Venezuela’s Economic Failure Opens Up Oil Market for Russia in Cuba

Cuba is about to receive its first major Russian oil shipment of the 21st century because the collapsing socialist government of Venezuela can no longer meet Cuba’s needs.

Reuters reports that Russian oil company Rosneft announced a $105 million deal on Wednesday to ship 250,000 tons of oil and diesel fuel to Cuba. That would add up to nearly ten times the value of oil shipped to Cuba by Russia over the previous five years.

A Russian tanker carrying 249,000 barrels of refined product is scheduled to arrive in Cuba on May 10.

Russia was Cuba’s primary supplier of oil until the fall of the Soviet Union, after which Venezuela became a primary source of oil for Cuba. Thanks to the magic of socialism, Venezuela is now a dirt-poor country wracked by starvation even though it is floating on a sea of valuable oil – more oil than Saudi Arabia, in fact.

The cost of oil production in Venezuela is high, so when oil prices began falling a few years ago, Venezuelan production cratered and the bottom dropped out of its national economy. Neither current socialist strongman Nicolás Maduro, nor his mentor Hugo Chávez, thought to spend any of their peak oil revenues on increasing the volume or efficiency of production, and the foreign investors that might have done it for them have long since fled the unstable country.

Production is estimated to tumble 20 percent by the end of 2017, at which time the Venezuelan government could literally run out of money. Overall, oil production has dropped by almost a million barrels a day since Hugo Chavez assumed power. There is a good chance the Venezuelan national oil company will go into default this year.

Venezuelan shipments to Cuba stalled out for eight months last summer, effectively shutting down Cuba’s Cienfuegos oil refinery. Russia’s Rosneft oil firm, which reported production growth of 11 percent during the first quarter of 2017, was ready to move in on the Cuban trade.

The Russian government has been considering the resumption of oil shipments to Cuba for some time. Cuban president Raul Castro asked Russia to consider the possibility in September 2016, citing Venezuela’s production problems. Cuba has also discussed petroleum imports with Iran.

In January, Deputy Economic Minister Alexey Gruzdev wrote a letter to the cabinet suggesting “the successful completion of the negotiations on supplies of Russian hydrocarbons to Cuba will not only promote an increase in trade turnover, but also have a positive socio-political and humanitarian effect on the Russian-Cuban relations.”