bleed the Spanish energy company dry should it cause a spill in the area. The Spanish energy company tapped its first well off the Cuban coast in 2004 but didn't find enough oil to make work there commercially viable. It's estimated that Cuban waters hold at least 5 billion barrels of oil and 10 trillion cubic feet of natural gas and the Castro government said it needs that oil in order to break its dependency on Venezuela.

Cuba gets around 114,000 barrels of oil per day from Venezuela. Cuban officials have expressed concern about its long-term trade relationship with Caracas, however, given the uncertain political future of cancer-ridden Venezuelan President Hugo Chavez. It might be another three years, however, before any exploration off the Cuban coast proves viable for the communist government.

Meanwhile, Mexican President Felipe Calderon announced his government had rekindled its relationship with Havana after a falling-out between Cuba's Fidel Castro and Calderon's predecessor, Vincente Fox. Calderon's government said bilateral trade between both countries stood at around $373 million, barely 10 percent of the trade reported between the United States and Mexico. But Calderon said there was a real "possibility" for Mexico's state oil company Pemex to work collaboratively in the Cuban waters of the Gulf of Mexico.

Before Repsol announced plans to start drilling off the Cuban coast, Lt. Florida Gov. Jennifer Carroll said the Castro government "can't be trusted" to explore its own waters, let alone care for its people. Rep. David Rivera, a Florida Republican, told a congressional committee that Washington should "bleed Repsol" dry should it cause problems off the Florida coast. The federal government, however, said that since most oil and natural gas companies operate globally, safety standards are in place to provide some assurances off the Cuban coast.

This may prove to be a chance for oil diplomacy by trilateral means. Repsol said it's taking longer than expected to drill because of tough geological conditions. That may be enough time for a strategic reset of sorts. In February, the U.S. and Mexican governments signed a maritime agreement for the exploration of oil and natural gas along the shared maritime border in the Gulf of Mexico. Mexico is the No. 2 supplier of crude oil to the United States and Calderon's government certainly has room to improve its trade relationship with Cuba should a similar relationship develop with Havana. Geopolitically speaking, it could be a two-for-one for Washington. With Calderon leading the way, Washington could strike a blow to Caracas while opening the door to a trade embargo against Cuba enacted before U.S. President Barack Obama was even born.

By. Daniel J. Graeber of Oilprice.com