Gusanos fleeing a sinking ship

Today, Barack Obama shocked the world by announcing that the United States and Cuba had reached an agreement to begin normalizing relations between the two countries after more than 50 years of conflict. The deal, brokered with help from the Vatican, Canada and Spain, centered around the exchange of the three remaining “Cuban Five” agents for a US spy in Cuba that few had known about. Additionally, Cuba released USAID contractor Alan Gross after 5 years in prison and 53 political prisoners. Obama, for his part, has exercised most of the authority he has as president to loosen the embargo, allowing for closer economic and social links between the two countries, though the embargo itself, codified into law under the Cuban Democracy Act and the Helms-Burton Act, will remain in place until both laws are repealed by Congress.

Beyond the usual acknowledgements that the embargo has been a half-century disaster that has done nothing to achieve its stated goals while executing a significant reputational cost to the Untied Sates, there isn’t much to say about this. It’s an exceptionally important event, but one so obviously necessary, it’s difficult to say anything unique about it.

More interesting, however, is what this says about the situation in Venezuela. Ever since Hugo Chavez took power in 1999, Venezuela has heavily subsidized the Cuban government–to the tune of 100,000 bbl/day of oil–in exchange for doctors, sports trainers and other Cuban experts coming to work in Venezuela. This has been a huge boon to Cuba, and provided the necessary cushion for the Castros to reverse many of the “Special Period” reforms made after the collapse of Cuba’s previous benefactor, the Soviet Union, pushed the regime to the brink in the early 1990s. It also proved useful to Hugo Chávez and Nicolás Maduro, as their close relationship with Fidel Castro provided them with a legitimacy among the Latin American left that would have been difficult to achieve on their own, while helping keep an increasingly irrelevant Castro in the spotlight.

In the past several years, however, the inevitable economic dislocations associated with a socialist revolution began to act as a drag on the Venezuelan economy. Oil production has still never recovered to the level it was at before the 2002 strike and then mass firing of oil workers by Chávez, and increasingly byzantine currency restrictions, labor laws and export licensing choked off most of what remained of Venezuela’s productive capacity. This has left it extraordinarily vulnerable to a price decline, which appears to have struck in force over the past few months. Venezuelan oil, which for a variety of reasons trades several dollars below the benchmark rates, has fallen from more then $95/bbl to less than $55/bbl since the spring.

While the Castros are many things, one thing they most certainly are not is stupid, particularly when it comes to staying in power. They were largely caught off guard by the fall of the Soviet Union at the end of the Cold War, and were forced to take extreme measures to weather the crisis. They were not going to be caught unawares a second time. Like a rat fleeing a sinking ship, the Castros clearly realized that Venezuela is not going to be able to pay for it for too much longer and had to look for other alternatives. Incidentally, most other “anti-imperialist” countries are either unable to help (Iran, Russia), or rather uninterested in helping (China). This left liberalization as the most viable backup plan. Rapprochement with the United States, and the possibility of ending the embargo has finally surpassed the political benefit of blaming the embargo for all of Cuba’s troubles in the Cuban government’s calculations. It doesn’t mean that Cuba is going to be a free-market democracy any time in the near future, but it clearly indicates that Cuba sees some degree of liberalization as its best way forward.

This is doubly bad for Nicolás Maduro. On the one hand, Venezuela appears to have been caught completely unprepared for this agreement. State-run media took hours to even acknowledge what happened, indicating that they did not have any prior warning that would have given them time to prepare their spin. That, in and of itself, shows how little the Cubans value the Maduro government despite all the money they’ve spent. Moreover, it represents a clear indication that the Cubans, who know as well as anyone, think the situation in Venezuela is not worth betting on. Finally, it poses some real problems for Maduro within the fractious chavista coalition. The general consensus is that Maduro’s power base sits in Havana and the radical civilian left of chavismo, as opposed to the more nationalist military wing. Maduro has heretofore done an unexpectedly good job of balancing the forces within chavismo, largely by showering the military with lagresse. However, a clear rebuke like this by the Cubans could undermine his legitimacy.

“Why,” the military chavistas might ask, “should we put up with this guy the Cubans picked if the Cubans don’t respect him at all?”