Cuba’s Power Grid Fails, But an Opportunity Arises

Image of an electrical power grid

Cuba’s power grid is collapsing. No, it’s not because of US sanctions or socialism. This ongoing crisis can be blamed on Cuba’s lack of investment into modernizing and its reliance on Soviet and Venezuelan fuel.

Cuba’s power system is powered by diesel generators – much of it deteriorated Soviet-era equipment, which has caused its grid to fail. This culminated in a blackout last week, which was exacerbated by hurricane Oscar making landfall. It’s unlikely that Cuba can get its grid back online all on its own.

So, Cuba finds itself at a crossroads. Without its typical allies able to help, the Cubans might be forced to turn to the US. Both Cuba and the US could benefit from a deal, but there’s a whole lot of pride to be swallowed and history to be forgotten before that happens…

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Huntington Beach in California. I apologize for the sound quality, but I’m on the beach. We’re going to talk about beach country, so it’s unavoidable. We’re gonna talk about Cuba. This past Sunday, a hurricane Oscar roared ashore in eastern Cuba. And I would say, like most hurricanes that do this, they knocked out power.

But that is not the case because in Cuba, the power was already out. Now, the two leading theories as to why that power is out are that it’s a socialist disaster—they can’t maintain their grid—or that they’re under U.S. sanctions and can’t get the parts. Both of those are kind of crap. First of all, let’s deal with the U.S. sanctions issue.

Cuba has been under sanctions since 1960. And there are lots and lots and lots and lots of countries that don’t like the United States and that the U.S. doesn’t like that still have electricity. So that doesn’t answer your question. Second, the idea that the system is mismanaged is, at best, an incomplete answer.

And to explain that, we need to look back. Cuba was functionally a U.S. colony from the time of the Spanish-American War, 1898, until Castro threw off U.S. control at the end of the ’50s and sided with the Soviets. Especially since the Cuban Missile Crisis during the Kennedy years in the early ’60s, Cuba basically existed because the Soviet government paid for them to exist, covering pretty much all of their food imports and their energy imports, as well as all their machine tools and equipment, and providing them with a lot of advisors in exchange for military assets, especially listening centers in Cuba.

Well, that ended when the wall fell. And the 1990s for the Cubans was a really rough time because, you know, this is an agricultural economy that produces sugar. And it’s not that their sugar isn’t good—it’s great—but it’s not enough to have a modern society. And so in the ’90s, when the support from the Soviet Union ended, the place really started to fall apart by any way that you could possibly measure it.

But then a savior arrived in the late 1990s in the form of a guy by the name of Hugo Chavez, who took over Venezuela and started sending the Cubans sufficient fuel to cover all of their needs. Since then, Chavez has basically destroyed his country’s own energy production, and especially under his successor, Nicolas Maduro, who’s the current president.

Venezuela has been falling apart, and they have basically lost the ability to send meaningful amounts of fuel to Cuba. So we’ve seen support go from something like 300,000 barrels a day to something closer to 25 over the course of the last few years. And Cuba is having a hard time keeping anything running. The income that they get from the sugar exports simply isn’t sufficient, and they can’t send to what would be their logical market, the United States.

And rather than buying from their logical market in the United States, they have to buy from at least a continent away to get whatever they need. So everything costs more and they get paid less. And that assumes that their system was doing well, which it is not. On top of that, when you have a grid that was designed back, you know, before the 1950s, it’s not all that hot in the first place.

This isn’t a country where they have a lot of solar or wind or natural gas. They certainly don’t have a nuclear power plant. What they do is they burn oil. And that is, you know, ugly and inefficient and toxic, but it’s also really hard on your power plants. And it’s been 50 years since any of these power plants have had meaningful upgrades.

On top of that, they have built kind of a backup society that is no longer their backup system—big diesel generators all over the place, plugged into the grid. The problem with that is that they’re not nearly as steady in terms of current production. And so it’s really hard on the transformers and the transmission system, which is also not seeing meaningful maintenance in 50 years.

So, bottom line is that the entire grid is falling apart. And back last week on Wednesday, the lights went out and they never came back on. And now the hurricane has hit. And it’s entirely possible that they’re not going to come out in a sustained manner again. Energizing an electrical system that’s had this degree of damage without a steady supply of fuel inputs is nearly impossible.

And when they tried to do it on a regional scale in the days before the hurricane hit, they actually shorted out more of the system. So Cuba very well may be down for the count. And the question is now what happens next? The normal candidates to support them, Russia and Venezuela, are either occupied with other things, don’t have the cash, or both.

And that’s before you consider things like sanctions. And the Chinese, while they love to have some irons in the fire in order to cause problems for the United States where they can, they’re not like pathological about it, like the Russians are. And they’re certainly not going to risk America’s displeasure when there’s no financial gain to be had here.

So, for the first time since the ’90s, and the first time seriously since before the Spanish settled the territory, Cuba is actually on its own. There is one possibility. Natural disasters tend to bring out the best and the worst in people, and the same goes for states. So, we now have the most fluid political environment between the United States and Cuba that we’ve had since the 1990s.

And there is a distinct possibility that Havana or DC, or both, will reach across the Strait of Florida to see if they can cut some sort of a deal. This is a chance for politicians on both sides to either show their better sides and turn the other cheek, or to drive a really hard bargain. Both of these are very viable options, and there’s certainly a need on both sides.

I mean, on the Cuban side, it’s obvious—the country is on its back and it might not be able to get back up, which would lead to horrendous mortality and deindustrialization. But on the American side, we have a massive worker shortage. And as the Chinese fail, we’re going to need various partners at different stages of production. Mexico, to be perfectly blunt, has become too sophisticated for a lot of the manufacturing that needs to move back to the continent.

But Cuba, I mean, their skill set might only be a quarter to a third as good as somebody in the United States—probably less. But they work for 5 to 10% as much. So there’s a way for them to plug in to the North American manufacturing system in a way that would really benefit the three existing NAFTA partners.

The question is whether we can get the politics right. And for better or for worse, the power outages plus Hurricane Oscar have provided an opportunity to find out.

Should Cuba Integrate with North America?

*This video was recorded during my backpacking trip through Yosemite in the end of July.

Sure, the Cubans and the Americans have some history, but who doesn’t? If both sides can let that water pass under the bridge, what will Cuba’s role in the North American system look like moving forward?

Cuba hasn’t done much integrating with global manufacturing, and has allied with anti-American powers like the Soviets/Russians and China. With all of its partners facing huge problems – Russia at war, China collapsing and demanding subservience for aid, and Venezuela’s mess – there’s a clear need for Cuba to consider a new path.

So, who can fill those shoes? It looks like the US is the only viable partner for the Cubans, and that will require some work. We’re talking political changes and hefty negotiations, but both sides could benefit from the partnership. We are talking stability, tourism, and North American integration into manufacturing norms. Also, a secular challenge to the American sugar sector.

Again, this will take some significant reform and changes to mindsets on both sides, but a partnership could be lucrative for both the US and Cuba.

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Transcript

Hey everybody. Hello from Yosemite’s North Country. I’m just above Butte Canyon right now, and today we’re going to talk about Cuba. Grabbing a question from the Ask Peter forum about the place of Cuba in the North American system as globalization falls apart. Obviously, there’s a bit of drama between the United States and Cuba.

The United States seized Cuba from the Spanish at the end of the Spanish-American War, way back at the end of the 19th century, and then ran it as a colony until it broke away under the Castro revolution of the 1960s. Since then, it’s generally been a pain in the ass for the U.S. from the American point of view, while the Cubans obviously see us as the pain in the ass.

However, the Cubans have never joined the globalized structures in a normal way. They never got into manufacturing; the only thing they really produce for export is sugar. Instead, they have chosen to cozy up to whoever the dominant anti-American power happens to be, and for most of their history, that has been the Soviet Union—Russia. The problem they’re going to be facing in the not-too-distant future is that Russia is occupied with things much closer to home and doesn’t have a lot of cash to throw Cuba’s way.

Now, while the Cubans are flirting with the Chinese, the Chinese want a lot more—what’s the word I’m looking for?—servile policy out of Cuba if they’re going to invest any money. The Chinese are very well aware of the map and that Cuba’s just on the wrong side of the planet, making it impossible to supply unless the United States allows it.

So, sooner or later—probably within the next ten years—we’re going to have a situation where the available sponsors are no longer available. Their backup plan for the last, well, it’s 2024, so for the last 25 years, has been Venezuela, which has basically paid for Cuba to exist with oil transfers. Well, Venezuelan oil is going away—it’s almost gone, actually. And so there’s really not much left. We’re going to have a situation in the not-too-distant future where the Cubans are going to be forced to find a new way to operate if they want to, you know, feed themselves. And the only option on the table is the United States because there’s no one else in the world who’s going to side with Cuba against the United States.

The question is when, and the question is how. “When” is a little tricky because it ultimately comes down to when the Cuban government decides it wants to open up a new chapter in its history. Now that the Castros are gone, that is at least possible. We did see, under the Obama administration, a deal—though not a great one, as pretty much all Obama-era deals were. He wasn’t really interested in negotiating; it was more of a “let’s just get this done and move on.” Trump abrogated it anyway. The bare bones of that deal—forget the specifics—are just that the United States would allow tourism to go on, the United States would allow food sales to Cuba, and in exchange, Cuba would need to politically loosen up a little bit.

Obviously, those three things would be part of any longer-term pact, but there are really two other things you should think about. The first is not just agriculture, but the impact that Cuban agriculture will have on the United States more than the other way around. Yes, the United States is the world’s largest producer and exporter of foodstuffs, and the Cubans need that food because they’re not capable of growing what they need to feed their own population. But what they can grow competitively is cane sugar, and if cane sugar were allowed in the United States, it would be at a lower price and a higher quality than our existing sugar, which mostly comes from sugar beets in places like the Red River Valley of North Dakota, Minnesota, and a little bit down in the sugar bowl of Louisiana—very low-quality sugar, very high prices, very heavily subsidized.

So, if you do bring Cuba into the fold, keep in mind that you’re going to have a little fight with the agricultural lobby. Now, the agricultural lobby will ultimately go with Cuba because everybody else would be able to sell things to Cuba, and only the most protected industry we have in the country would be the one that would suffer. It’s just a question of time.

The second thing to keep in mind is that despite Cuba’s many faults—and there’s a list—they actually have a pretty good technical education system. Remember, this is a country where the cars on the streets date back to the ’50s and ’60s, and a lot of nostalgic tourists like to go there. They’re still running—not because they were ever good cars, but because this is a nation of doctors and mechanics. Now, they’re not certified in the way that Americans would define the term—let’s not get crazy—but for a developing country, their technical skill is actually pretty high, and their cost of labor is only like 10 to 15% of what it is in Canada or the United States. So, if you were to take a new deal and expand NAFTA to another country, you’d have something pretty special here.

Mexico, especially northern Mexico, has now advanced to the point that they don’t do low-skilled labor, but Cuba could. In fact, Mexico is in a position where it needs an “1980s Mexico” in order to achieve economic efficiency. So, you get an agricultural merger, and you get some really interesting things happening in the manufacturing space. And it’s right off the coast of Miami. Oh, and I have no doubt that it’ll turn into a tropical Vegas, so there’s that, too.

All that takes is a change in mindset in Cuba—that it’s really time to come on board or move on—and a bit of a change in mindset in the United States—that it’s time to either negotiate a deal or force the issue. Either of those can take any number of forms; it doesn’t have to involve shooting. It can all happen around the negotiating table. It’s just an issue of choice on both sides.

Alright, that’s it for me. Take care.

Why Is a US – Cuba Deal Inevitable?

Most people would scoff at the idea that Cuba could end the US as a major power, but that small country has something no one else does…

Looking back at the Cuban Missile Crisis, you might think JFK overreacted. In reality, JFK saw the Soviets’ move into Cuba for what it really was – a direct threat to America’s existence. Cuba straddles the access points to the Gulf of Mexico, and if they had the military power to shut it down, the US would be in big trouble.

Since the Cold War ended, I’ve expected a warming in relations with Cuba, and to some degree, they have. Obama struck a (shitty) deal with them, which Trump later repealed. Don’t focus too much on the deal, but consider these actions by opposite presidents an indication that Cuba is top of mind.

Cuba is still grasping onto any major power that will give them the time of day, aka Russia or China, but we all know how those countries are doing. Cuba’s position is simply too critical for the US to ignore, so a US-Cuba deal is inevitable, but that doesn’t mean it’s imminent.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Support medshare's ukraine fund
Support medshare's global efforts

Transcript

Hey everyone. Peter Zeihan here coming to you from the Collegiate Wilderness Forum in a bag a few 14 hours this week. Today we’re going to talk about Cuba. Now Cuba, the island pinches. Access to the core territories of the United States. What makes the United States a world power is not just the fact that it’s basically a continent in size, but it’s got the greater Mississippi right in the middle of it, which overlays the world’s most productive arable land.

Water is the most efficient way by an order of magnitude, to move things around. And so as long as you have a long waterway in an area where you actually have things to ship, you can’t really help but not mess it up. And believe me, we’ve been trying for decades. If you look at the last four presidents who and yet we’re still here.

Now, Cuba, because it straddles the access points to the Gulf of Mexico, has the possibility to end of that to enter the United States as a major power. But that would require a lot more military force than Cuba is capable of producing itself. So the biggest threat to the United States going back well over a century has been that some foreign power will build a partnership with the Cubans that will break American power.

And that’s one of the reasons why JFK reacted so strongly during the Cuban missile crisis, because he saw it rightly as a Soviet effort to on the cheap and the United States. Now, since the Cold War ended and Cuba lost its Soviet sponsorship, I have been expecting a warming of relations and a change in the bilateral relationship for some time.

Under Barack Obama, we got a ham fisted attempt at that. That was basically negotiated over a short period of time with very little buy in from the president because he didn’t like to have meetings with anyone. And what we got was a deal of limited economic opening, minimal political connections, and it was a bad deal. Start to finish.

It was sophomoric. It was lazy, but above all, it was stupid. And so when Donald Trump came in, he killed that deal, saying that, you know, we should have gotten a better deal. And he is right. But then he proceeded to not do a damn thing. And that was sophomoric and that was lazy and that was stupid. But consider in today’s political climate that the two most polar opposite presidents that we’ve had both recognize the opportunity, even if they proved completely incompetent at building something out of it.

So there is movement, there is possibility within diplomacy and economic diplomacy to shift this. Now, the window of opportunity we had after the Castros died is obviously gone. And the new regime, which is the old regime just with like the third stringers, has definitely thrown in its lot too a little bit with the Russians, but the Russians won’t have the money that they used to.

So now the Chinese. Now, if you’ve been following my stuff, you know that I don’t think that the Chinese and the Russians are going to be around all that much longer. It’s certainly not an ability to project power hemisphere away. So this is going to come up again and again and again, again. And hopefully the next time around we will have a competent president who is capable of making a basic deal with a country that has less than 1% of America’s economic and military heft that is right on our doorstep that can’t possibly reach for support.

Gives you an idea of just how little I think of both the two previous administrations. I don’t think that’s going to happen under the Biden administration. However, there are a lot bigger fish to fry right now, and at the moment the Chinese are still there. And as long as the regime in Cuba feels that it has a foreign lifeline, it’s going to grab on with both hands.

So a deal on this is inevitable. Doesn’t mean it’s imminent. All right. That’s it for me. You guys take care.