Oil Report

ANALYSIS-Cuban-Venezuelan ties boom under Raul Castro

HAVANA, July 21 (Reuters) - Speculation that Cuba’s relations with Venezuela, its closest ally, might cool when Raul Castro became president has disappeared as the countries have forged even deeper and broader ties.

Some experts thought Raul Castro could not maintain the close relations his brother Fidel Castro had with his socialist protege, Venezuelan President Hugo Chavez, but the oil-rich South American country is investing billions of dollars in Cuba in increasingly complex ventures.

The two revolutionary allies aim to use the projects to reshape Latin America’s political map by showing there is an alternative to capitalism and its main proponent, the United States.

They have an oil-for-services deal in which Venezuela ships 92,000 barrels a day to Cuba in exchange for the services of thousands of Cuban doctors and other technical assistance.

But they also reported more than 300 cooperation projects in 2007 and Venezuelan banks are financing 58 Cuban manufacturing programs and more than a dozen agricultural development schemes.

“Since the beginning, both Fidel Castro and Hugo Chavez have been determined to move the relationship between their countries beyond the oil-for-doctors swap and toward something that is much broader and has the potential for sweeping regional impact,” said Dan Erikson, a Caribbean expert at the Inter-American Dialogue policy group in Washington.

“Raul Castro is strongly interested in moving beyond an alliance built on personalities by creating sustainable, institutional arrangements, and this has helped to cement the Cuban-Venezuelan relationship,” he said.


Venezuela, which is benefiting from high oil prices, is buying new rice harvesters and irrigation systems in central Cuba, upgrading fertilizer manufacturing and building new factories in the eastern city of Santiago.

The two countries have also signed some 30 joint ventures, most of which were sealed after Raul Castro first stepped in for his ailing brother two years ago. Some are huge by Cuban standards.

A $5 billion petrochemical complex under construction around a renovated oil refinery in Cienfuegos, 150 miles (250 km) southeast of Havana, represents more direct investment than hundreds of Western businesses put into Cuba between 1995 and 2000.

There are an assortment of other oil-related ventures, from pipelines and refinery expansions to shipping and port renovations.

A nickel plant in eastern Holguin province is getting a $700 million upgrade and will ship its product to Venezuela to be processed into stainless steel by a joint venture in which Cuba has a 49 percent stake.

New ventures are also underway in telecommunications, fishing, agriculture, boat building, railways and cement.

The two countries’ economic ties are cloaked in secrecy, but Cuban President Fidel Castro valued them at $7 billion per year just before he took ill in July 2006 and provisionally handed power to his brother.

Too ill to return to power, Fidel Castro resigned in February and the National Assembly formally elected Raul Castro president.

Most of the joint energy projects aim to serve PetroCaribe, a Venezuelan initiative that provides preferentially financed oil to 15 Caribbean and Central American countries.

For Cuba, its state-run economy worn down by inefficiency, 46 years of a U.S. trade embargo and dealt a severe blow by the collapse of its former Soviet benefactors, Venezuela’s help has brought welcome improvements.

Daily life in Cuba remains difficult by Western standards, but there are fewer blackouts, subsidized buses are back on the roads, health clinics, schools, waterworks and highways are being upgraded and more housing built.

The danger, experts said, is that Cuba becomes as dependent on Venezuela as it did on the Soviet Union during the Cold War.

“For Cuba it is the best deal in town. However, it of course implies dangers, as Cuba becomes dependent on Chavez staying in power and remaining as generous as he is at present,” said Cuba specialist Bert Hoffmann at the German Institute of Global Area Studies in Hamburg. (Editing by Jeff Franks, Michael Christie and Kieran Murray)