All posts tagged oil

Russia Throws Cuba a Lifeline

Russia has just reinvigorated its relationship with Cuba, and I suspect that this renewed friendship of convenience will help Cuba’s Communist regime stick around longer than it would have without it.

A few things happened, all apparently part of an elaborate quid pro quo. First, while visiting Cuba last week, Russian president Vladimir Putin announced that his country was forgiving nearly all of Cuba’s lingering Soviet-era debt to Russia, or more than $30 billion. Then, a few days later, reports emerged that Cuba had agreed to allow Russia to re-open a large Soviet-era intelligence-gathering facility used to surveil the United States during the Cold War. While in Havana, Putin also spoke of reviving broader military and technological cooperation with Cuba, although he did not say exactly what that would entail. Last but not least, Russia and Cuba reportedly also signed some significant economic contracts, including ones that would allow Russian oil companies to explore Cuban waters.

Putin’s government seems to be responding in kind to what it perceives as a deepening U.S. threat on its own borders, and this is important in its own right. As a specialist on the survival and transformation of authoritarian regimes, though, I am also interested in how this reinvigorated relationship affects prospects for political change in Cuba.

Consolidated single-party regimes, like Cuba’s, are the most durable kind of autocracies, but when they do break down, it’s usually an economic or fiscal crisis that sets the process in motion. Slumping state revenues shrink the dole that encourages various factions within the party to stay loyal to the ruling elite, while wider economic problems also give ordinary citizens stronger motivations to demand reform. When frustrated citizens and disgruntled insiders find each other, the effect can be especially potent. Economic crisis doesn’t guarantee the collapse of single-party regimes, but it does significantly increase the probability of its occurrence.

The Soviet Union bankrolled Havana for many years, and the Cuban economy has been limping along since that funding stream disappeared along with the country that provided it. In 2o11, the Communist Party of Cuba finally responded to that malaise as formal theory leads us to expect that it would: by experimenting with some limited forms of economic liberalization. These reforms are significant, but as far as I can tell, they have not yet led to the kind of economic renewal that would give the ruling party a serious boost.

One of the reasons the Cuban regime managed to delay those reforms for long was the largesse it received from its close friends in Venezuela. As I discussed in a post here last year, Hugo Chavez’s government used its oil boom to help finance the Cuban regime at a time when Havana would otherwise have been hard pressed to search for new sources of revenue.

With Hugo Chavez dead and Venezuela’s economy in crisis, however, this support has become unreliable. I had expected this uncertainty to increase pressure on the Communist Party of Cuba to expand its liberalization in search of new revenues, and for that expanded liberalization, in turn, to improve prospects for popular mobilization and elite defections that could lead to broader political reforms.

The renewed embrace from Russia now has me revisiting that expectation. The forgiveness of more than $30 billion in debt should provide an immediate boost to Cuba’s finances, but I’m also intrigued by the talk of new oil concessions. For years, the Cuban government has seemed to be hoping that hydrocarbons under its waters would provide it with a new fiscal lifeline. That hasn’t happened yet, but it sounds like Russia and Havana increasingly see prospects for mutual gains in this sphere. Of course, it will also be important to see what other forms of economic and military support are on offer from Moscow and how quickly they might arrive.

None of these developments magically resolves the fundamental flaws in Cuba’s political economy, and so far the government shows no signs of rolling back the process of limited liberalization it has already begun. What’s more, Russia also has economic problems of its own, so it’s not clear how much help it can offer and how long it will be able to sustain that support. Even so, these developments probably do shrink the probability that the Cuban economy will tip soon into a deeper crisis, and with it the near-term prospects for a broader political transformation.

Hugo Chavez’s Death and Prospects for Political Liberalization in Cuba

You’ve heard of the butterfly effect, right? Well, what about the Chávez effect?

Venezuelan president Hugo Chávez died early this week, and his absence will probably have ripple effects on the stability of political regimes in several other countries with which Chávez’s was closely tied. Chávez’s international influence had waned in recent years with the exit from the global political stage of his foil, George W. Bush; the re-emergence of Brazil as a regional economic heavyweight; profound stresses on Venezuela’s own economy, wrought in part by evident flaws in Chávez’s “Bolivarian revolution”; and, of course, the decline in Chávez’s health as he struggled with the cancer that eventually killed him.

Even in poor health and diminished political stature, though, Chávez loomed large in the politics of several other countries, and none more so than Cuba. At least in part, that interdependence stemmed from the close personal relationship between Chávez and Cuba’s Fidel Castro. As Victoria Burnett wrote about yesterday for the New York Times, however, there was also a very practical aspect to the close relationship between Cuba and Venezuela under Chavez as well.

Cuba receives more than 100,000 barrels of oil a day from Venezuela, purchased on favorable terms as part of an exchange that has tens of thousands of Cubans working in Venezuelan clinics, schools and ministries. The subsidized oil accounts for about two-thirds of Cuba’s consumption and is credited by many Cubans with keeping the lights on and the air-conditioners running during the brutal summer heat.

It’s possible that Chávez’s successors will indefinitely sustain this generosity, but I doubt it. Venezuela was already struggling to get its own economic house in order. Meanwhile, Venezuela’s oil production has declined in recent years and its domestic consumption has steadily risen, leaving less of the surplus that bankrolled Chavez’s largesse. Even if Chávez’s successors come from the Bolivarian movement he built, it’s hard to see how they will be able to keep subsidizing other regimes when their own has fallen on hard times. And, of course, absent Chávez, Venezuela’s opposition parties stand a much better chance of clawing its way back into government—if not in next month’s special election, then certainly in the ones to follow.

As Venezuelan largesse dries up, the pressure on the Communist regime in Cuba to search out new sources of revenue will sharply increase. It’s possible that Castro & co. will find another great foreign patron, just as they did when Venezuela stepped into the shoes the Soviet Union had filled for so long before its collapse left Cuba in the lurch. Possible, but, I think, unlikely. Following a similar “the enemy of my enemy is my friend” logic, the Islamic Republic of Iran also has an affinity with Cuba, but Iran’s got serious financial troubles of its own. China seems a more capable future patron, but it’s hard to imagine the Chinese government doing something as provocative to the U.S. as flat-out bankrolling the Cuban regime with so little to gain from it. What China is already doing is helping to finance the hunt for oil in Cuban waters. A major oil strike would throw the Cuban government a new lifeline, but as John Sullivan noted in a September 2012 piece for the New York Times Magazine, “So far, though, the wells have come up dry or disappointing.”

If the Cuban regime can’t find a new foreign patron or strike oil, it will be increasingly tempted to try political liberalization as an alternative strategy. I laid out the logic behind this choice in a conference paper I wrote in 2007 and summarized it again in a recent article on North Korea for Foreign Policy‘s Democracy Lab. Quoting at length from the latter:

To understand why a seemingly stable dictatorship would ever give its political opponents an opening, it helps to consider the political economy of authoritarianism. Dictators repress their citizens because it helps them stay in power. Political rivals can’t beat you if they can’t get organized, and they’ll find it very hard to organize if they can’t meet, talk, or reach out for support. Following this logic, we usually think of political liberalization as something that dictators resort to only when forced by restive mobs threatening to end their rule, if not their lives.

What that conventional view misses, though, are the financial and economic trade-offs that harsh repression entails. First, the machinery of monitoring and repression can be expensive, and the information it produces isn’t always reliable, so shrewd autocrats will always be looking to cut costs and improve outputs in these areas. Second, and less obviously, repression indirectly imposes drag on an economy by inhibiting productive exchanges among citizens. These market frictions can create a gap between an economy’s actual growth rate and the growth it might achieve with a freer citizenry.

When a dictator’s revenues depend on the performance of his country’s economy, these trade-offs give him some incentive to loosen restrictions on civil liberties. The question is when that incentive becomes strong enough to outweigh the political risks of reform.

The conventional view of political liberalization tells us this shift only occurs when dictators face an imminent threat of revolution. If the end already seems nigh, rulers might try to prolong their tenure by meeting their opponents halfway and hoping that compromise satisfies the mobs at the gates. This process is sometimes described as liberalization “from below,” because it’s driven by popular unrest.

Careful consideration of the political and economic trade-offs involved, however, suggests another possibility: Dictators might also pursue “liberalization from above,” gambling on reform when the economy is stagnating and political opposition is especially weak. Under these circumstances, expanded freedoms of speech and movement can open new avenues for economic growth without immediately producing a serious political challenge. There might be plenty of pent-up demand for political change, but revolutions require organization, and organization takes time, so shrewd rulers might attempt to shoot those rapids in search of calmer waters on the other side.

Viewing Chavez’s departure through the lens of this theory, I think the prospects for significant political liberalization in Cuba in the next few years just improved markedly. In fact, there were many signs that the Cuban regime was already leaning in this direction, including moves since 2010 to allow more private enterprise, loosen restrictions on property rights, and, most recently, the decision to end the exit visa requirement for travel abroad. I think those modest reforms reflect the very pressures noted above, and the departure of the Cuban regime’s greatest patron and ally will only turn the screws tighter. Late last month, Raul Castro announced that he would retire when his second term as president ends in 2018. In light of this week’s news from Venezuela, I would be surprised to see Castro’s tenure last that long, and I suspect that transition will go much deeper than a simple change of leadership.