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 dry wells.

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 rate.

Bolivarian Revolution

U.S. aid to the entire Western Hemisphere represents about a third of annual Petrocaribe sales, according to Washington’s Congressional Research Committee.

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 preferential supplies.

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 0.2 percent to $92.91 today after rallying 2.6 percent in the past two sessions.

Best Prices

“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 population. PDVSA also has established joint ventures in 11 member states, buying stakes in local refineries, oil distributors and power plants.

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.

Revise Contracts

“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.

‘Very Serious’

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.

‘Special Period’

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 April.

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.”

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