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What is causing the acute fuel shortage in Cuba?

September 24, 2019

HAVANA, Sep 24 (Reuters / EP) –

Long lines of drivers at fuel stations in Cuba and waiting hours for public transport are signs of the impact of the sanctions imposed this year by the United States on the Caribbean island and its main ally, Venezuela.

The Cuban president, Miguel Díaz-Canel, has warned Cubans this month that difficult times are coming due to limited fuel imports. And he encouraged citizens to show solidarity and do their best to improve energy efficiency.

WHEN DID THE FUEL LACE BEGIN?

Cuba has depended for decades on the purchases of crude from its allies to feed its refineries. It also imports fuel to meet the consumption of around 145,000 barrels per day in power plants, industrial complexes, gas stations, airports and homes.

Fuel shortages have gradually worsened since Venezuela, the island's main ally, began reducing oil shipments since 2016 after its own production declined and its economy sank into a deep recession.

An agreement between Caracas and Havana signed in 2000 allows Cuba to pay Venezuelan crude imports with services that include doctors, sports trainers and even advisors.

Until 2015, Venezuela had supplied Cuba with about 90,000 barrels a day of crude oil and fuel. But a first round of U.S. sanctions against Caracas in 2017 limited the access of the PDVSA oil company to financing, which aggravated its decline in production and reduced investment in the industry.

As of 2017, Cuba produced only 51,000 barrels per day of crude oil, according to the latest available data from the state's National Statistics and Information Office in the country.

Analysts argue that it is difficult for Cuba to cover the deficit with its fuel consumption through importation at market prices, because it does not have enough cash.

Given the fuel shortage, the country applied a series of austerity measures in recent years, such as reducing street lighting in secondary arteries and the use of air conditioners in state institutions.

WHY IS THE REPENT SITUATION SO MUCH WORSE?

The United States imposed sanctions in January that prohibit companies from that country or local subsidiaries of foreign companies from selling fuel to Venezuelan state oil company PDVSA, both for internal consumption and for re-exports. The measures also prohibit any exchange of dollars with PDVSA or its units.

In July, Washington also sanctioned specific vessel operators that cover the Venezuela-Cuba route and the entity that receives Venezuelan oil, Cubametales, administered by the State. Since then, countries have struggled to find tankers that transport crude.

Cuba imports not only crude oil from Venezuela, but also gasoline, diesel, fuel oil, lubricants and cooking gas, according to PDVSA internal data.

IS VENEZUELA SUPPLYING CUBA IN THE MIDDLE OF SANCTIONS?

Yes, but volumes have decreased. Venezuela has sent about 55,300 barrels a day of crude oil and fuel a year to Cuba, below the average of the last decade, according to internal data from PDVSA and Refinitiv Eikon. In 2018, PDVSA supplied Cubametales with approximately 89,000 barrels per day of crude and products, according to PDVSA data.

PDVSA, in turn, has had to import more and more refined fuel for its own domestic market, according to the Venezuelan state company.

HOW DOES VENEZUELA CRUDO TRANSPORT TO CUBA?

PDVSA is not using a large part of its own fleet to transport Venezuelan crude and fuel to Cuba, including the Manuela Sáenz, Icaro, Terepaima and Yare oil tankers.

The ships, owned by a joint Venezuela-Cuba transport company, Transalba, are also covering the route, but the number of ship operators and maritime crew willing to touch Venezuelan or Cuban ports has declined in recent months due to sanctions , according to the chargers.

CUBA IS IMPORTING FROM OTHER COUNTRIES?

Yes, but the island is still overwhelmingly dependent on Venezuela's oil supplies. From July to mid-September, Cuba imported between 50,000-100,000 barrels a day, mainly from PDVSA. Ships loaded with imports from Russian ports, Caribbean terminals and oil centers such as Rotterdam also reached Cuban ports in recent weeks, according to Refinitiv data.

WILL THERE BE AN IMMEDIATE RECOVERY?

Díaz-Canel said the situation should normalize in October, as shipments have already been guaranteed for that month. However, analysts do not have so much confidence. Cuba does not have a large number of crude oil suppliers since the United States imposed an embargo on the island almost 60 years ago and the growing problems in finding vessels are creating new obstacles for imports.

The country is also limited by cash. In addition to Venezuela, Algeria has historically supplied up to 5,000 barrels per day as barter, mainly for ophthalmology services received from Cuba, according to expert Jorge Pinón, of the University of Austin, in Texas.

WHAT IS CUBA DOING TO PALIATE THE ENERGY CRISIS?

It reduced the frequency of public transport and decreased industrial production to save energy and guarantee basic services such as hospitals and food distribution.

Government officials have encouraged Cubans to make the most of natural light to save electricity and urged more use of animal energy to save diesel.

So far, there have been no blackouts. The president warned that they could occur, but added that, if so, they will be planned and announced in advance.