The Russians are coming — for Cuba’s oil

As a conscious 11-year old during the 1962 Cuban Missile Crisis, the idea that someday Russia might be allowed to drill for oil 45 to 90 miles from Florida seemed unthinkable. But in the post Cold War world, it is not only thinkable, it is actually happening. In late July Cuba and Russia and inked a deal to allow them to jointly search for oil in the Gulf of Mexico. In return, Russia granted Cuba $150 million in credit for farm machinery and construction materials that were sent to Cuba last year to help in areas damaged by three recent devastating hurricanes.

The oil deal with state oil monopoly Cubapetroleo allows for Russian exploration and production company Zarubezhneft to search for oil in the deep waters off of Cuba’s coastline (north and west of Havana). The accord is a follow-up from a Moscow meeting in January when Zarubezhneft and six other Russian companies signed a memorandum of understanding agreeing to work with Cubapetroleo in exploration and production activities in Cuba’s Gulf of Mexico.

Cuba’s onshore production of about 60,000 barrels of oil per day is all heavy oil with a high sulfur content (which requires extensive and expensive refining processes to convert to automobile fuels and other refined products). Its offshore Gulf waters, by contrast, could contain vast quantities of lighter, sweet crude oil. A Cuban official claims that it may contain 20 billion barrels of oil (although the U.S. Geological Survey puts its estimate closer to 5 billion barrels of oil, and a test well drilled by a Repsol YPF consortium in 2004 produced only modest results).

Cuba began opening up 59 blocks in the Gulf for exploration by foreign companies in 1999. By March 2009 Cuba had 21 of these under lease to seven companies, with 23 more in negotiation. Russia is not the only country to cut deals with Cuba for a stake in the potentially lucrative Gulf waters. Venezuela’s state oil company PDVSA plans to begin drilling in 2010. Brazil’s PETROBRAS has also leased a block and plans to begin its initial seismic surveys this year. In 2008 China’s premier oil explorer — China National Petroleum Corp. also signed a deal with Cubapetroleo to jointly develop oil and gas fields.

Notice which country is missing from the growing oil rush? The one that sits 45 miles to the north of the exploration area. The United States of America.

Which takes me back to the time of the Cuban missile crisis and, before that, the nationalization of American oil companies (in 1960), which resulted in the Foreign Assistance Act of 1961 — restricting all trade with Cuba (see Cuba Libre). For the next 30 years (before its collapse in 1991), the Soviet Union provided billions of dollars in trade and annual subsidies to Cuba. But after years of neglect and underinvestment, both Cuba and Russia (and China and Brazil and Venezuela) have seen advantages to getting a piece of the action (the potential billions of dollars available in a successful oil rush in Cuban waters).

Will the US really miss out on exploiting the Western Hemisphere’s last wild card of oil exploration when it is right under its nose?

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Picture by Bruno Girin used under a CC-Share Alike license.