The Energy Crisis in Cuba Is Not of the Moment
To be honest, developing Cuba in the shortest time possible is a goal that we should be able to achieve. […] We’re still growing at an extremely low rate when compared to Cuba’s ambitions of developing as a nation […] I don’t believe it’s an impossible feat for us to become a prosperous country, it’s a hard, complex issue and we’ve set the bar really high; but it’s not unattainable. –Juan Triana, A Cuban Fight against Underdevelopment, December 2013
Erasmo Calzadilla
HAVANA TIMES — We’re finally being affected by it, what we saw coming on the horizon for quite some time now: being infected with Venezuela’s crisis. Our greatest trade ally and source of the majority of the oil we use has become engulfed in a major crisis. But what exactly is going on in our South American “brother” country?
“When were you born, that you didn’t hear about oil prices dropping and that Maduro isn’t keeping things under control in the country anymore?”
This is the stupid lie that the media has propagated and the majority of us believe. However, this is only a small part of the truth mixed with a good old serving of lies.
According to their theory, the problem will be fixed when prices per barrel go back up (that’s what the Leftist government believes) or when Maduro leaves power (according to some analysts the mediocre and corrupt management of today’s government has played a critical role in the succession of events).
However, the crisis goes much deeper than that and has been on the horizon for a very long time now because a decline in fossil fuels. This process has been slowly developing over time, but it has always been inevitable and it has destroyed countries such as Syria, Yemen and Libya; let’s pray it doesn’t do the same thing to us.
In the rest of this post, I’m going to try and explain a part of this present crisis. I’ll use a quote from Diario de Cuba to guide my argument.
The text reads: Venezuela has the largest oil reserves in the world, although production has declined over recent years amid an extended period of disinvestment incited by the drop in oil prices…
The following graph shows Venezuela’s oil production against international prices per barrel.
This graph helps us to understand that the dip in oil production isn’t a phenomenon of “recent times”, like the Diario de Cuba affirms it to be. The decline began back in the late ‘60s; the second largest relapse began a few years before the Bolivarian government set up camp in Miraflores.
Venezuela has the largest oil reserves in the world but the number of higher quality oil fields has been decreasing over decades. Therefore, when this oil is refined it becomes less and less viable, energetically and thus economically. The situation is so critical right now that the country is importing light crude and other dissolvents in order to improve the quality of the heavy crude they’re extracting.
And this is not only a phenomenon exclusive to Venezuela, it’s a global phenomenon that the majority of the large oil producing countries have been suffering; it is particularly fatal for those countries that already have a weak and not so diversified economy.
The other “small mistake” made by Diario de Cuba, which interlinks with the former, is to associate the fall in oil production with the fall in oil prices. The decline in oil production has been falling at an independent rate, which wasn’t affected by the current drop in prices nor the price increase that took place a few years ago; economists would call this an “inelastic” phenomenon. And it’s like this because, as we’ve said before, this is a “natural” process that has little do with the ups and downs of the international market. The Correlation Coefficient between the price per barrel and oil production in Venezuela currently stands at 0.3. In other words, there is no significant mathematical link between these two phenomena.
Now let’s take a look at the typical lies the Cuban government and economists use to analyze the situation.
For the same reason I’ve been explaining up until now, the phenomenon we’re seeing today, which has been on the horizon for quite some time now, has a geological root cause, and there are mathematical approaches to prove this. Today’s crisis was perfectly foreseeable.
We can compare it to a tropical storm that’s conceived in the east of the Atlantic and then heads towards the West. Before it arrives, we can make risk assessments and start undertaking preventative measures.
The crisis that is now arriving in Cuba had already made an impact on neighboring countries who also receive oil from Venezuela, such as Uruguay and the Dominican Republic. Didn’t it make sense to think, or at least suspect, that it would affect us as well?
The answer is: Of course it did. The sensible thing to have done was to assume this crisis as a very likely possibility and then have acted as a result; we had more than enough time. However, for some reason that I can’t fully get my head around, our leaders decided to ignore these warnings, they didn’t warn us of what could happen and they continued to draw out their unreal projects of development and 4% growth.
Now, they act as if the situation has magically dropped from out of the sky and comes as a complete surprise, making cutbacks and adopting last minute belt tightening measures (which are always very costly) while they take zero responsibility for their unjustified calculation mistakes.
Up until yesterday, at least, the Cuban economy was living a boom, due to tourism. To celebrate, a lot of people were buying air conditioning units, powerful ovens and washing machines, electric showers and other high-energy consuming gadgets. It’s very likely that people won’t be able to use these machines to their full potential if the electricity is cut.
On the other hand, the high level of energy consumption these machines imply would place heavy burdens on the energy distribution system we have. How many state-run and privately-owned establishments haven’t been adequately prepared so it’s impossible to be in them without artificial ventilation? All of this could have been prevented by implementing a system of early detection and by having taken action before this perfectly foreseeable crisis arrived here.
Raul Castro, for his part, has committed many “blunders” and it’s worth highlighting them. The first one: claiming that the root cause of the crisis in Venezuela is the “economic war launched in order to weaken popular support for their Revolution.” I don’t know if Raul and his analysts really believe such a foolish notion or whether that’s just a lie for those they believe to be “foolish” enough to swallow it. The truth is that storms are brewing and the 2nd Castro continues to stand firm by this absurd and dangerous theory which doesn’t help us at all when it comes to making important decisions. To top all of this off, you would have to really have some kind of irrational optimism to believe that Maduro can win this alleged war, where he concludes (and acts therefore in accordance with) the crisis being TEMPORARY!!! Good Lord.
In her last visit to Cuba, US Financial Risk Analyst Gail Tverberg recommended that we get ready as soon as possible for this crisis, putting a special emphasis on our low energy consuming agricultural practices and families returning to more rural areas.
However, Murillo, in the wake of the crisis, intends to advance in a completely different direction. Our Finance Minister wants to dedicate more resources to producing rum, and I’m guessing producing canned beer and bottled water as well as building hotels and golf courses or anything else the tourism sector needs to flourish won’t be too far behind.
My fellow Cubans, it’s easy to see that our government isn’t showing its sagacity or foresight in order to understand the real panorama of this problem and, just like they’ve done in the past, they’re going to stick our heads in the mud, again. Then they’ll tell us it was inevitable, that circumstances forced them to and well, we already know the rest of the story.
All of this never-ending crisis is hard to get a grasp of, I guess, but we should be thinking about this seriously, given the fact that the professional thinkers aren’t doing a very good job of it. It could also be an opportunity, even, for us to fund ambitious social projects: of severing our ties with Capitalism once and for all and connecting with Nature and our spirits once again, for example, or bringing democracy back to Cuba like we’ve been longing for so long… All we have to do is examine our utopias through a more realistic lens so that our actions aren’t completely unwise.
……. and Murillo a professional and official Cuban economist getting fired!
The end of the Venezuela support for Cuba can actually be helpful. Cuba needs to continue to diversify it’s economy to become independent. Living off foreign patrons is below dignity of the country.
Well guys (Griffin and Moses), I was a family party years ago when a cousin who was Head of the Asian Languages department at the University of Toronto but always wore the kilt, even in winter, offered his opinion about sociologists. His comment was:
“I can tell you about sociology, a degree in sociology is a degree in wishful thinking.”
You hit the nail on the head. Cuban economists, using inductive reasoning, take a set of specific facts that serve their ideological purpose to arrive at a general conclusion that feeds their twisted propaganda.
I would rather believe that they are simply stupid but I am afraid that you may be right.
You have it exactly backwards. Socialist are not stupid, but they believe in a stupid ideology because they are filled with resentment, envy, class hatred and moral narcissism.
If he’s going to offer his opinion on economics, I’m going to offer mine. But I do find it a fairly common failure among official Cuban economists that they don’t understand basic economics. They try to twist reality into their Marxist theories. The result has been 57 years of decay, wealth destruction and growing poverty for Cubans.
Do you realize the author is not a top notch Cuban economist, right? These are people criticizing the communist system the best they can, with the information available to them. Cut them some slack, lol
The analysis is incorrect on several points. The price of oil crashed when several large producers flooded the markets with oil. First of all, in the US fracking & shale oil development produced a boom in domestic energy production for the world’s largest consumer of fossil fuels. Saudi Arabia decided to boost production as a means of fighting an economic war against Iran, and while they were at it, to undercut US domestic oil supplies. Concurrent with these events are the ongoing economic recessions in Europe, Japan & China which have cut demand for oil.
As for Venezuela, the crash in oil prices has hurt their economy, but there’s more to their problems than a drop ionic revenue. Other oil producing countries have not suffered anywhere as much as a result of the drop in oil prices.The real harm to Venezuela’s economy was the imposition of price controls, the takeover of efficient private businesses by the inefficient state (with directorships handed over to friends & family of corrupt officials), the insane system of multiple exchange rates, and the ongoing subsidies of gasoline and other commodities. In short, the essence of Bolivarian socialism: bogus help for the poor as a fig leaf for robbery by corrupt politicians and military officers close to the Chavez/Maduro regime.
Venezuela is importing oil and fuel because they have so seriously mismanaged their own domestic oil production they can no longer meet their own needs. The heavy, high sulphur content oil in Venezuela’s reserves can be refined to perfectly good quality, if they have the capital to invest in modern technology. They squandered their capital and drove foreign investors away with tie confiscatory policies. The corrupt Bolivarian official are shifting their capital out of the country, as they have no interest in investing in a sinking ship.
On top of that, the $10 billion per year subsidy to Cuba has been a constant drink on Venezuela’s finances and will come to an end soon enough.
By the way, neither Syria nor Yemen were significant oil producers and their civil wars began long before the fall in oil prices anyway.
The fact is, there is more oil being produced today than ever before, but the demand for it has fallen. This development contradicts the doom and gloom warnings of the Peak Oil Cult. A fall in production does not cause a fall in prices, the author suggests above. Overproduction, which has outstripped demand, has resulted in a drop in prices. But we shouldn’t expect Cuban economists to understand basic economic laws like supply and demand.
Eramos writes, “It could also be an opportunity, even, for us to fund ambitious social projects: of severing our ties with Capitalism once and for all”. What a dumb thing to write. Especially after what he acknowledges took place in Venezuela. The plan at the very least should be to enhance Cuba’s means of production. To diversify revenue sources, to repair infrastructure, etc. But at a time of economic crisis to decide to give away even more money on social programs? Socialists aren’t necessarily bad people but they are really stupid.
I think the problem in Venezuela is the chronic neglect from way before Chavez, during Chavez and after Chavez, for economical diversification. Previous governments stole money and inflated the living standards (most Venezuelans I met in the 80’s were arrogant pricks), the Chavismo, used the oil wealth to sponsor populist plans (free education and healthcare), but none of them thought of investing in other sources of income; financing, banking, metallurgic (they have iron in abundance in Cerro Bolivar), etc. It is a nation depending on its oil and when the prices crash and there are not monetary reserves, to the drain goes the economy. Even the Saudis with large cash reserves and great financial investments are having some trouble. The US is just playing along to exacerbate the Venezuelan crisis for political gain, but the damage is already done by all the Venezuelan stupid governments. Cuba’s actions are just too little, too late, too slow, lol.