Cuba’s continuing energy woes

Hey there, time traveller!
This article was published 20/06/2023 (885 days ago), so information in it may no longer be current.

Lots of countries in the world today are struggling under challenging economic circumstances — including budget shortfalls and inflationary pressures, supply chain issues and high food prices and basic shortages of key products. After returning from almost two weeks in Cuba in May, I can safely say that the hard-pressed Caribbean nation falls into that same category.

I’m told that Cuba provides roughly 30 per cent of its own oil supply needs — much of it extracted off the northern coast of Matanzas province (with the assistance of Canadian expertise). But it has been said over and over again that the oil produced in this area is high in sulphur content and thus not ideal for refining into usable gasoline and diesel.

That means that much of Cuba’s energy needs must be met by crude imports from external sources. Therein lies the problem for the Cuban government. Where does the money come from to pay for high-priced imports at world market rates and mostly in U.S. dollars?

Unsurprisingly, the Mexican government is sympathetic, but its private companies want to be paid the world price. Oil producer Iran is interested in assisting the Cubans if it can find a way around U.S. economic sanctions on its own energy sector.

Evidently, Cuban President Miguel Díaz-Canel visited Algeria in November of 2022 and said to his counterpart that Algiers needs to help Cuba out because it offered considerable assistance when the movement for independence was fighting a bloody colonial war with the French in the early 1960s. An agreement was subsequently reached that would have Algeria provide an unspecified amount of crude oil and solar panels to Cuba.

In addition, the Russians are back in the business of supplying oil to the Caribbean country (one of its few backers in the war in Ukraine) and strengthening overall relations with the island. But it’s unclear what Moscow wants in return for the reliability of its oil deliveries. There was some speculation in Cuba that Russian tankers carrying oil are only unloading their product once every few months.

As for the Venezuelans, Cuba’s long-standing friends and revolutionary allies, they are having significant economic and financial difficulties of their own. They, too, are apparently looking for full price on a barrel of oil and just as willing to sell it to the recently returned U.S. oil company Chevron Corp. According to one Cuban source, the Nicolás Maduro government in Caracas is still sending some oil to Cuba, but that Havana is selling a portion of that supply on the black market to raise much-needed cash.

It goes without saying that Cuba’s present power grid is overtaxed, infrastructurally challenged and obviously inadequate. Cuba’s entire electrical system is outdated, incapable of meeting demand at the moment and badly in need of modernization (and undoubtedly at a high cost).

As I travelled along the main highway into Havana, the signs of an energy shortage were hard to miss. Just about every gas station was out of petrol, had orange plastic cones blocking access to the pumps and no workers to be found. At other stations, cars were lined up in a long row (and sometimes for hours), with people standing outside their vehicles and using their cellphones to notify others that a tanker truck was expected soon.

Right now, gasoline and diesel are being rationed and carefully monitored by Cuban police and security members — with Cubans limited to purchasing 20 litres for their vehicles at a time (with exceptions for taxis, rental car companies and long-haul tourist drivers). The problem, though, is being able to locate a gas station where you can actually purchase the product. It was understandable, then, why people were turning in droves to motorcycles, scooters and even bicycles.

While the price at the pumps for gasoline was $30 Cuban pesos per litre (or US$1.25 at official government rates), the black market price had skyrocketed to somewhere between $800-$1,500 Cuban pesos (where banks exchange US$1 at 120 Cuban pesos, though the value is roughly $200 Cuban pesos on the street). The same was true for diesel, which was selling for $25 Cuban pesos per litre, but garnering $300-$500 Cuban pesos under the table.

Simply put, Cubans are having a very difficult time — especially given that they typically earn somewhere between $4,000-$5,000 Cuban pesos per month — meeting their energy needs. And to tell you the truth, I’m not really sure how long the energy shortages are going to last. They could go on for some time, I’m afraid.

On the other hand, if the Cuban government can generate enough foreign exchange (perhaps through increased tourism receipts) to pay for costly oil imports — or get some additional energy help from its oil-producing friends — the pain now being inflicted might be minimized somewhat. That, of course, is of little solace to most Cubans today.

Peter McKenna is professor of political science at the University of Prince Edward Island in Charlottetown.