Why Cuba's Dreams of Major Oil Discoveries Might Come True

Recent estimates suggest that the island could move into the petroleum big leagues.

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The lure of offshore oil has drawn not only the Spanish, Indians, and Norwegians but also firms from Malaysia, Vietnam, Venezuela, and Brazil. Says a senior diplomat from one country partnered with Havana, "The Cubans are very hopeful, and so are we." Tenreyro says those companies have contracted for 21 of the 59 offshore Cuban blocks, with 23 more under discussion, including with Russian and Chinese firms. Venezuela's state oil company has guided the renovation of one of Cuba's aging refineries and has agreed to expand the capacity of that facility and one more, as well as build a new refinery at the port of Mantanzas. As Cuba's key ally, Venezuela has also thrown it an energy lifeline, shipping about 90,000 barrels per day under easy terms that amounted to a roughly $3 billion subsidy last year. Russian firms have pledged to help Cupet find, extract, and refine oil. [Russian officials expect also to participate in the construction of sea terminals and in training Cubans in oil work.] And Petrobras, the Brazilian state oil giant known for skillful deep-water drilling, also is investing in Cuba. At an oil deal signing ceremony here last year, Cuban President Raúl Castro wondered aloud whether Petrobras would hit oil. "Don't worry, Raúl," replied Brazil's President Luiz Inácio Lula da Silva. "We're going to find it here, and we're going to transform it into energy."

Cuba's dealings with outside oil firms have not been all rosy, though. Canada's Sherritt International last year relinquished its offshore oil blocks to the Cuban government before it started drilling. A cash-strapped Cuba fell behind on payments to both Sherritt and another Canadian firm, Pebercan, by a total of more than $500 million. In January, Cuba told Pebercan it was terminating their agreement prematurely. And observers are waiting to see how much the global oil price drop hinders plans for expensive, deep-water drilling in Cuban waters.

Though Americans may not join in, the prospecting on the Cuban side of the Gulf of Mexico has already become controversial. Last year, for instance, it drew the attention of advocates for drilling on the U.S. continental shelf, including then Vice President Dick Cheney. He wrongly claimed that China was drilling for oil right now 60 miles off the coast of Florida. (Cheney's office later conceded the error.) And Florida Democratic Sen. Bill Nelson seized on the issue last year, urging that a 32-year-old boundary accord evenly dividing the sea between the Florida Keys and Cuba be scrapped. Nelson charged that a Cuban oil spill could "desecrate part of Florida's unique environment and devastate its $50 billion tourism-driven economy." Cuban officials vow that offshore drilling will meet "the highest standards available" for environmental protection.

In Cuba, meanwhile, expectations run high that oil finds will help lift the struggling state-run economy. "It will give Cuba the capabilities of developing its economy very quickly,"predicts Josefina Vidal Ferreiro, a senior Foreign Ministry official. "It will give us a lot of independence." The other implication is that hard-currency flows from oil exports will strengthen the ruling Communist Party to withstand whatever pressures remain from Washington.

Cuba's needs. Cuba's leaders have been acutely concerned about energy dependence on others. The collapse of the Soviet Union, once the island's patron and energy donor, crippled Cuba's economy and spawned an energy crisis in the early 1990s. Use of personal cars and farm tractors was curtailed; thousands of Chinese bicycles were imported for people to get around. Power outages persisted for years and made the sweltering Havana summers feel all the more unbearable, locals recall ruefully. Energy independence is a Cuban foreign policy goal. Daniel Erikson, an analyst at the Inter-American Dialogue in Washington and author of The Cuba Wars, says Cuba's pursuit of offshore oil reflects wariness about its past energy dependence on the Soviets and today's on Hugo Chávez's Venezuela. "They realize that nothing lasts forever," he says.