Eric Martin
Tue, September 26, 2023 a
(Bloomberg) -- Mexico’s state oil company is considering ways to start charging Cuba for oil it’s been giving to the destitute nation as the company faces its own fiscal struggles and the price of those donated barrels climbs sharply.
President Andres Manuel Lopez Obrador’s top diplomat said the government is looking for ways to lessen the strain of what it describes as humanitarian aid on public finances as crude nears $100 a barrel, but “of course” any such move would have to avoid violating US sanctions.
Mexico sent 350,000 barrels of Petroleos Mexicanos crude free of charge to Cuba in June and another 700,000 barrels the next month, marking its first exports to the island since 2019, according to port authority information and ship movements tracked by Bloomberg. The gift appears to be part of a renewed effort by AMLO, as the president is known, to strengthen ties with Havana.
Foreign Minister Alicia Barcena said those donations were made through the nation’s Agency of International Cooperation for Development. But now, as benchmark oil prices have surged 25% in three months and Mexico faces its largest fiscal deficit in more than three decades, the government is looking to see whether Pemex crude can be sold instead.
“Why not? It has to be seen how can that be, what type of transaction,” Barcena said in an interview last week on the sidelines of the United Nations General Assembly in New York. “We have a financial situation, of course. It’s not easy to donate.”
Selling, however, won’t be easy either thanks to sanctions on Cuba. Those restrictions generally prohibit US persons, dollars, entities, inputs and banks from being involved in the production of goods sold to the communist-run nation.
Lopez Obrador, known as AMLO, has repeatedly called for the US to lift its trade embargo, first imposed six decades ago after the late Fidel Castro seized power in Cuba. Barcena made the call again in her speech at the UN, calling it “totally unjustified, contrary to international law and alien to the values and peaceful coexistence that prevails between the peoples of Latin America and the Caribbean.”
While there were no Pemex oil exports to Cuba in August, according to the data, the two earlier shipments would have fetched a substantial price on the open market. The July donation was worth about $54 million and the June shipment could have fetched about $23 million, based on the average price for Mexico’s crude mix in those months.
The beleaguered driller is sending oil at a time when its crude production has halved since a 2004 peak and declined almost every year in the past decade and a half. Its debt is the highest of any oil major, at $110.5 billion by the end of June.
A Pemex representative didn’t immediately reply to a request for comment about the donated barrels.
Cuba used to import oil from socialist ally Venezuela before the US imposed sanctions on President Nicolas Maduro’s authoritarian regime during the Trump administration, which also ratcheted up pressure on Havana.
The island nation is now suffering its worst economic crisis since the collapse of the Soviet Union three decades ago, with blackouts, shortages and rampant inflation. Tighter US sanctions and the slump in tourism caused by the Covid-19 pandemic aggravated the downturn.
AMLO had earlier warmed ties with Cuba that had grown strained under one of his predecessors, when Mexico voted for a UN resolution criticizing the nation’s human rights record. Lopez Obrador, by contrast has lauded Cuban President Miguel Diaz-Canel, giving him the Aztec Eagle award and inviting him to Mexico numerous times, including as a guest of honor at the nation’s 2021 Independence Day parade.
--With assistance from Lucia Kassai and Amy Stillman.
Bloomberg Businessweek
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