According to a new report by the British investment bank Barclays, the Venezuelan government is scaling back it’s daily crude oil shipments to Caribbean nations involved in its Petrocaribe aid program. In 2012, the program supplied 400,000 barrels of crude oil a day to more than a dozen Caribbean countries; several years later, that figure has been halved, with Petrocaribe member nations now collectively receiving around 200,000 barrels per day. Since 2012, shipments to the Dominican Republic and Jamaica, the two largest beneficiaries of the program, have dropped 56 percent and 74 percent respectively.
Petrocaribe was initiated by the late Venezuelan president Hugo Chavez a decade ago. Through the program, Venezuela, Latin America’s largest oil producer, provides crude oil at cheap subsidized rates to Petrocaribe member counties throughout the Caribbean region. The Barclays report estimates that the program has cumulatively cost Venezuela around $50 billion. Still, many Caribbean nations have benefited significantly from Petrocaribe membership, utilizing the savings derived from Venezuela’s oil subsidies to balance their budgets, strengthen their education and social programs and promote small business domestically.
Michael Shifter, president of the Washington D.C.-based Inter-American Dialogue, is less interested in Petrocaribe’s altruistic qualities: “This was part of his [Chavez’s] broader strategy to extend his influence, to consolidate support and also to curtail influence of the United States in the region.”
Venezuela, a country highly depended on oil exports, was hit hard by the recent plunge in the global oil prices. Couple that development with other serious internal economic problems, like soaring inflation and chronic shortages of basic goods, and it’s no surprise that the Venezuelan government felt compelled to limit regional energy aid in an effort to control costs.
“Venezuela is in desperate straits. The oil sector has been deteriorating, and now with the slumping oil prices, they needed cash desperately,” Shifter explained.
Thanks to the recent cuts to the Petrocaribe program, Barclays has reduced its 2015 deficit forecast for Venezuela from $30 billion to $22.6 billion.
Petrocaribe member nations throughout the Caribbean are shouldering the cost of the program’s cuts. Those governments that rely heavily on savings derived from Venezuelan oil subsidies as a source of public revenue will likely be the most impacted. According to Adrienne Cheasty, the Deputy Director in the Western Hemisphere Department of the International Monetary Fund, such governments “could be forced to discontinue social or investment programmes.”
Cheasty predicts that further cuts to the program will likely result in increased government deficits for Antigua, Dominica, Grenada, Haiti, Jamaica, and Nicaragua. She argues that countries like Guyana and St Kitts, who have more access to alternative sources of financing that could offset the loss of Petrocaribe subsidies, will be less affected.
The country that is undoubtedly the most threatened by shrinking Venezuelan oil aid is Cuba, Venezuela’s closest ally. Whereas other Petrocaribe member countries are required to cover at least a portion of the cost of the energy deliveries that they receive from Venezuela, Cuba is totally exempt from cash payment. In exchange, the Cuban government provides medical expertise and aid to Venezuela, along with cooperation and assistance from its state intelligence services. Already Cuba has seen its daily deliveries of free Venezuelan crude oil dwindle to 55,000, about half of what it was receiving in 2012; further reductions to the Petrocaribe program could be disastrous for the island nation.