Venezuela, Cuba Add Oil Deal to Growing Economic Ties

July 7, 2008 - 7:17 PM

(CNSNews.com) - Venezuela has signed a new oil pact with Cuba, boosting oil deliveries to the Communist nation by 70,000 barrels a day and pumping in up to $1 billion to "rehabilitate" an aging Soviet-era refinery on the island.

According to several published reports, Venezuela currently exports about 90,000 barrels of crude oil a day to Cuba, but there are well-documented reports that the Cuban regime of Fidel Castro is hundreds of millions of dollars in arrears to Venezuela.

Venezuelan President Hugo Chavez, who faces a re-election battle in December, sees Cuba as the key partner in his efforts to launch the Bolivarian Alternative for the Americas (ALBA), a nationalist, left-wing, South American alternative to the U.S.-sponsored effort to negotiate a free trade pact for the Americas.

Castro and Venezuelan Oil Minister Rafael Ramirez attended a ceremony in Havana this week for the signing of the new oil deal, which will see the Cienfuegos oil refinery resume operations next year.

The Venezuelan state-controlled oil giant PDVSA will own 49 percent of the operation for an investment of between $700 million and $1 billion. Cuba will retain control of the remaining 51 percent.

Some analysts believe, however, that it will take more than a year for the refinery to resume production because its development ground to a halt in 1991 with the collapse of the old Soviet Union, which was financing the project.

The move to increase oil sales to similar left-wing governments in the Americas follows the Chavez administration's stated intent to take on some of the major Western oil giants.

Already this month, the Venezuelan government took control of two oil fields operated by Total of France and ENI of Italy after the two European oil giants chose not to re-negotiate their lease deals. Chavez had demanded a majority stake in the European countries' Venezuelan operations.

At the same time, Venezuela is demanding that foreign oil companies pay higher taxes and royalties, retroactively. British-owned BP has been ordered to pay back taxes of $61.4 million for the period 2002-2004.

As for the new refinery, PDVSA said last year -- when Venezuela and Cuba signed a letter of intent -- that the rehabilitated refinery would be able to initially process 65,000 barrels of crude a day.

But the refinery deal could also spark a new head-on clash between Washington and Caracas, as it appears to be a direct violation of the U.S. economic sanctions against Cuba. PDVSA controls the U.S. oil firm CITGO and could give Washington a direct target for the company's apparent violation of the Cuban economic embargo.

But Chavez, who is expected to win re-election in December, appears unconcerned regarding that possibility. With oil prices continuing to hit record highs, he is confident he can withstand any economic backlash from the U.S. and still continue to plow money into some of his country's poorest areas and thereby increase his own popularity at home.

Already, Venezuela is Cuba's biggest financial supporter and continues to help finance Cuban programs, even though Havana is believed to owe PDVSA and other state-controlled Venezuelan companies nearly $1 billion in unpaid bills.

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