The stakes behind Cuba’s allegiance to Venezuela

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Venezuelan President Nicolás Maduro chats with Cuban President Raúl Castro during a March 2016 official visit to Havana. Photo by Yenny Muñoa/CubaMINREX.

Leaders across Latin America are picking their sides on how to deal with Venezuelan President Nicolás Maduro, following months of deadly protests and a disputed election that allowed him to create a new government body filled with his loyalists.

On one side are 17 countries who signed a declaration in Lima to condemn Maduro and not recognize the results of the controversial election. On the other side are mostly staunchly leftist Latin American countries defending Maduro, including Venezuela’s closest ally, Cuba.

In siding with Caracas, Havana is maintaining a partnership with dwindling prosperity. Trade between Cuba and Venezuela has seen a 70 percent drop in just two years. Bilateral trade of goods fell from about $7.3 billion in 2014 to $2.2 billion in 2016, according to Cuba’s National Office of Information and Statistics.

The trade decline is happening largely because low global oil prices and an economic collapse in Venezuela led to a drop in crude oil shipments to Cuban refineries. Cuba has started rationing fuel and electricity because its cash shortages have made it difficult to replace cheap Venezuelan oil. Caracas’ economic crisis has also made it more difficult for Cuba to earn revenue from its exports of professional workers and pharmaceuticals to Venezuela.

The chances of Venezuela increasing its oil shipments to Cuba while Maduro remains in power are close to zero, said Dany Bahar, a Brookings Institution fellow specializing in the Venezuelan economy. He says Venezuela’s state-run oil company PDVSA will remain unproductive because former President Hugo Chavez replaced thousands of workers with government loyalists. Not even rising global prices are likely to make oil export revenues reach pre-2013 levels, Bahar said.

Making matters worse for Venezuela are recent sanctions from the Trump administration. U.S. financial institutions are now barred from engaging in new deals involving debt or equity issued by PDVSA or the Venezuelan government. PDVSA’s U.S. subsidiary, Citgo, is also barred from sending dividends back to the South American country. “That will certainly make it harder to finance oil development,” Bahar said.

But even as Venezuela’s oil sector falters, Cuba can’t afford to lose its primary benefactor. The South American country still delivers tens of thousands of barrels of crude per day. The island has already engaged countries such as Algeria and Russia for oil, but it’s unlikely that any deals will be as favorable as Venezuela’s.

“Even if they wanted to distance themselves from some of the actions of the Maduro government—and they don’t necessarily—I don’t think they have any options economically to do that,” said Michael Bustamante, a Florida International University history professor specializing in Cuba.

Havana’s continued support for Maduro has also forced it take an opposing side to countries such as Mexico, Colombia, Brazil, and Argentina—all of which stood up to the U.S. to advocate Cuba’s inclusion at the 2015 Summit of the Americas. Although Cuba’s ties to Venezuela could make it less popular in the region, Bustamante doubts it will prompt countries to change their relationships with the island.

“I don’t see them matching their opposition to what’s happening in Venezuela with a sharp political turn in their approach Cuba,” Bustamante said, “in part because they don’t see an alternative for the current government in Cuba.”

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  1. Daily Briefing - October 20, 2017 - Cuba Trade Magazine - October 20, 2017

    […] The stakes behind Cuba’s allegiance to Venezuela: Cuba is unlikely to condemn Venezuelan President Nicolás Maduro’s power grabs even though the Venezuela-Cuba partnership has dwindling prosperity. While deliveries of cheap Venezuelan oil to Cuba have plummeted in recent years, the South American country still delivers tens of thousands of barrels of crude per day. Cuba will remain dependent on that oil because it’s unlikely any country can offer it a deal as favorable as Venezuela. (Cuba Trade) […]

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    […] but not all, of the decline is due to plummeting oil deliveries from Venezuela. Bilateral trade with the South American country fell by about 72 percent from 2011 to 2016, […]

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