Havana, February 19, 2015 --  

Cuba's social order relies on Venezuela's oil largess. This charity may not last.

Belching exhaust from passing cars fills the air along Havana's seaside Malecón, the black emissions and loud rumbling at times drowning out both the sight and sound of the crashing surf.

The heavy stream of vehicles that pass by are a testament to Cuba's turbulent last half century. Vintage American cars from the 1950s dominate, some restored, some barely rattling along. Soviet Ladas from the 1970s and 1980s are common, and you see some heavy Soviet trucks, too. A few later model European brands round out the pack.

Fuel efficiency be damned Photo © 2015 David G. Young

What all these vehicles have in common is the heavy Venezuelan oil that powers them at bargain basement prices. the persistent smell of petroleum tells of the inefficiency of the diesel engines strapped on these old hulks. Havana smells like the 1970s.

Pedro, a taxi driver in Cienfuegos about 3 hours southeast, competes with municipal horse carts to transport passengers in his 1956 Oldsmobile with a British diesel engine and an air conditioning system salvaged from a Honda.

Many think it's the American embargo that keeps these old hulks running, but that's not so. Cuba imports European and Asian cars just like America, but it lacks enough hard currency to pay for them in sizeable numbers. Simply put, Cuba is still driving in the remains of the country's pre-socialist wealth.

While buying foreign cars is largely unaffordable, buying foreign fuel is not a problem. Venezuela's government subsidizes Cuba with all the petroleum it needs -- by some accounts $3 billion per year worth¹ -- out of a sense of socialist fraternity.

Pedro pays about $1 per liter for diesel using convertible pesos, Cuba's hard currency known as the "Cuc", which is pegged to th US dollar. Foreigners hiring him pay for rides in Cucs, as do Cubans who are lucky enough to get them, typically from family Miami or working in the tourist trade.

Cheap fuel prices leave drivers with plenty of Cucs for buying things that Cubans stuck with the communist system's old-fashioned peso, also known as the moneda nacional, can't get. Special stores with prices in Cucs sell imported items like disposable diapers, Italian pasta sauce, Trinidadian corn flakes, Nestle chocolate, Chilean wine, and small appliances.

This dual currency system has newly divided Cuban society into haves and have nots. The new elite avoids the lines and limited product offerings in the state run stores and enjoys a higher standard of living.

The system is great for sating the desires of the elite, but it relies on the triad of foreign income from remittances, tourism, as well as free oil from Venezuela. The third leg of that triad is looking shakier every day, as Venezuela struggles to make foreign debt payments.

Venezuela's economic crisis, exacerbated by sagging world oil prices, is leaving that country in dire straights as it seeks to preserve foreign currency to pay for imports and debt payments. Venezuela may soon be forced to end its charitable largess towards Cuba, either because it no longer can afford to do so, or because the increasingly unpopular socialist government allied with Cuba loses power.

However this end comes, it will leave Cuba in trouble. Without subsidized fuel, it will have to buy it at market prices, using the same hard currency that currently puts all those imported goods in the Cuc stores. The government may respond by rationing fuel or charging higher prices.

While this might cut down on the black clouds rising over the Malecón, it won't make drivers or Cuc earners happy. Cuba's new economic model is facing a rocky road ahead.

Related Web Columns:

The Never Ending Party, October 16, 2012

Invading the Next Frontier
The Coming Boom in Cuban Real Estate, September 28, 2004

America Libre, March 24, 1998

Notes:

1. See: The Never Ending Party, October 16, 2012