01/03/13 - Businessweek - Chavez Cancer Imperils $7 Billion Caribbean Oil Funding
Venezuelan President Hugo Chavez's battle with cancer threatens $7 billion
of subsidized oil exports that help prop up Cuba's economy and contain
inflation in Caribbean nations from Jamaica to the Bahamas.
Chavez, hospitalized in Havana after a fourth operation, sent Cuba $3.6
billion of oil in 2011 through the Petrocaribe program that serves 70
million people across Central America and the Caribbean. Cuba failed to
make discoveries in the first offshore drilling effort since 2004 as
Repsol SA, Petroliam Nasional Bhd. and Petroleos de Venezuela SA reported
While Chavez's avowed "political father" Fidel Castro used guns and
medicine to spread his socialist revolution abroad, the Venezuelan leader
relies on the world's biggest oil reserves. If Chavez's successor ends the
funding, Caribbean economies still struggling to bolster tourism after the
2008 financial crisis would face further budgetary strains.
"Everyone loves Chavez here," Salvador Rivas, head of unconventional
energy at the Dominican Republic Trade and Industry Ministry, said by
telephone Dec. 21. "We are trying to buy more and more Venezuelan oil
because terms are very good."
The 58-year-old former paratrooper, who suffered renewed complications
from a respiratory infection following surgery last month, created
Petrocaribe in 2005. The alliance's members can buy oil from state-owned
Petroleos de Venezuela, or PDVSA, at market prices, paying as little as 5
percent upfront and the remainder over 25 years at 1 percent interest
U.S. aid to the entire Western Hemisphere represents about a third of
annual Petrocaribe sales, according to Washington's Congressional Research
Membership spans the political spectrum with only Cuba and Nicaragua
governed by Chavez's close allies. Oil producers Trinidad and Tobago and
Barbados were the only Caribbean countries to reject PDVSA's offer of
Most Petrocaribe members have chosen to take the oil without joining
Chavez's self-styled Bolivarian revolution, which has included the
expropriation of more than 1,000 companies since he took office in 1999.
Cheap financing has softened the blow of near $100-a-barrel crude for the
island region, which spends 13 percent of its gross domestic product on
oil imports, according to the World Bank. Oil futures fell as much as 0.7
percent to $92.49 today after rallying 2.6 percent in the past two
"President Chavez's health is a very large concern for us," Dominican
Republic Economy Minister Temistocles Montas said in a Dec. 4 interview.
"The state of his health could affect the Petrocaribe agreement."
Montas said Petrocaribe finances about 30,000 barrels per day in the
Dominican Republic, a U.S. political ally with a quarter of the Caribbean
Petrocaribe is much more about economics than ideology, Daniel Sachs, an
analyst at London-based Control Risks, said by telephone Dec. 21. "These
countries are concerned with getting the best possible price and not
necessarily with socialist solidarity," he said.
In Nicaragua, governed by former guerilla Daniel Ortega, Venezuela's oil
and aid program totaled $609 million in 2011 while Petrocaribe members
Jamaica and the Lesser Antilles use oil to generate about 95 percent of
their electricity. The leaders of Haiti, Nicaragua and Panama joined Fidel
and his brother Raul Castro in wishing Chavez a speedy recovery.
"Left to the marketplace these countries would find themselves in a
difficult economic situation," Roger Tissot, managing director of Tissot
Associates, said yesterday by telephone from Vernon, British Columbia.
Eventually Petrocaribe members probably would seek preferential
arrangements with regional exporters such as Mexico and Colombia, he said.
Chavez's latest surgery was followed by a respiratory infection, leading
Venezuelan officials to open the door to delaying a Jan. 10 inauguration
of his next term and feeding speculation of new elections if he doesn't
return in time.
For now Petrocaribe contracts are secure. Chavez beat Henrique Capriles in
October's presidential election by more than 10 percentage points and Vice
President Nicolas Maduro has vowed to continue Chavez's policies. Chavez
said Dec. 8 that voters should elect Maduro to protect his legacy if his
illness prevents him from remaining in office.
Even if the opposition wins a new election, Petrocaribe won't be disbanded
entirely, said Ronald Balza, oil policy coordinator at the Democratic
Unity Table alliance. "We will revise the contracts to make sure they are
profitable rather than political," Balza said by phone yesterday.
PDVSA press officer Alfredo Carquez didn't return calls or e-mails seeking
comment. Petrocaribe marketing manager Ramon Herrera didn't answer calls
to his mobile telephone.
Chavez's withdrawal may accelerate changes in Cuba, said Peter Hakim,
president emeritus of the Washington-based Inter- American Dialogue policy
group, said by telephone Dec. 18.
"If the Venezuelan funding dries up, Castro is going to have to speed up
the pace of reform, allowing the economy to open up much sooner than he
expected," said Hakim.
Venezuela accounted for 41 percent of Cuba's foreign trade in 2011, or $8
billion, four times more than China, according to the Office of National
Statistics in Havana.
The island nation produces about 55,000 barrels of oil a day from
Soviet-developed fields on the northern coast. Russia's OAO Zarubezhneft,
the only foreign operator drilling in Cuba, expects to release results in
Cubans are bracing for another "special period," the name given to the
economic crisis that followed the collapse of the Soviet Union in 1991,
Hugo Luis Sanchez, a Cuban novelist and commentator, said by telephone
from Havana Dec. 18.
"Everyone in Cuba understands things will become very serious if Chavez
goes," he said. "He has given us a measure of stability for a time."
To contact the reporter on this story: Anatoly Kurmanaev in Bogota at
To contact the editor responsible for this story: James Attwood at
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