What’s behind the US-Cuba deal?

The phone call between United States President Barack Obama and Cuban President Raúl Castro, followed by the exchange of an American prisoner for three Cuban intelligence agents detained in the US, marked the most important moment in the countries’ bilateral relationship in decades. Shortly afterward, the US and Cuba announced that they would begin the process of resuming full diplomatic ties.

At first sight, the agreement looks like a great victory for Cuba, with the US finally backing down from its attempt to isolate the communist island. The reality is somewhat more complicated.

For starters, this is not the end of the American trade embargo, which can be lifted only by the US Congress. Nor will relations be fully normalized; there will be embassies, but not ambassadors.

But there is no question that the agreement – brokered by the Vatican and Canada – is an important step forward. Travel to Havana for Americans who are not of Cuban descent will become easier. It will be possible to conduct bank transactions between the two countries. Some commercial issues will be settled. The US State Department will remove Cuba from the list of countries that it accuses of supporting terrorism.

It is true that Cuba seems to have given up very little in exchange. In addition to releasing the American, Alan Gross, Castro agreed to free 53 political prisoners, loosen restrictions on the Internet, and grant access to United Nations human-rights officials and observers from the International Red Cross. These are concessions, to be sure, but not large ones in view of what Cuba stands to gain with the resumption of diplomatic relations after a half-century of isolation.

Nonetheless, Cuba is in trouble, owing to a crucial variable that probably motivated Castro’s decision: the recent collapse in the price of oil. A series of factors – the spectacular increase in oil and gas production in the US, the recession in Europe and Japan, the decision by Saudi Arabia to keep its taps flowing, and the economic slowdown in China and India – have led to a supply glut. And the two countries most affected are precisely those on which Cuba has historically depended to keep its economy afloat: Russia and Venezuela.

Of the two, Venezuela and its troubles pose the biggest threat to Cuba’s stability. Russia has not supported Cuba significantly since the collapse of the Soviet Union. But Venezuela – especially under former President Hugo Chávez – has been an important patron, sending Cuba about 100,000 barrels of oil a day, along with some $5-15 billion in aid every year.

Those subsidies are unlikely to continue. Indeed, it is likely no coincidence that the talks between the US and Cuba started shortly after Chávez died in 2013. There is little doubt that, in the absence of Venezuelan subsidies, Cuba will once again plunge into depression – as it did after Russian assistance dried up in early 1990s.

This leaves Cuba extremely vulnerable. Economic reforms have clearly not had their desired effect. Incomes have fallen. Widespread shortages have fueled rampant inflation, with hyperinflation a growing risk. The currency trades on the black market are at little more than 3% of the official rate. A major political upheaval is becoming increasingly likely.

In their book, Back Channel to Cuba: The Hidden History of Negotiations Between Washington and Havana, William LeoGrande and Peter Kornbluh describe how Cuba has consistently refused to offer political concessions in exchange for the end of the embargo or diplomatic normalization. And, indeed, Castro did not offer any in the recently announced deal.

And yet the economic calculus makes it very likely that change will soon be forthcoming. In the absence of a rich and generous patron, the revival of the Cuban economy will depend on the full normalization of relations with the US – and this is certain to prove impossible without major changes with respect to democracy and human rights.

When the history of the present is written, it may very well turn out that it was not force of arms nor the efforts of diplomats, but disinterested interventions by remote oil barons in North Dakota and the Arabian Peninsula that finally unlocked Castro’s Cuba.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum. 

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Author: Jorge G. Castañeda was Mexico’s Secretary of Foreign Affairs from 2000-2003, after joining with his ideological opponent, President Vicente Fox, to create the country’s first democratic government.

Image: Clouds loom in the sky over Havana’s seafront boulevard “El Malecon” December 17, 2014. REUTERS.