Cuba banking on the military and oil

Cuba banking on the military and oil

As Raul Castro tests Cuba's leadership waters, he may be putting his
faith in two important areas to help the Cuban economy: the military and
oil.
By Carmen Gentile in Miami for ISN Security Watch (10/08/06)

The future of Cuba’s growing economy rests in the hands of Raul Castro
and the communist nation’s pervasive military machine.

The 75-year-old younger brother of Fidel and long-time defense minister
is charged with continuing the legacy of Cuba’s 47-year-old communist
“revolution,” while facing the realities of a modern global economy and
keeping the country afloat.

For years the Cuban military has been at the helm of the economy,
running many of the country’s most important sectors such as tourism,
portions of the agriculture industry like sugar, areas of mining, as
well as parts of its retail industry. The military is said to control
about 90 percent of the country’s exports, making Cuba’s generals also
the country’s most prominent business leaders.

After the collapse of the Soviet Union, Cuba was forced to fend for
itself following decades of subsidies totaling US$19 billion a year. It
was then that the military started taking over certain sectors of the
economy.

In Cuba, “the military’s job is to make money,” Frank Mora, a professor
at the National College in Washington, told The Miami Herald in a recent
article.

“Power in Cuba is not just who holds the guns, although that helps. More
important is who controls what is profitable.”

With Fidel’s return to the helm uncertain, Raul Castro’s dual role as
military and economic leader will force him to re-examine decades of
old-world economic philosophies and implement the reforms many experts
assert are inevitable and part of the younger Castro’s future plans.

“Raul is one of the foremost advocates of decentralizing the economy,
perhaps by allowing more small-scale individual entrepreneurship and an
easing of foreign investment regulations," Brian Latell, a former
national intelligence officer for Latin America from 1990-1994 and
author of a Raul Castro biography, told ISN Security Watch.

Economic reform could prove to be Raul’s first and greatest challenge if
he remains in power for the foreseeable future, as an entire generation
of post-revolutionary Cubans will look to him to fix what ails the
country’s domestic economy, namely housing, food and energy shortages.

The military’s economic wing, known as the Business Administration
Group, has done more than US$1 billion a year in business since 2000
through its state-owned enterprises, making a reasonable portion of the
country’s gross domestic product (GDP) in 2005, estimated at nearly
US$40 billion.

Meanwhile, new foreign investment and revitalized old partnerships in
recent years have contributed to the country’s GDP growth and sparked
interest among some world leaders who once considered Cuba’s
state-controlled sector economy too antiquated and inefficient.

Among those seeking to do business with Cuba is China, whose leaders are
eager to explore the untapped potential of off-shore oil.
Will energy woes derail Cuba’s economy?

Despite the military’s relative success running some economic sectors
and plans for future reforms, some experts say Cuba’s persistent energy
woes could be the final undoing of communist regime.

Continuing talk of untapped potential in off-shore oil fields and steady
stream of discounted oil from Cuba-ally Venezuela is all well and good,
but the fact remains that Cuba is burdened by chronic blackouts blamed
on faulty, aged power plants and a lack of resources to repair them.

Before stepping aside, Fidel continually grappled with Cuba’s energy
dilemma, reportedly placing diesel-fueled generators throughout the
country to keep the lights on during its frequent blackouts.

Though the specter of a complete Cuban energy failure looms over every
day life, there are hopes that recent discoveries of off-shore oil
reserves will be the country’s salvation in years to come and become an
integral part of the country’s economic future.

According to a recent US Geological Survey report, some 4.6 billion
barrels of crude oil and 9.8 trillion cubic feet of natural gas just may
well be lurking below of the ocean floor of the Northern Cuban basin.

The reserves are said to possibly rival the estimated reserves in
Alaska's Arctic National Wildlife Refuge.

That kind of crude would more than meet Cuba’s daily oil intake - about
205,000 barrels per day - and provide enough excess to keep the lights
on. This would prove extremely beneficial to both the domestic economy
and attractive to foreign investors, like China and even the US, looking
for the next untapped oil reserve.

The potential for striking oil in what amounts to Florida’s backyard has
seemingly swayed a handful of Republican leaders in Washington to change
their minds on the Cuba issue, a stark contrast to the White House's
traditional hard-line stance against pouring investment dollars into
Castro's coffers.

Among them is Sen Larry Craig, a Republican lawmaker from Idaho, who
earlier this year introduced a bill that would waive the Cuban embargo
and allow US companies to do business with Cuba's state-owned oil
company, Cubapetroleo.

The senator argues that while US firms are prohibited from doing
business with Castro and from exploring fields off the shores of
southern Florida due to environmental restrictions, Cuba is already
planning its own off-shore exploration and cultivating ties with
countries like China.

Cuba is only 90 miles from the United States at its closest part. An
agreement brokered in 1977 split the waters between the two nations in
half. The United States does not permit drilling on its half, though
Castro is reportedly eager to explore Cuban waters.

"The bottom line is that Cuba will develop its oil fields within 45
miles of our shore. We can sit by and complain, only to watch rigs go
out and start extracting oil, or we get involved," Craig said.

Larry Birns, director of the Council of Hemispheric Affairs, notes that
if Cuba’s hydrocarbon bounty is as plentiful as some think, “it could
mark the final death toll for the US embargo on Cuba.”

“If that’s the case, Cuba will have successfully outflanked the
embargo,” Birns said.

Of course not everyone is convinced Cuba could be sitting on the next
big untapped oil reserve. Some like Mauricio Claver-Carone, a member of
the US-Cuba Democracy Political Action Committee, said the potential for
striking real oil riches out there is more fallacy than fact.

"It's been a big smoke screen for a long time [...] the Soviets used to
say there were large deposits off the shores of Cuba, though it hasn't
been proven," said Claver-Carone, who also contends that Castro is using
the basin as a means of promoting foreign investment in Cubapetroleo.

"Only Cubapetroleo is allowed to drill off shore [...] though foreign
countries can inject billions of dollars into Cuba, which can turn
around and say they have nothing [in the offshore fields]," he noted.

It’s a risk many countries could be willing to make and one that could
prove crucial to Cuba’s economic future.

Carmen Gentile is a senior international correspondent for ISN Security
Watch. He has reported from Iraq, Afghanistan and Bolivia for ISN
Security Watch, and Haiti, Venezuela and elsewhere for Newsweek, The
Boston Globe, The Washington Times and others.