Friday, April 29, 2005

Closer Friends
The relationship between Venezuela and Cuba is deepening. Yesterday, the Venezuelan state oil company, Petroleos de Venezuela (PDVSA), opened an office and local subsidiary in Havana, in conjuction with plans for several oil-related projects in Cuba. President Chavez is solidifying his anti-US alignment, at the same time his country supplies about 1.5 million barrels per day of crude oil to this country. Somewhere down the line, these facts may become irreconcilable, and it will be interesting to see which side initiates the break.

Many international oil companies have significant economic interests in Venezuela, and without their capital and expertise, production of Venezuela's heavy, sour crude oil would gradually taper off. As I've suggested previously, this is a game for only the biggest players, with portfolios able to withstand the potential loss or impairment of these assets. Hopefully, things won't reach this pass, but if they did anytime soon, we would be in for a wild ride on oil prices.

At the same time, anyone expecting Castro's regime to collapse of its own weight must be disappointed at these developments. With a steady oil supply on barter terms, and the prospect of future oil income from Cuban waters, the world's last real Communist country could stave off liberalization for a long time.

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