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Forget Cigars, There's Oil in Cuba


The U.S. Geological Survey believes there are 4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas to be had off Havana. And China is helping Cuba go after it.


The Cuban Assets Control Regulations (known colloquially as the "Cuban Trade Embargo") were issued by the U.S. Government on July 8, 1963 under the Trading with the Enemy Act.

In the words of the Treasury Department, "The basic goal of the sanctions is to isolate the Cuban government economically and deprive it of U.S. dollars."

Now, it turns out, there's something 20 miles northeast of Havana that we need as badly as they need dollars:


I spoke to Ryan Krueger, MV's go-to man on energy, this morning.

He said, "End of oil theories severely underestimate innovation and smart people. You can buy calls on energy, but don't forget to consider the innovation "put." Smart and well funded capitalists will attack from the other side and create solutions and technology which many market oddsmakers completely forget to set a line for. That's coming from a bull on energy, albeit a realistic one who is even more bullish on capitalism."

Who might those "well-funded capitalists" be?

The Chinese, naturally.

A Chinese oil rig

The U.S. Geological Survey believes there are 4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas to be had. And China is helping Cuba go after it.

Dagoberto Rodriguez, the senior Cuban diplomat in the U.S., says Cuba is "going to continue with [drilling] programs-with American companies or without American companies."

For now, they're doing it without American companies. But China lacks the technology and the expertise to access Cuba's deep-water reserves.

Reserves that could be tapped by those American companies Cuba will work with. Or without.

So, what's Washington's take on the matter?

Sen. Larry E. Craig, (R-Idaho) said, "American politics today-it is the no-drill zone. We sit here watching China exploit a valuable resource within eyesight of the U.S. coast. I am certain the American public would be shocked, as the US is trying to reduce its dependency on Middle East oil, that countries like China are realizing this energy resource."

Larry Craig

Sen. Jeff Sessions (R-Alabama) agreed.

"This is a pocketbook issue, not a political issue. Fidel Castro in Cuba is partnering with China and is moving forward. He can drill, but we cannot. He can take the money and fund his adventures around South and Central America. Is that what people would like to see?"

Jeff Sessions

The oil companies sure don't.

"This is not the 1960s, when the Kennedy administration was protecting the U.S. from a possible missile attack," said Charles Drevna, executive vice president of the National Petrochemical and Refiners Association. "These resources will be developed and produced. Prohibiting U.S. companies from developing resources 90 miles away is an Alice in Wonderland approach to policy that must be revisited."

Kirby Jones, founder and president of the U.S.-Cuba Trade Association in Washington, D.C., doesn't like this scenario, either. He said, "Our choice is: Are we going to let those other countries take that oil? Or are we going to look at our strategic interests and recognize that very close to our shores is a substantial quantity of oil that is going to be exploited?"

There are doubters, of course. A worldwide shortage of deep-water drilling rigs has increased daily lease rates by more than 60% since the fall of 2005. Jorge Pinon, a former senior executive with Amoco Oil and a research associate at the Institute for Cuban and Cuban-American Studies at the University of Miami said, "Crude oil is worth zero if you can't move it or process it. Even if they find the oil, what are they going to do with it?"

A valid point to be sure, but the possibility of turning switchgrass and French fry grease into usable fuel is, in practical terms, more of a pipedream than getting your hands on a deep-water rig.

But can it run an 18-wheeler?

As for trading with "the enemy," Daniel Griswold of the Cato Institute gave a speech at Rice University in Houston back in 2005.

Here's an excerpt:

"The Trade Sanctions Reform and Export Enhancement Act of 2000 allows cash-only sales to Cuba of U.S. farm products and medical supplies. The results of this opening have been quite amazing. Since 2000, total sales of farm products to Cuba have increased from virtually zero to $380 million last year. From dead last in U.S. farm export markets, Cuba ranked 25th last year out of 228 countries in total purchases of U.S. farm products. Cuba is now the fifth largest export market in Latin America for U.S. farm exports. American farmers sold more to Cuba last year than to Brazil. Our leading exports to Cuba are meat and poultry, rice, wheat, corn, and soybeans."

Those are realized numbers. What about the potential ones?

"The American Farm Bureau estimates that Cuba could eventually become a $1 billion agricultural export market for products of U.S. farmers and ranchers. The embargo stifles another $250 million in potential annual exports of fertilizer, herbicides, pesticides and tractors. According to a study by the U.S. International Trade Commission, the embargo costs American firms a total of $700 million to $1.2 billion per year. Farmers in Texas and neighboring states are among the biggest potential winners. One study by Texas A&M University estimated that Texas ranks fifth among states in potential farm exports to Cuba, with rice, poultry, beef and fertilizer the top exports."

At the Montana Economic Development Summit on May 1 of this year, Fed Chairman Ben Bernanke further strengthened the pro-trade argument:

"Removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household. Our willingness to trade freely with the world is indeed an essential source of our prosperity-and I think it is safe to say that the importance of trade for us will continue to grow."

Bernanke: "remove remaining trade barriers"

Okay, so trading with Cuba makes economic sense. What about their record on human rights?

Cato's Griswold, again:

"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. Yet China has become our third largest trading partner while we maintain a blanket embargo on commercial relations with Cuba. President Bush understands that economic engagement with China offers the best hope for encouraging human rights and political reforms in that country, yet he has failed to apply that same, sound thinking to Cuba. We buy billions of dollars of oil a year from Venezuela's state oil company, we allow huge Venezuelan investments in our own energy sector, and Americans-last time I checked-can travel freely to Venezuela. The one big difference between Venezuela and Cuba is that we don't have half a million politically active Venezuelan exiles living in a swing state like Ohio."

Hmmm. The scholars at Cato, not exactly a haven of Abbie Hoffman-loving lefties, seem to think normalizing relations with our neighbor to the south is a decent idea.

So does Frank Carlucci, Secretary of Defense under Ronald Reagan, who said, "I believe that normalizing commercial relations with Cuba is in our own national interest and would likely bring better results than the 45-year-old unilateral embargo."

Frank Carlucci in 1988

There was one prominent politician who apparently enjoyed "normalized commercial relations" with Cuba, although he never explicitly came out in support of them.

Former House majority leader Tom DeLay-a longtime Castro critic whose regime DeLay famously called a "thugocracy"-was photographed in 2003 smoking a Cuban cigar.

Tom DeLay enjoying one of Cuba's finest

The question remains: how are we going to end our reliance (short-term) on Middle Eastern oil?

The answer seems not to be years away with the promise of fuel cells and hydrogen-powered cars, but rather, 90 miles away in Cuba.

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