Cuba’s Petroleum Trade Statistics and the Impact of Cutbacks in Venezuelan Oil.[1]
In a 2009 article, Jorge Perez-Lopez and Carmelo Mesa Lago suggested that Cuba’s official GDP data involved “…discontinuities, obfuscation and puzzles”. Something similar can be said about the statistics on petroleum trade published by the official Cuban statistical agency, ONEI. Cuban data for the value of fuel imports (which consist overwhelmingly of petroleum and products) are published with a considerable lag—one year beyond the already long publication lag of ONEI’s Anuario Estadístico de Cuba. Cuban exports of oil products (refined or blended in Cuba using crude oil imported from Venezuela) are not reported at all. And there is no information on the prices or volumes of oil trade.
All this is unfortunate. The oil sector is of great interest to observers of the Cuban economy given the island’s heavy dependence on imported energy, and particularly on deliveries of Venezuelan oil. There are, however, ways to overcome these problems and to resolve some of the puzzles, and this is done in the first part of this article. The second part examines the evolution of Cuba’s oil trade in recent years. And the third part evaluates the impact of cuts in Venezuelan oil exports since 2013 and estimates the impact of a possible elimination of these exports in the period ahead.
Filling the gaps.
ONEI publishes the value of Cuba’s imports of fuel on a Standard International Trade Classification (SITC) basis, but with a long lag. For example the value of imports for 2017 is omitted from the latest issue of ONEI’s yearbook, which itself lags by more than a year (See Table 1 at the end of this paper). However this lag can be shortened by calculating fuel imports as a residual from ONEI’s table on imports by main categories. (References to ONEI’s Tables are provided in the footnotes to the tables at the end of this paper). The validity of this trick can be confirmed by comparing the current estimate with ONEI’ own number when it becomes available.
A proxy for fuel imports can also be obtained by looking at Direction of Trade (DOT) data. Until 2015, Cuba’s oil imports originated primarily from two countries: Venezuela (including imports routed through the Netherland Antilles) and, to a lesser extent, Algeria. Adding up Cuba’s imports from these two countries (which consist almost entirely of fuels) provides a proxy for Cuba’s total fuel imports on a DOT basis. These imports are bartered against exports of services by Cuban professionals (mainly doctors, but also teachers and security personnel). As shown in table 1 the differences between the DOT and SITC series are small, through 2015, and the two series are highly correlated. This is reassuring because it suggests a degree of consistency between data obtained through different methodologies.
Cuba’s fuel exports consists of (i) petroleum products processed in the Cienfuegos refined using crude oil imported from Venezuela; and (ii) products from the blending operation performed at a joint venture with the Venezuelan oil company, PDVSA. Recently, PDVSA has pulled out of the refinery, selling its 49% share, and the Cuban company Petrocuba has taken full control. The blending operation reportedly was closed, and the refining operation is operating a minimum m capacity.
ONEI’s detailed table on exports by SITC categories entirely 1arefully exports of fuels. However these exports can be derived as a residual from ONEI’s Table 8.9 on exports by main categories. As a check, oil exports can also be derived by looking at Cuba’s (total) exports of goods to Venezuela, which appear to consist almost entirely of refined and blended oil products. The difference between the DOT and SITC series is somewhat larger than in the case of imports, but the two export series are strongly correlated, indicating a reassuring degree of consistency.
The recent evolution of Cuba’s oil trade.
Armed with these estimates and proxies we can try to understand the evolution of Cuba’s oil trade during the period ended in 2017, the last year for which data are available. This period includes extraordinarily large movements in both prices and volumes.
The value of Cuba’s oil imports fell abruptly from 2013 to 2017 owing largely to a steep decline in price[2], although volume also contracted reflecting a cutback in Venezuelan oil deliveries. SITC and DOT data remained very close until 2015, indicating that Venezuela and Algeria remained basically the only suppliers of oil to Cuba. In 2016 and 2017, however, the SITC numbers exceeded the DOT numbers by a significant and growing margin. This may suggest that Cuban diplomacy has been moderately successful in eliciting oil-for-doctors swaps from countries other than Venezuela and Algeria—a development that appears to be gaining importance. There have been unconfirmed reports of barter arrangements being negotiated with countries like Qatar, the United Arab Emirates, and Saudi Arabia. Early in 2019, Rosneft announced, for the first time since the Soviet era, a shipment of Russian oil and diesel fuel to Cuba. According to Jorge Piñon of the University of Texas at Austin, this would be part of a deal valued at $105 million— a small contribution towards filling the gap resulting from Venezuelan cuts.
Cuba has also exported doctors to other countries, including Bolivia and, in the past, Guatemala and Honduras. By far the most important of these arrangements was concluded in 2013 with Brazil. According to Clara Nugent, (http.//time.com/5467742/cuba-doctors-export-brazil/) in November 2018 there were 8,300 Cuban doctors in Brazil.[3] This was just before Cuba discontinued the program following a dispute with Brazil over the discriminatory and confiscatory compensation of doctors by the Cuban government. How these exports are paid for is not known, but they are not bartered against oil shipments.[4]
The value of Cuba’s oil exports collapsed from 2013 to 2017 reflecting sharp declines in both volume and price. The large drop in real terms confirmed the government decision to reduce the output of its oil processing industries, with implications for GDP and unemployment, in order to protect consumption of energy by households from the Venezuelan oil cutbacks.
From 2013 to 2017, the value of Cuba’s net imports of fuels (a good proxy for domestic absorption[5]) fell sharply, reflecting predominantly the drop in oil price. The decline in the volume of net oil imports was considerably smaller.
Using a simple accounting framework without multiplier effects I have estimated that the drop in oil imports from Venezuela over the period 2013-2017 lowered real absorption by about 1%.5 This may appear to be small, but it should be recalled that the fall in real imports during that period was relatively small (most of the decline in nominal imports reflected the plunge in the price of oil), and that imports from Venezuela are a small share of aggregate absorption.
The decline in oil-related real exports of goods and services is estimated to have lowered real GDP by about 1.7 percent from 2013 to 2017.7 (The percentage change in real exports of goods and services times the share of these exports into real GDP). This includes the effect of the fall in both real exports of refined or blended petroleum products and real exports of services provided by doctors and other professionals bartered against Cuban imports of Venezuelan oil.
The outlook
So much for the past. The key question now is what would happen to the Cuban economy if the Accord with Venezuela were abolished. Using the accounting framework mentioned in the previous section, I estimated that the complete elimination of Cuban fuel imports from Venezuela would reduce real absorption by 1.2 %. The disappearance of oil exports and of the payments for doctors would lower real GDP by 1.3 % of real GDP.
These estimates are much smaller than those evaluating the termination of Soviet/Russian assistance to Cuba in the early 1900s—an episode that involved a much larger loss of foreign assistance and a severe supply-side shock, as domestic enterprises were unable to repair or replace a capital stock based on Soviet technology. The estimated effect on GDP of a full elimination of current arrangements with Venezuela is also much smaller than those advertised in the Miami press, which range up to a mythological 10%.
Nevertheless, the estimated costs of ending the Accord with Venezuela, combined with those that have already occurred since 2013, are not negligible. These cots could be even larger if the cutbacks in oil supplies had adverse supply-side effects, forcing enterprises to modify existing energy-intensive production arrangements or reduce output. In fact, power outages and shortages of gasoline have recently occurred. The estimates could also be on the low side because the practice of translating dollar values at the official exchange rate of 1 CUP for 1 US dollar, artificially lowering the value of exports relative to GDP
A costly alternative to rationing is to increase the, already large, government subsidies to state enterprises—the policy adopted in response to the post-Soviet crisis in the early 1990s. A better solution would be to purchase oil imports from the world market, but of course this would require new sources of foreign exchange, possibly from new direct investment or, as a temporary expedient, from use of official reserves. Perhaps this need for foreign exchange could provide an incentive to finally liberalize the exchange rate and end the massive discrimination against Cuban exports imposed by the current system. That would provide a relatively stable source of foreign exchange that would be independent of the vagaries of unreliable partners.
The end of trade arrangements with Venezuela would also have an adverse impact on employment owing to the closure of the Cienfuegos oil refinery and the need to absorb the medical practitioners retuning from Venezuela (and from Brazil)—although it is uncertain how many of these professionals would in fact return to Cuba; already, many of them have reportedly decided to stay in Brazil or other countries. Here again, the policy response may be an increase in subsidies, this time to allow the public health sector to re-employ the redundant doctors and nurses. The celebrated merits of the doctors-for-oil swaps with Venezuela would have been reversed. The chickens will have come home to roost and, one more time, Cuba will pay the price for it’s politically based trade agreements with foreign governments.
[1] This article has benefited from extensive discussions with Luis R. Luis and John Devereux.
[2] The price variable used is an average of the Venezuelan export price provided by PDVSA through 2013 (the last year for which PDVSA provided the information); and the Cushing Oklahoma price thereafter. (See Table 3). The two series were strongly correlated before 2013.
[3] Other estimates are much higher, however. In “Cuba’s most valuable Exports.” Bill Frist estimated the number of Cuban doctors in Brazil at 4,000 in 2013 and 11,429 in 2014, approximately 30% of all Cuban doctors working abroad.
[4] Nugent reports that in 2013 Brazil paid the Cuban government $3,600 per doctor per month, only a small fraction of which is paid to the doctors. This amount to approximately $360 million a year, a relatively small figure compared with the
$6 billion paid to Venezuela in that year. Other estimates put the monthly payment per doctor at $5000 for an aggregate annual payment of $686 million.
5 Defined as the sum of consumption and investment by both the government and households.
