The Specter of Cuban Oil Haunts

"The following analytical piece is distributed with the permission of Cuba-L Direct, a news service. This is an original essay written for, and distributed by, Cuba-L Direct. The news service distributes information on Cuba on a daily basis. The service is available at http://cuba-l.unm.edu. One can subscribe to the Spanish or daily service via RSS. Cuba-L is housed at the University of New Mexico. The service began in 1986. "

U.S. businesses have long been frustrated about being locked out of Cuba by the perpetual economic blockade against the island. But now, development of Cuba's potentially lucrative oil fields puts powerful U.S. oil giants on a collision course with the blockade policy as contradictions between politically motivated sanctions and the global energy crisis become increasingly apparent.

Agribusiness has run the blockade thanks to legislation passed in 2000 permitting exports of food and medicine to Cuba on humanitarian grounds.

Last year, Cuba bought $570 million in food from the United States. However, sales have stagnated because of burdensome and expensive regulations imposed by President George W. Bush in 2004. Cuba buys only about 20% of its annual food imports from the United States despite its close proximity to U.S. ports and its preference for many U.S. products.

In May, Cuba's food import agency ALIMPORT signed sales agreements with U.S. suppliers attending a trade fair in Havana. The contracts are worth $118 million with additional contracts pending. ALIMPORT chief Pedro Alvarez said final sales could to go as high as $150 million.[1] As yet, agribusiness does not have the leverage to get the sanctions abolished altogether despite support from a number of conservative lawmakers and multinationals. With no end to the blockade in sight, many businesses cling to the forlorn hope that a post-Castro paradise of free-market commerce is going to appear - just as those who have been wrong for 48 years keep predicting.

The U.S. & Cuban oil
What threatens to turn the elaborate sanctions structure on its head is the specter of a Cuban oil bonanza. As the peak-oil horizon moves closer, the United States and other rich nations are forced to seek new oil sources. Since this is a matter of fixed U.S. policy, oil multinationals may have more success than food sellers in breaking down that structure. In 2005, the trade magazine Oil & Gas Review fretted about the struggle for oil that would take place in producing countries located in poor "conflict zones." At the same time, the trend in these countries is toward tighter state ownership and control of their natural resources.

Ignoring the role played by the United States in creating conflict in those zones, the article predicts, "In 10 to 20 years, many of the G-8 states will become almost completely reliant on oil supplies from the Gulf states, Venezuela, Libya, Kazakhstan, Nigeria, and other poor countries."[2]

The article does not mention Cuba, but in the same year it was published, two Canadian companies, Sherritt International and PEBERCAN, announced the discovery of high-quality oil deposits in Cuba's Gulf of Mexico Exclusive Economic Zone. This is the offshore strip assigned to Cuba in a 1977 agreement with the United States and Mexico. It divides the Gulf coastal shelf into exclusive zones for exploitation. The U.S. Geological Survey estimated the oil potential in the Cuban zone at 4.6 billion barrels or more and natural gas at 9.8 trillion cubic feet.[3] Sherritt has announced plans to begin exporting surplus Cuban oil in the near future, an eventuality that would deliver a serious blow to the sanctions policy.

In a message to The Miami Herald, Rep. Lincoln Diaz-Balart (R-FL) threatened Sherritt with serious consequences should it follow through with its export plans. "Their oil investments will involve but a small part of their legal problems once the rule of law returns to Cuba."[4] Cuba has repeatedly invited U.S. companies to bid on shared-risk exploration contracts with its state oil company Cuba Petroleo (CUPET).

"We have absolutely no limitations on working with American oil companies," said a Cuban official. "The barriers, unfortunately, come from the other side."[5] Oil companies from China, France, India, Malaysia, Norway, Venezuela, and Vietnam have been or are considering participation.

Kirby Jones, president of the U.S.-Cuba Trade Association, said this about a possible blowback from the fossilized sanctions policy: "As soon as Cuba actually once again initiates exploration - as soon as there's an oil platform scheduled to be in their waters - I think we will see a lot more interest and U.S. companies very active. It's really the first time ever in the history between the U.S. and Cuba that there is a strategic cost to maintaining the embargo."[6]

Congressional confusion
Cuba's oil potential has political, economic, and environmental implications for the United States, and Congress has responded accordingly - by jumping on its horse and riding off in all directions. Legislation passed in 2006 began to break down environmentally motivated prohibitions on drilling in U.S. coastal waters but left it up to the states to decide, nudging them along with promises to share hefty royalties with them.[7] One group of lawmakers, led by anti-Castro Republicans from Florida, Reps. Lincoln and Mario Diaz-Balart, Ileana Ros-Lehtinen, and Sen. Mel Martinez (D-FL), supports legislation that combines environment concerns with an unyielding commitment to destroy the Cuban revolution through sanctions.

Martinez introduced a bill aimed at strangling the Cuban oil industry in its infancy by scaring foreign investors away. This would be accomplished by denying U.S. visas to representatives of foreign companies that sign up with CUPET.

"My colleagues and I have been working tirelessly," said Ros-Lehtinen, "to prevent our own companies from ruining Florida's pristine beaches and delicate ecosystem by exploring and drilling for oil off our coast. ... To now have this murderous and totalitarian regime say it wants to drill just 45 miles from Key West is beyond the pale and totally unacceptable."[8]

Besides saving Florida's beaches, the bill holds out the promise of retarding Cuba's offshore drilling until some future government returns Cuba to its pre-1959 economic system dominated by U.S. interests. Sen. Bill Nelson (D-FL) also supports the Martinez bill, but he would go further by allowing the 1997 treaty to expire and by extending the coastal drilling ban 150 miles out into the Gulf toward the Cuban zone. Would that transform oil in Cuba's zone into "our" oil? If Cuba were to drill in its zone anyway, would that be considered an act of war? Would the United States have to retaliate to prevent Cuba from exercising sovereign rights over its coastal resources just 45 miles from the Florida Keys? Nelson has not said, but his proposal is a novel extension of the sanctions policy. In the meantime, several foreign companies are already installed in Cuba, and it seems improbable that an executive of, say France's Total, would forego future profits from investment in Cuban oil for the right to visit the United States. Instead of discouraging foreign companies, a bill sponsored by Sens. Byron Dorgan, Jeff Flake (R-AZ), and Rep. Larry Craig (R-ID), would free U.S. companies to compete by exempting them from the sanctions. The bill would allow any U.S. citizen or resident to "engage in any transaction necessary for the exploration for and extraction of hydrocarbon resources from any portion of any foreign exclusive economic zone that is contiguous to the exclusive economic zone of the United States.[9] As for the environment, no drilling in the Cuban zone would be closer than 45 miles from the U.S. coast. Perhaps in the belief that if you can't see an oil spill, it doesn't exist, the bill reassuringly says that drilling operations would not be "visible to the unassisted eye from any shore of any coastal State." Therefore, "the impact of offshore production facilities on coastal vistas is otherwise mitigated."[10]

The bill would also grant automatic licenses to oil company employees and contractors for travel to Cuba and to take with them all the equipment they need.

Exxon Mobile would still not be able to drill in the U.S. zone but would be free to pollute Florida's pristine beaches from 45 miles out in the Cuban zone.

Cuba has an energy policy
That surplus oil Sherritt plans to export would be made possible not so much from increased supply as from a reduction in domestic demand brought about by Cuba's energy conservation and alternative energy program.

The core concept in the policy is to make oil dependent on economic policy rather the other way around.

The government has said, "our plans for economic development, and especially our social programs, are not based at all on the hypothetical possibility of finding new energy sources or not."[11] Cuba has been investigating and applying alternative energy sources since the mid-1980s.

After the end of Soviet oil aid in 1991, the government had to seriously address the energy issue. What Cuba calls the "energy revolution" began in earnest when the electrical system approached complete breakdown in 2004 with persistent blackouts due to antiquated generating plants and a dilapidated centralized grid. Besides investments in renovating the existing system, the government distributed small diesel-fired generating plants throughout the island capable of producing half of the country's peak-hour needs independent of the grid. Nearly 4,000 auxiliary generators have been placed in hospitals, schools, and other essential facilities. In 2001, Cuba installed its first wind energy systems in Ciego de Avila Province. Since then, other wind parks have gone into operation on the Isla de la Juventud. The same year, the first generating plant powered by sugar cane biomass (bagasse) was set up in San Nicolas de Bari, Havana Province, using foreign capital. In 2003, two towns in Guantanamo Province got the first mixed electric power plants, employing photo-voltaic, wind, and diesel sources. Combined with the hunt for alternative energy sources, Cuba has put in place a conservation system that starts at the household level. In 2005, Cuba became the first country to eliminate incandescent light bulbs, replacing them with compact fluorescents distributed at subsidized prices. At the same time, the government began distribution of electric pressure cookers, rice cookers, and other electric appliances, also at subsidized prices, to replace inefficient utensils heated with kerosene. The government reported figures on some of the items installed for conservation purposes as of January 2007:

- 2.8 million electric stoves,
- 2.9 million electric pressure cookers,
- 3.2 million electric rice cookers,
- 2.8 million electric water heaters,
- 1 million energy efficient fans,
- 1.2 million new refrigerators, and
- 80,000 home air conditioners.[12]

U.S. has several energy policies
Under pressure to reduce carbon emissions and dependence on foreign oil, Congress passed the Energy Policy Act of 2005. Bush signed the bill at the Sandia National Laboratory in Albuquerque, NM, symbolizing his focus on increasing energy supply though technology, including construction of six nuclear power plants backed up by federal cost-overrun guarantees.[13] The law mandates a limited use of subsidized ethanol, "clean coal," wind farms, an early start for daylight savings time, and tax credits for the purchase of hybrid cars.

There is also a provision permitting nuclear plant workers to carry weapons. Thus, Bush would reduce dependence on foreign oil and at the same time fight terrorism at nuclear plants. Opponents of the Energy Policy Act say it will do nothing to lower gasoline prices in the short run, that it is overloaded with cash incentives to an oil industry already awash in profits, and that it pays lip service to reducing carbon emissions with under-funded alternative fuel projects. Moving in a direction all their own are lawmakers from coal-producing states such as Sen. Robert Byrd (D-WV). They want legislation to subsidize the coal-to-liquid industry, underwrite loans for it, and require the Air Force to sign 25-year contracts with the industry to buy jet fuel derived from coal.[14] Coal would then become an important Pentagon procurement partner, which means any movement toward ending the liquefied coal program could be interpreted as a threat to national security and a refusal to support the troops. Putting things into perspective, the current energy policy mix favors the expanded use of coal; building nuclear plants; subsidizing ethanol made from food; drilling in the U.S. Exclusive Economic zone; discouraging Cuba from drilling in its zone; erasing Cuba's zone; and encouraging U.S. corporations to help Cuba bring its oil to market as long as we can't see it being pumped.