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Latin America

Cuba and Russia renew oil ties, after Venezuela's supply runs dry

Cuba may be diversifying its oil supplies in the event that Venezuela's socialist government collapses.
10 May 2017 – 05:51 PM EDT
Maersk Erin, a Danish flagged tanker. Crédito: Crédito Wikicommons

An oil tanker carrying 250,000 barrels of Russian diesel is due to arrive in Cuba on Wednesday, renewing Moscow's Cold War-era energy supply line to the communist-run island after a 20-year break, according to various media reports and ship tracking websites.

And more is on the way, a potential lifesaver for Cuba which had been running short due to falling supplies from its regular source, crisis-hit Venezuela.

"Cuba is diversifying its oil supplies in the event that its barter agreement with Venezuela ends," according to Jorge Piñon, director of the Latin America and Caribbean Energy Program at the University of Texas at Austin.

"If Maduro disappears tomorrow they are in real trouble," he added, referring to Cuba's current oil deal with Venezuela which is a highly unusual, highly preferential barter arrangement.

Piñon, a Cuban-born former BP manager, said he began tracking the 600-foot tanker Maersk Erin three weeks ago after it was loaded in Latvia bound for Matanzas on Cuba's north coast.

Rosneft, Russia’s state oil company, announced last week it had signed an agreement with Cuba’s state-run Cubametals to supply 250,000 tonnes of oil and diesel fuel. The shipments would meet roughly three months of the islands daily needs, according to Piñon.

Despite holding the world's largest oil and gas reserves, Venezuela’s ability to supply Cuba has fallen by as much as 40 percent since 2014 due to a collapse in domestic production. Venezuela still supplies a relatively small amount of gasoline to Cuba but can no longer meet its diesel fuel needs for trains, trucks, tractors and some of its power generation.

Cuba depended on Moscow for fuel throughout the Cold War but was left struggling to meet its energy needs in the 1990s after the break-up of the former Soviet Union in 1991. It was rescued by the election in oil-rich Venezuela of President Hugo Chavez, a socialist disciple of Cuban leader Fidel Castro. Venezuela implemented a special barter trade deal with Cuba to supply oil at preferential rates in return for thousands of doctors and teachers.

The Russia deal is worth about $105 million, but it's not known who is paying for the oil shipments, Piñon said, speculating that Russia or China may have extended a loan. "Or it could be Venezuela. They don't have the oil, but they still have money," he said.

But the deal hardly looks sustainable in the long run, he added, saying that Cuba would be far better off switching to cheaper U.S. liquid natural gas. But that would likely require political concessions from Cuba to end its U.S. trade embargo.

"Something has to give. The next six months is going to be crucial," he said.