The collapse of Venzuela's oil industry may take Cuba down with it

An American imperialist’s wet dream

Cuba Scrambles As Venezuela's Oil Industry Collapse

Zero Hedge,

14 June, 2017

Authored by Haley Zarumba via OilPrice.com,

As Venezuela’s oil industry goes down it flames, it’s looking like it may just take Cuba down with it.

Venezuela, once the crude powerhouse of South and Central America, is no longer able to produce enough oil to sustain its own economy, much less those of other countries. Cuba is frantically drilling in search for new reserves and reaching out for new suppliers, but there is no guarantee they’ll be able to stabilize their oil income any time soon.

Cuba became dependent on Venezuelan oil in the 1990s, when they were sold cut-price crude in exchange for the services of skilled laborers in order to bail them out of economic collapse in the wake of the fall of the Soviet Union. Currently, Cuba relies on foreign oil for more than two thirds of its daily consumption, with over 100,000 barrels of crude flowing from Venezuela every day for years. Now, quite suddenly, their dependence on Venezuelan oil has been forced to come to a bitter end.

In the midst of political unrest and economic devastation, Venezuela’s oil exports have plummeted by 40 percent in the last 3 years. During an export drought that lasted the better part of last year, the Cuban government has been combatting the stemmed fuel flow with regular energy rationing. In an attempt to avoid blackouts, the government has ordered cuts in electricity and fuel consumption to most state-run companies and entities (a huge pool in a communist country) by 50 percent, resulting in workers hours slashed and access to vehicles severely restricted. This April, they also began restricting sales of premium gas to government officials and diplomats.

After this eight-month moratorium on exports to Cuba, Venezuela once again began to export light oil to Cuba and Curacao in March, but at a great cost to their own refineries. As of this month, the 187,000-barrel-per-day Puerto la Cruz refinery is running at just 16 percent of its capacity thanks to a deficit in light oil and a lack of maintenance in ill-funded refineries. With this unsustainable model and no sign of improvement in the country’s economy, Cuba is looking for new sources of crude, and quickly.

Cuba is currently probing for oils in its own offshore wells, with some hope for a vast untapped reserve, but so far they’ve run dry. In response, they’ve reached out to an old friend--Russia. Just last month, Russia exported its firstshipment of oil to Cuba in decades. The tanker, carrying 250,000 barrels of Russian oil, was just the first installment of a total 1.9 million barrels to be sent by the Russian government-owned oil company Rosneft. It’s unknown if the deal is to be extended after the total is reached.

It is almost certain that Cuba’s weak economy will continue to need the aid, but the Russian government has made it clear that this is not a hand-out--there will be no more oil if Cuba doesn’t have the cash to back it up.Unlike Venezuela, who allowed Cuba to build up an unpaid tab for oil imports, Russia has announced that they will give no leniency to the cash-strapped nation.

If oil is found in Cuba, it will be a game-changer, but not necessarily for the Cubans. Australia-based Melbana Energy Ltd. has estimated that their Cuban assets contain as much as 637 million barrels of recoverable oil and the company is beginning an intensive two-well drilling campaign slated for 2018 with a budget of $30 million.

As Cuba desperately drills for new reserves and looks to Russia to replace the Venezuelan vacuum of low-cost crude, the future of the already-unstable communist country grows more and more uncertain. With no luck so far in their own probes, some of their most promising potential reserves owned by outside interests, and their Russian allies promising a swift cut-off if Cuba can’t pony up for oil imports, the poverty-stricken country may very well bankrupt themselves in the effort to power their nation.