offshore oil rig Cuba

Reports of Energy Rationing Likely Stem from Declines in Cuba’s Crafty Barter Deals

According to a report by Reuters, a statement issued by Cuba’s Council of Ministers this week said Economy Minister Marino Murillo explained to Council members the country’s economic situation and restrictions being adopted for the rest of the year, without giving details.

The restrictions apply to some state firms and joint ventures and include reductions in fuel and electricity consumption.

Cuba has a long history of engaging in barter for vital resources, and the recent announcement likely stems from reduced shipments of oil (and cash) from its barter partner, Venezuela – or the expectation of future declines.

Earlier this year, a Pakistani ship arrived in Havana carrying around 15,000 tons rice to Cuba.Cuban rice

Pakistan’s Prime Minister, Muhammad Nawaz Sharif, said that Pakistan would extend all possible assistance to help Cuba by reciprocating in the same spirit as Cuba had done by sending teams of doctors following the aftermath of the country’s magnitude 7.6 earthquake that took the lives of more than 100,000 Pakistanis in 2005.

Regardless of how you feel about the Castros, their ability to get what’s needed through barter deals is like no other in history.

In the beginning, fearing a US retaliation after the 1959 revolution, Castro struck a deal with the Soviet Union to install medium range nuclear missiles on the island.  What followed was a show down between the Soviets and the Americans that culminated in the 1962 Cuban Missile Crisis. In the sweltering control room of a wounded submarine patrolling the Cuban coast, Soviet military officer, Vasili Alexandrovich Arkhipov, refused to push the nuclear missile launch button, despite protests from the submarine’s captain, who believed war had started and needed Vasili’s consent. The missile was never fired, but that day was the closest the world has ever come to nuclear war.

Cuban Missile Crisis

The result was a barter between the Soviet Union and the US whereby Castro would remain in power and the Soviets would remove its missiles from Cuba. The US also agreed to remove certain missiles from Europe.

The 1959 revolution propelled Cuba from a market-based relationship with its agricultural trading partners, primarily the US, to barter arrangements with the Soviet Union, China, and other countries in the communist East Bloc.

Since then, owing mostly to declines in sugar production, Cuba has made a national industrial policy out of bartering professional services in exchange for a wide variety of essential items including oil, rice and hard currency.  Called grannacional, this Cuba policy is rooted in a deep suspicion of private sector globalization. One tangible expression of grannacional is inter-governmental management of trade through the Alternativa Bolivariana Para los Pueb los de Nuestra América (ALBA) whereby economic and social welfare are presumably protected by the state.

Most recently, Cuba’s barter relationship with Venezuela involves the dispatch of thousands of medical services professionals in exchange for oil and cash.  This aspect of grannacional, Misión Barrio Adentro (MBA), is a bi-lateral social-political barter system intended to avoid dependence of imperialist states (ie. the United States).

What’s the value of this barter trade?  Official statistics do not exist, but former International Monetary Fund economist Ernesto Hernandez-Cata suggests, “just over $7 billion, or 11 percent of Cuba’s GDP,” in 2011.

Venezuela’s political disintegration combined with oil price declines means Cuba’s fantastical arrangement is coming to an end.

In his concluding statement at the year-end-session of Cuba’s closed-door National Assembly, Raul Castro, Cuba’s President, lamented that the recent electoral victory of the Venezuelan opposition to the Socialist President Nicolas Maduro would negatively affect Cuba’s economy in 2016.

As a result, growth is expected to be 2%, half of Cuba’s stated growth rate in 2015.

The decline in oil prices, “has affected our relationship of mutual aid with various countries, particularly the Bolivarian Republic of Venezuela, the target of an economic war aimed at undermining popular support for its revolution,” Castro said.

Previous examples of Cuba’s bartering include:

  • In 2000, France bartered food for sugar with Cuba that supplied 70% of the island nation’s wheat and flour needs. The agreement was worth $180 million.
  • From 1960 to the early 1990s, the Soviet Union was Cuba’s exclusive supplier of energy products. Soviet oil and oil products to Cuba were made at concession prices for Cuban goods, especially sugar.
Reports of Energy Rationing Likely Stem from Declines in Cuba’s Crafty Barter Deals was last modified: July 19th, 2016 by Simons Chase