The Case for Cuban Oil

By Justin Rohrlich  MAR 10, 2010 1:15 PM

We need oil. Cuba has it. So why aren't we drilling?

 


On Thursday, the House of Representatives Agriculture Committee will discuss legislation introduced to ease agricultural trade by allowing direct payments between US and Cuban banks.

Cuba is a “market right at our back door,” American Farm Bureau Federation President Bob Stallman says. “"There’s no reason we shouldn’t own [it]."

John Block, who served as President Ronald Reagan's Agriculture Secretary says it's “truly ridiculous that we don't have an open relationship with Cuba.” He adds, “We have seen time and again that the best way for our nation to influence change eventually leading to the spread of democracy is through building relationships with our trading partners.”

The Obama administration has already relaxed restrictions on exporting Internet communications services to Cuba, a move that Google (GOOG) director of policy communications, Bob Boorstin, hails as “a great accomplishment.”

There happens to be another market “right at our back door” that can help US industry reap tremendous benefits -- and help the Cuban people, as well.

Oil.

The US consumes 20.8 million barrels of oil each day. Exxon Mobil (XOM), Chevron (CVX), BP (BP), ConocoPhillips (COP), and Shell (RDS-A) are buying tremendous amounts of oil from “dangerous or unstable” states including Syria, Saudi Arabia, Nigeria, Mauritania, Iraq, Congo, Chad, Algeria, and Libya -- whose National Oil Corporation warned US oil concerns just last week of "repercussions" because of a negative reaction by State Department spokesman Philip Crowley in response to a statement by Muammar el-Qaddafi calling for jihad against Switzerland.

Why not Cuba, which just announced that there may be more than 20 billion barrels of oil in the Cuban-controlled area of the Gulf of Mexico? That’s double its previous estimate (and, granted, considerably higher than the US Geological Survey’s numbers), but if it’s true, that number is more than four times the amount estimated to lie beneath Alaska’s Arctic National Wildlife Refuge.

“This is not the 1960s, when the Kennedy administration was protecting the US from a possible missile attack,” says Charles Drevna, executive vice president of the National Petrochemical and Refiners Association. "These resources will be developed and produced. Prohibiting US companies from developing [Cuban] resources…is an Alice in Wonderland approach to policy that must be revisited.”

Kirby Jones, president of Alamar Associates -- a firm that advises US companies interested in pursuing business opportunities with Cuba when the antiquated embargo is ultimately lifted -- has worked with companies both in the oil industry and otherwise, including Abbott Labs (ABT), General Electric (GE), and Caterpillar (CAT), to name but a few.

“Maintaining the embargo means that we lose something of strategic importance to us -- oil,” Jones told Minyanville. “It’s one thing to let people export tractors to Cuba. It’s quite another to decide you don’t want oil sitting mere miles off the US coast that Russia, Canada, and Brazil are taking right now. The Cubans have said they welcome the involvement of US companies. The opportunity is there.”

Money manager Ryan Krueger of Houston’s Krueger & Catalano Capital Partners has a decidedly interesting take:

“If you throw a mid-90 mph fastball, we will break laws to get you here, as in the case of Cuban pitcher Aroldis Chapman, who just signed with the Cincinnati Reds,” he says. “But I'll be damned if we fuel our planes, cars, and heavy machinery with Cuban oil? It makes no sense at all.”

Finally, what to make of Cuba’s human rights record when considering a normalization of trade with Cuba?

Daniel Griswold of the Cato Institute says, “In sheer numbers, the Chinese government has jailed and killed far more political and religious dissenters than has the Cuban government. And China is arguably more of a national security concern today than Castro’s pathetic little workers’ paradise.”

The question is, into whose hands should we be putting our dollars in exchange for oil? Ones that are enriching uranium and calling for the destruction of Western democracies? Or ones that are running a “pathetic little workers’ paradise” that poses no danger whatsoever to our national security?

Chances are, most rational minds would choose the pathetic little workers’ paradise.
No positions in stocks mentioned.

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