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Political Friction Prevents Cuban Oil from Reaching U.S.

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"Prohibiting U.S. companies from developing [Cuban] resources...is an Alice in Wonderland approach to policy that must be revisited," says one industry insider.

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Repsol SA, a Spanish energy concern, will be drilling for Cuban oil, using a Chinese rig, in the Gulf of Mexico, 60 miles off the coast of the United States.

According to the Wall Street Journal, "the U.S. will inspect" the rig (whatever that means) before it is moved into the Gulf, but experts say it "remains unclear" if America will be in a position to respond in the event of a Deepwater Horizon-style disaster.

From WSJ's Russell Gold:

Shutting off the Deepwater Horizon well took nearly three months, during which an estimated 4.9 million barrels of oil spilled into the Gulf of Mexico. If Repsol's Cuba well, which is in slightly deeper water, experienced a blowout, the well could gush oil into the Straits of Florida, where it would be carried by the Gulfstream currents up the East Coast. The U.S. controls coastal waters as far as 200 miles from its shores, but in the narrower Straits of Florida it and Cuba have agreed to split the region equally.

Cuba has little experience with offshore oil exploration. In 2004, Cuba drilled its only other deep water well, which received little notice. Since then, the U.S. Geological Survey has said there could be a substantial amount of untapped oil off the Cuban coast. Cuba could sell the oil or use it to reduce imports from Venezuela.

The Repsol well is much closer to Florida than any other well in the region. The Gulf of Mexico is home to a big concentration of oil-industry support vessels and equipment, including new technology designed after the Deepwater Horizon spill to cap deep out-of-control wells, but because of a longstanding trade embargo, little of that could be used to fight a spill in Cuban waters.

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, until very recently, Libya -- whose National Oil Corporation warned US oil concerns in 2010 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.

There may be more than 20 billion barrels of oil in the Cuban-controlled area of the Gulf of Mexico -- double previous estimates -- and considerably higher than the US Geological Survey's numbers -- but if true, 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 me last year. "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 was signed by 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.
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