One of Spain's largest oil companies, Repsol, is gearing up to spud a deep, offshore well in
Cuban waters, just 60 miles from the Florida Keys. A huge rig is still en route
to the site from Singapore, and as it draws closer to its destination the
zealous opposition from Floridian politicians who rely on the Cuban
expatriate vote gets louder.
They argue that the well should not be allowed to
proceed because it violates the embargo and on a deeper level, that any oil
found would prop up the Cuban regime. The first claim is incorrect – it
does not violate the embargo as there are no American companies involved; but
the second claim deserves closer inspection. Indeed, oil experts say Cuba may
have as much as 20 billion barrels of oil in its as-yet untapped portion of
the Gulf of Mexico, though the estimate from the US Geological Survey is
considerably more modest, pegging potential reserves at 5 billion barrels.
And yes, finding and developing oil resources in Cuban
waters would provide a major boost to the country's struggling economy and
would help to reduce its total dependence on oil-rich, leftist ally
Venezuela. Fidel Castro's close ally Hugo Chavez currently dispatches 120,000
barrels of oil a day to Cuba on very favorable financing terms. However, the
arrangement is heavily dependent on the friendship between octogenarian
Castro and cancer-stricken Chavez… hardly a recipe for permanence.
Cuba's oil contracts with Repsol and various other
international partners probing its waters call for Cuba to get 60% of the
oil, so a few good wells would make a marked difference for the Caribbean
nation.
But the more pressing issue is proximity. If this well
were to blow – like the Macondo
well did – the two American companies that provide
blowout-containment services to deepwater drillers in the Gulf of Mexico
would not be allowed to come to its aid. Yes, it is possible to obtain
exemptions from the embargo, but spill responses are based on a simple
premise: Everything has to be on standby, ready to go. While US officials say
there is a longstanding practice of providing licenses (embargo exemptions)
to address environmental challenges in Cuban waters, and Americans have
previously provided booms, skimmers, dispersants, pumps, and other equipment
to respond to a spill, obtaining exemptions from international embargoes does
not fit the ready-to-go picture.
The Repsol well will sit just
60 miles from the Marquesas Keys, an uninhabited group of islands near Key
West in an area of strong, 4-6 mile-per-hour currents that come from the
Gulf, shoot through the Florida Straits, and then churn northward up the
Atlantic Coast. It would take only a few days for an oil spill to reach the
Keys. In fact, Repsol's well will be twice as close
to US shores as drillers in American waters are allowed to operate.
Any angst over the situation should not be directed
toward Repsol, as the Spanish company has done
nearly everything it can to placate American concerns. The company has
offered US agencies an opportunity to inspect the drilling vessel and its
equipment before it enters Cuban waters, and Repsol
officials have stated publicly that in carrying out its Cuba work it will
adhere to US regulations and the highest industry standards. The only thing Repsol has not done is concede to demands from some US Congresspeople to walk away from the project, which the
politicians described in a letter to Repsol as a
venture that "endangers the environment and enriches the Cuban
tyranny."
However, Repsol is inclined
to be accommodating because it is a publicly traded company. It is the only
such company operating in non-American Gulf waters – the others
operating or considering operating in Cuba's Gulf waters are primarily
national oil companies. The United States' sphere of influence over these
state-owned, national oil companies is far, far less; in many cases, American
desires have no bearing on these entities… and any effort to exert
influence over them immediately raises questions of sovereign immunity.
So, while Repsol's case is at
the forefront for the moment, it seems that the US government needs to pay
more attention to these national companies and attempt to formulate a way to
engage in their exploration process. It's a complicated, sensitive arena,
incorporating issues like transboundary
compensation for oil pollution damages, the role of international oil
pollution liability conventions, and recovering costs when one country
provides most of the spill response and clean-up assets.
But there are quite a few national oil companies
interested in Cuba. Repsol is working in a
consortium with Norway's Statoil and a unit of India's ONGC. The partners
plan to drill one or two wells; once they are complete, the rig will pass to
Malaysia's state-owned oil company, Petronas, and
then on to another ONGC unit, ONBC Videsh, both of
which have also leased offshore Cuban blocks. Brazilian state oil company Petrobras is also developing plans to explore its Cuban
blocks.
The multinational face of exploration in Cuba's waters
is a good representation of the support Cuba has received from the rest of
the world. Indeed, every year for the past 19 years, and soon for an
almost-guaranteed twentieth time, the United Nations General Assembly has
overwhelmingly adopted a resolution condemning the US embargo. Every year,
something like 187 of 189 nations appeal to the United States to end the
embargo, with (usually) only Israel voting with the US.
Almost no one else supports the embargo, and it is time
to assess whether it is still in the US's best interests.
The embargo on Cuba represents the most comprehensive
set of economic sanctions the US imposes on any nation in the world. The goal
has always been to make the Cuban people suffer so much that they would tear
down a government that was at one point a Cold-War security threat. The US
has: imposed sharp limits on Cuba's access to American food, medicines, and
visitors; banned almost all other business activity; used sanctions to stop
third countries from trading with Cuba; blocked Cuba's access to
high-technology goods; and even siphoned off some of its most promising
thinkers by giving Cubans incentives to emigrate and persuading its highly
trained doctors to defect.
None of this has, of course, caused an uprising, let
alone broken the back of the Cuban system. It has been a generation since the
Cold War ended, since the Soviet Union fell, and since the US intelligence
community concluded that Cuba posed no threat to American security. Why does
the embargo still stand? Well, for several reasons, two of the clearest being
opposing communism in general and maintaining political support from the
large Cuban expat community. However, another reason may be a lack of data.
There is no formal mechanism within the US government to monitor the impact
of the embargo on economic and social rights in Cuba; nor is there a process
to assess the impacts of the embargo on the United States.
Without a way to gather this information, there are tough
questions that remained unanswered. Do the sanctions backfire and take away
from everyday Cubans the prospect for leading more prosperous and independent
lives? Is the embargo damaging US standing in Latin America? Do the sanctions
cost the US jobs for workers, markets, profits for businesses, or liberties
for American travelers?
These questions have lingered for years, but with Fidel
Castro having passed the reins over to his slightly more liberal younger
brother Raul, changes are afoot in Cuba that make these questions more
pressing. Adding all the new interest in Cuba's deepwater oil potential to
the mix only increases the pressure.
Raul Castro took over the presidency in 2008, and his
goal is to have 35% of the economy privatized by 2015. In April the Cuban
Communist Party approved 311 decrees designed to meet that goal, though to
date only a few have passed into law. Those that have been enacted are mild
relative to the bigger picture of creating a private sector. Nevertheless,
they represent dramatic change for Cubans, who have not been allowed to buy
or sell vehicles or real estate for fifty years. Now they can.
For the first time since the early years of Castro's
1959 revolution, private individuals in retail services, agriculture, and
construction are allowed to hire employees, even though there remains an
article in the Cuban Constitution that says one's property and equipment
"cannot be used to obtain earnings from the exploitation of the labor of
others."
Over the next five years the regime intends to lay off
up to a million public sector workers – no less than 10% of its
workforce. The food rationing system, on which many Cubans rely daily, is
also set to be phased out. The goals are clear – to reduce the state
payroll, boost productivity (especially in the agricultural sector), and
nourish the private sector – even if the timeline and plans for dealing
with the fallout are far from clear.
Cuban authorities are careful to depict this
restructuring as upgrading the revolution, not forsaking it. As one political
analyst said, the Cuban government is trying to "let the economic genie
out of the bottle while keeping the political genie in." It's a tough
act. And the fact is that the regime can no longer afford to finance the
socialist ideas upon which it was founded. The question is: Which way will it
turn?
If reforms are too limited and private enterprise
remains too restricted to flourish, nothing much really changes, aside from a
few aspects of the current black market becoming legal. At the other end of
the spectrum is rapid and rampant capitalism, with
all of the debt and accumulation of wealth in the hands of a few that today
are such clear downsides of free-market economies.
The Goldilocks answer is somewhere in between,
positioning Cuba as a miniature China with a mixed economy, the state holding
tight grip over some sectors but loosening control over others. The state
will almost certainly retain its grip over mining, oil, sugar, health care,
and tourism, cumulatively a large chunk of the country's economic strength.
Nevertheless, even this partial transition to
capitalism offers some good economic opportunities to the US, if it were to
open those avenues. The embargo may be aimed at restricting the Cuban regime
so harshly that it fails, but it is also preventing the US from even
encouraging, let alone participating in, a more modern Cuba. In terms of the
Gulf, the embargo restricts US opportunities to provide exploration expertise
to a developing nation and to share in the spoils of that work, which could
be another, much-needed, convenient source of oil, while also hamstringing
the US's ability to protect its own waters.
[The US can
ill afford to turn its back on close sources of oil, especially with a triple
threat to the current supply looming large. Read
this free report to learn more about it… and the profit
opportunities it offers.]
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