Cuba Didn't Have A Choice Anymore

Hugo Chavez Meeting Raul CastroAPFILE – In this Dec. 10, 2012 file photo released by Cuba’s state newspaper Granma, Cuba’s President Raul Castro, right, receives Venezuela’s President Hugo Chavez at the Jose Marti International airport in Havana, Cuba. Chavez arrived in Cuba on Dec. 10, 2012 for a fourth cancer-related operation after designating Vice President Nicolas Maduro as his political heir.

A new era in US-Cuba relations has begun with the release of US Aid worker, Alan Gross, from the Cuban jail where he was held for five years.

President Obama and Cuban President Raul Castro are both scheduled to give remarks today about economic and political policy changes that should bring the two countries closer together. It sounds like the two countries have really overcome significant hurdles.

All that said, it’s very likely that Cuba didn’t have a choice in the matter.

Cuba’s economy depends on a state on the verge of collapse — a disastrous repeat of its relationship with the Soviet Union. This time, though, it’s flailing partner is Venezuela.

The two socialist countries have been buddies since former Venezuelan President Hugo Chavez was alive. Venezuela accounts for 20% of Cuba’s GDP.

Normally, Venezuela sends Cuba 80,000 barrels of oil a day, and in turn Cuba sends over doctors and medical supplies (Cuba prides itself on its medical professionals and exports them all over the world).

Leopoldo lopezReutersVenezuelan dissident, Leopoldo Lopez — arrested in February and still in jail.

But things have not been normal in Venezuela — not by a longshot. Back in February thousands took to the streets in protests that rocked the country for months. Dissidents were jailed. President Nicolas Maduro, plagued by questions about his legitimacy, has tried to strengthen his grip on power through fear accusing his opponents of treason.

Economically, Venezuela’s inflation rate is sitting around 60%, goods are scarce, and there are long lines to enter government grocery stores. The country’s bonds have hit a 16-year low and it’s is struggling to make debt payments.

The recent sharp decline in oil prices is absolutely savaging Venezuela as well, as oil makes up 95% of its exports. Bonds of its state oil company, Petroleos de Venezuela SA, are down over 40%.

On Wall Street traders are saying that default is the only end game.

“I am scared as hell,” one Latin American bond trader told Business Insider. “Default [is] likely within 12 months; the oil price collapse [is] just adding to a completely dysfunctional political and financial situation.”

According to reports, that’s what Cuban doctors that have found in Venezuela, and they have been trying to get out.

Maria Corina MachadoReutersVenezuelan dissident, Maria Corina Machado has been accused of plotting to kill Nicolas Maduro

Nelia, a 29 year-old general practitioner, told the LA Times she was astounded by Venezuela’s state when she got there. It was not as people told her it would be when she was in Cuba.

“It was all a trick,” Nelia told the LA Time. “They tell you how great it’s going to be, how you will able to buy things and how grateful Venezuelans are to have you. Then comes the shock of the reality.”

Her clinic in Valencia had no air conditioning and much of the ultrasound equipment she was supposed to use to examine pregnant women was broken.

While all this is happening, Venezuelan President Maduro has reaffirmed his commitment to providing oil subsidies to friendly countries. That limits Venezuela’s options for raising desperately needed cash.

It’s quite possible Venezuela will sell Citgo Petroleum, its US oil refining unit, for $US10 billion. But that amount of cash won’t last it very long. The country needs a full scale restructuring.

All of this means that the “62 joint projects for social and economic development” Venezuela and Cuba signed for 2015 could collapse along with Venezuela. Then Cuba would be truly alone. 

What choice did Havana have?

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at