Book your flights to Cuba, because barriers and travel warnings are now down. For the first time in half a century tensions between the United States and the island off the coast of Florida, which stood as a dark power during the Cold War times on the side of Russia, have been eased.
U.S. President Barack Obama has called for a move to reestablish diplomatic ties with Cuba (Politico). The move and efforts have suddenly been made known to the public as Cuba released a long time U.S. hostage who had been held captive since 2009. Of course U.S. citizen’s lives are important, but what pushed such a big move for friendship after the release of one hostage?
“[Alan] Gross was convicted of espionage by a Cuban court in 2011 and sentenced to 15 years for bringing telecommunication devices into Cuba” (WREG Memphis).
In addition, the United States has released 3 Cuban spies.
Although seemingly sudden, the deals between U.S. and Cuban officials has been culminating over the past year. Obama calls the embargoes on Cuba to be a failure.
What this means:
Travel restrictions eased
Increased exports of U.S. goods to Cuba
U.S. travelers to bring in some items
Embassies will be opened in both countries
While only Congress can formally overturn the five decades-long embargo, the White House has some authorities to liberalize trade and travel to the island,” WREG Memphis.
With the petro dollar value falling, Russia loosing influence and Venezuela’s economy faltering in the midst of falling prices; some of Cuba’s main financial and export partners are withering at the core. It’s no wonder, if Cuba along with other countries is turning its eye to new partners. It’s not about the prices of oil, but petro politics and who’s producing it. The reality is the U.S. and Canada fracking and shale revolutions are changing dynamics. The global economy and relations are switching as can already be seen as almost a 50-year silence is being broken between two former rival countries.
Oil prices have hit a record low falling below $60 per barrel. Although for gasoline consumers the drop in prices are accompanied with happy bank accounts, other production sectors and countries are starting to feel the effects.
From oil fields in places like Texas to those in Saudi Arabia and Russia, along with extraction plants and businesses, are being affected by the fall in prices. Countries like Venezuela and Russia, whose economies greatly depend on oil extraction and exportation are some of the hardest hit as they try to maintain production quotas in the face of a saturated market.
“Russia’s rouble went into free-fall in Tuesday trading, falling repeatedly to hit record lows, despite the central bank’s dramatic decision to raise interest rates from 10.5% to 17%,” according to BBC.
Why are oil prices down?
The simple answer is that there is a surplus in the supply of oil, but a decreased demand for oil in the global market. This problem has been perpetuated by the exploration and the energy independence revolution in the United States and Canada. The extraction of shale oil in the United States has boomed and created alternative energy sources that are messing with the natural flow of oil trade (Boston Globe).
The reign of OPEC may be coming to an end. Oil prices have taken their sharpest plunge in three years according to Bloomberg. Latin America, the region that accounts for the largest crude oil reserves outside of the Middle East, has begun to feel the shock waves of the recent petro crisis.
OPEC, the Organization for Petroleum Exporting Countries, was founded in 1960 with the first five member countries being: Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today, Ecuador has been another country from Latin America that has become an OPEC member.
Since September, prices have dropped significantly while alternate energy sources have been explored, for example the increased interest in natural gas and pipeline systems. The petroleum cartel, OPEC, an organization of countries with some of the largest oil reserves in the world, is facing off against a new era of alternate energy. The petro dollar has become depreciated.
“In just a matter of months, the price of a barrel of oil has dropped from more than $100 to about $70, and gas is now cheaper than it has been in years,” according to Fox News.
OPEC and the petro industry marked an increase in supply in the face of a falling global demand for oil; this combination creating the devaluation of the petro dollar, says Telegraph.
OPEC met this past week, and besides the fall of the crude oil prices, OPEC members have decided to not minimize current production quotas. The cartel of oil-producing nations, in the past has been able to fix prices based on their ability to increase or decrease their supply of crude oil. OPEC’s decision will inevitably lead the prices to continue to fall as there becomes a surplus of crude oil in the market.
The decision to maintain production, at about 30 million barrels a day, is seen by many as OPEC’s confidence in the resurgence of demand for oil despite the United States great success with increased fracking and shale gas extraction. The decision made by OPEC is seen as a response to hype about new energy take overs.
Although the organization decided to face off against the increasing value of shale gas and other competing energy sources, sticking out the economic downturn at the moment, some OPEC nations may not be able to handle the short-term sacrifice. Countries like Venezuela and Nigeria who have economies almost completely dependent on the production and exportation of crude oil will be much more greatly affected with falling oil revenue prices below $100.
Venezuela’s President Nicolas Maduro, after the OPEC meeting, announced the country will cut public spending, due to the fall of petroleum demand. Surprisingly, the first thing to be reviewed and cut will be the wages and salaries of leadership officials, “starting with the president of the republic.”
Cuts will be made to all the ministries and state owned enterprises. Maduro doesn’t see the fall in gas prices and its effect on the country’s economy as an “evil.” In his opinion, according to El Comercio, he sees it as an opportunity to cut unnecessary spending and reorient the country.
Despite recent problems of questionable dictatorship type actions from the Venezuelan government, Maduro assured that even though there will be cuts,
“’ni un bolívar se va a tocar de las misiones’ o programas sociales y señaló que, por el contrario, se ampliarán las inversiones en materia social.”
In this address to the country saying that social programs will not be touched or cut, but on the contrary, will receive increased investments and attention.
With the introduction of glasnost (openness) and perestroika (restructuring) under the rule of Mikhail Gorbachev, the cohesiveness of the USSR was splintered eventually leading to its demise in 1991. The USSR was then broken down into 14 independent republics and since then “has shifted its post-Soviet democratic ambitions in favor of a centralized
semi-authoritarian state in which the leadership seeks to legitimize its rule through managed national elections, populist appeals by President Putin, and continued economic growth,” according to the CIA World Factbook.
Although about 1.8 times the size of the United States, Russia is a region that only houses roughly a third of the U.S. population (143 million in comparison to a U.S. population of 316 million). The percentage of citizens that live in urban areas is whopping 73.8% as of 2011 according to the CIA WF.
Despite Russian predominance in world news, economically Russian industries are a failure, according to Texas A&M University professor of Russian, Brett Cooke. Following the fall of the USSR, which ended state-ruled enterprises, oligarchs seized these franchises. However, Russian industries never sufficiently adapted to the modern economy. Russia is comprised of a great expansive land mass, but because of its comparatively small population density, diversification of industrial growth has faltered. Today, Russia’s exports and economic wealth are reliant on the production oil related products.
“Russia produces oil, basically nothing else,” said Professor Cooke.
Professor Cooke proceeded to ask; why would Russia be importing agricultural products? Why from Latin America? According to the Observatory of Economic Complexity, Russia’s main imports aren’t even food related; the top imports consisting of goods such as: cars, packaged medicament, vehicle parts and computers.
The level of Russia’s food independence is stable, according to Tass, a Russian news agency. Russia’s main agricultural good is wheat. However, the country is lacking in other crucial food areas.
“…the level of self-sufficiency regarding certain types of dairy products (cheese, butter) was significantly below the required margin. Moreover, the figures of food independence concerning certain meat products, namely beef, were twice as low as the required margin.”
In recent times, Russian food security has been questionable due to Western sanctions implemented in August in response to the Crimea invasion; these sanctions have pushed Russia to realize its alienation. In the wake of these sanctions, Russia has doubled its imports of Argentinian beef (Global Meat News), while seeking out new strategic partners, which has been previously investigated in this blog.
Russia has allotted 1.5 trillion rubles ($42 billion) to invest in domestic agricultural production/development. Despite the investment, local producers are weary of the promise for greater production and efficiency within the country.
“It is extremely difficult to compete with foreign producers due to the investment factor in Russia, loans and infrastructure costs are much higher than in Europe and the U.S.,” said Artyom Belov, CEO of the National Association of Milk Producers, according to The Moscow Times.
This news from the agricultural sector only illustrates part of the problems facing Russia and the great depreciation of the ruble. Russia is seen as a dark illusive power, with an untouchable leader, Putin, at the head of the country whom steals the spot light and fills the tabloids of Western media. However, behind the Putin mask, the physically enormous country is vastly underpopulated and in a “time-freeze.”
Putin/Russia is painted by American media in three ways. Firstly, Russia is a country that reacts in a manner that is interpreted as it trying to maintain/regain influence over former Soviet spaces. Secondly, Russia wants to reemerge as a world power like during the Cold War times! And lastly, Putin reacts to the west in order to fight the spread of basic democratic/capitalistic ideals.
Recently with Putin’s visit to Latin America in July, the nation has shown that it is expanding beyond its former Soviet realm. Putin has sought to rekindle old flames while establishing new relations with countries such as Cuba, Nicaragua, Brasil, Argentina and Chile. During this “Latin American Tour,” Putin and his new presidential confidants discussed partnered development in sectors such as energy, education and trade.
Throughout the past century, countries such as Chile and Argentina received waves of fascists according to Professor Cooke. The first wave of fascist influenced Europeans landed in Argentina in the 1920’s. A reemergence of fascism later appeared with President Juan Peron in 1946.
In Chile, leaders such as Carlos Keller and Jorge Gonzalez Marees transitioned Chilean politics and took a position similar to that of Adolf Hitler in 1932. Later in 1938 the country’s growing fascist movement attempted a coup; it inevitably failed. Starting in 1974 the infamous regime of Augosto Pinochet controlled the country under what were argued to be fascist ideals until 1990.
Virtually all countries in Latin America have faced movements from the spectrum of socialism to communism. Today there has been a steady movement back to populist ideals, ideals of which President Putin is found of.
This shift of relations has been caused by many things. One of the root issues being that the United States and other western nations have acted as if Russia no longer matters, says Professor Cooke. This isolation and ostracization has caused Putin and the country to react.
There is a great contradiction within Russia itself. Why should Putin be the select? Putin with a 65% approval rate in his country, greatly over shadows the reality of his nation. Professor Cooke, who has been to Russia more times than countable, commented not only on the centralization of the population in the cities, but also the isolation of the people themselves.
“The country [due to its governmental policies] has developed a separateness…and its people are out of touch,” said Professor Cooke.
Cooke expressed how there is no checks and balances, the current government under Putin stifles growth and the opinions of those appear to be heavily influenced or intoxicated with western ideology are targeted. The country itself is moving in a fascist direction, Cooke said in a worried manner. It has recently started with bans on alcohol, to curfew times within the cities…all things that appear to be good for the people.
However, these policies have evolved into the banning of certain “alien groups.” The Putin administration has tried to dismantle one of the most prominent human rights groups in Russia known as the Memorial Human Rights group in Russia which has been threatened to be dismantled as it is an “alien agency.”
The statistics report that Putin is at a 65% approval rating, but this neglects the opinions of those who remain unheard. Article 80 of the Constitution of the Russian Federation states that,
“The President of the Russian Federation shall determine the guidelines of the internal and foreign policies of the State.”
Therefore, if Putin decides to ban western books from the country, arrest and condemn those who speak out against him or advocate for ideas that aren’t aligned with his political propaganda, he can rightfully create whatever policy he wants under the Russian constitution to silence these people.
Cooke compares the situation within the country to that of basic historical fascist leaders. Under Hitler the Autobahn was created and under Mussolini trains ran on time.
However, Cooke continues, “fascism is sloppy and mediocre.” It appears great at first until the efficiency of the system breaks down. Russia, like the situation of Germany before the rise of Hitler is feeling isolated and underestimated; inflation and violence have perpetuated the rise of fascism in the country.
The world sees the movements of Putin, but is ignorant to the realities of the country of which he represents.
“The alienation and sanctions have just started,” Cooke said.
Putin is represented on most propaganda of him riding shirtless on a bear is what inspires the Russian Putin followers and fuels the ideology of the power of the Russian nation. Russia perpetuates arms trade with the Middle East and has growing relations with China. However it is important to note the power switch of China in the globalized world.
China itself does not condone the intervention of one country into another country, case and point Russia’s seizure of Crimea. Power changes have happened in the past two decades with China moving to the top with the largest GDP in the world, however the Chinese dragon itself may not be as aggressive as once perceived.
Russia will continue to create allies and seek relations with new partners such as those in Latin America, but the contradiction between governmental actions and media hype compared to the actual socioeconomic situation of the country are questionable. Maybe Russia is not the great dark power it is presumed to be. As Cooke mentioned, the people self regulate. The Putin regime may be stifling the checks and balances system, but eventually something’s gotta give.
Venezuela, the country with the largest oil reserves in the world, 9th largest producer of crude oil and an OPEC member, will now be importing oil for the first time.
PDVSA (Petroleos de Venezuela S.A.) is the Venezuelan state-owned oil and natural gas company importing the oil. According the International Business Times (IBT), PVSDA was expected to receive its first ever shipment of light crude oil from Algeria. With oil being the Venezuelan government’s largest source of income, the importation of oil is rather peculiar.
“Oil production has declined over the years, exacerbating the country’s problems with a limited foreign currency supply, and critics say mismanagement of PDVSA is largely to blame. Meanwhile, global oil prices have slipped by more than 25 percent since June,” reported IBT.
Venezuela produces different types of oils, but its main product is known as an extra heavy crude oil. In order to process this oil, a diluent is needed, this diluent normally being light crude oil. Venezuela had been buying alternate diluents, as their light and medium crude oil stocks fell. The most common alternate diluent they used is called naphtha, a distillation liquid comprised of hydrocarbons, has become expensive in recent years. PVSDA had begun to think about the importation of light crude oil in order to reduce the expenditures used on naphtha, necessary for the processing of their extra heavy crude oil.
“PDVSA in August put on hold its exports of diluted crude oil (DCO) made of heavy crude and naphtha to review its cost structure and avoid losses amidst an oil market worried because of falling crude prices,” according to Reuters.
Despite earlier this year commenting that importing oil would be a “last resort,” energy minister, Rafael Ramirez and Venezuela turned to Algeria, fellow OPEC member. The country put in a 2 million barrel order shipment that was expected to arrive at the end of October.
Imports from Chinese Oil Company Out Of Russian Urals
Algeria was not the only country that Venezuela turned to, Petrochina, a Chinese state owned oil and gas company, has become of a part of the importation mix as well. However, the gas in question that is being exported is being extracted and produced in Russia. The Russian cargoes will be the second imports into Venezuela; PVDSA bought two cargoes of Russian Urals light crude oil from a unit of Petrochina. The exported are being attributed to Russia however being extracted by a Chinese corporation, reported by Reuters.
According to the Venezuelan administration, PDVSA produces close to 3 million barrels a day, making it one of the world’s largest crude exporters. With such a dependent economy on oil extraction, production, and exportation the largest crude oil reserves country in the world will have to deal with production problems in the face of slipping global oil prices and civil unrest.
China, being the worlds most populous nation with a population of 1.4 billion, has all the demand, but none of the supply. On the other hand, Brasil is a country rich in diverse resources. Within the past couple years, this star of Latin America has greatly increased it’s exports to China.
In 1999, total export income was $1.5 billion for Brazil, but in 2010 reached $1.9 billion. Brazil has helped the Asian giant out in everything from soybean and wheat exports to clean water production.
The relations however are not a one way street. China has begun to heavily invest in the technological sector of Brasil as well as other areas. Chinese telecom companies have reached out to spark innovation and production in Brasil. According to the International Energy Agency, between 2005 and 2012 Brazil had received about $18.3 billion worth of investment from China.
Of course the substance that is almost valued more than water these days has not been left out either, Brasilian petroleum company, Petrobras, has teamed up with Chinese Sinopec Petrochemical Corporation to enjoy ventured oil exploration and the creation of a pipeline extending from Southern to Northern Brasil.
The main concerns of these relations are if China will flop on its deals and also if Brasil will simply become and stay a farm, forest and mine based cultivation country. The reality is that Brasil is so much more than that. However with Brasilian political infrastructure, problems such as high interest rates and an exaggerated exchange rate are just some of the things that make progression difficult.
These are some of the reasons why the Brasilian elections are so important. If Brasil is to be the star of Latin America (or maintain its place as the most advanced), there are going to need to be heavy reforms that meet the demands of the country. Brasil, along with others, faces a pinnacle point of being able to manage and control its own country in the wake of great demand by the just implementation of a steady government, or will it crumble and just become a harvest country?
It is without a doubt that Latin America is full of resources. Originally when the conquistadors, Hernan Cortes in Mexico and Francisco Pizarro in Peru, arrived in the 1500’s the mineral rich land was immediately exploited. However, the mineral jack pot is not the only resource that Latin America has had exploitation problems with; the regions make-up consists of vast ecological resources, flourishing marine life, agricultural hubs, and the petrodollar.
The Amazon region alone, located in north central South America, accounts for at least 10% of the world’s known biodiversity. The region itself extends across 6.7 million km, which is about twice the size of India, according to the World Wide Fund for Nature (WFF).
Just within the western part of Brasil, there are 3,500 different varieties of plants. 250 different fish species and 650 different types of birds, writes Arturo A. Fox, author of Latinoamerica: Presente y Pasado.
Brasil’s agricultural center also provides the United States with about 50% of its cattle/beef imports, 26% of Russia’s imports, and 9% of Hong Kong’s, reported Brazil Business. Argentina ranks behind Brasil and Australia in beef exportation.
As stated, Pizarro and Cortes originally built their empires of off the land’s mineral deposits. According to reports from 2004 by USGS (United States Geological Survey), Latin America, “is a major producer of mineral commodities like copper (53 percent of world production in 2004), silver (48 percent), zinc (30 percent), nickel (32 percent), molybdenum (43 percent), iron ore (29 percent), gold (21 percent), lead (18 percent), primary aluminum (17 percent), salt (19 percent), and manganese (12 percent).”
Chile as well produces about half of the world’s consumption of iodine, according to Fox.
Lately, however, the petrodollar has spoken the most over other resources, especially in Venezuela. A whopping 90% of Venezuela’s exports alone are its crude oil. Venezuela, being a member of OPEC (Organization of the Petroleum Exporting Countries), accounts for the highest percentage of crude oil reserves out of all of the OPEC countries, an estimated 24.7 percent as reported in 2013.
OPEC itself accounts for 81% of the world’s crude oil reserves, about 1,206 billion barrels.
Venezuela is not the only oil extraction country, companies like Mexico’s Pemex, Peruvian PetroPeru, Argentinian Bridas Corporation, Brasil’s Petrobras, Chile’s Empresa Nacional Del Petroleo, Colombian Ecopetral, and Urugauy’s ANCAP, are examples of progressively growing oil and exploration and productions companies within the region.
The Global Market benefits everyone, right?
Since the inception of these countries, there has been a big problem among government instability, resource management, and a growing globalized economy that eventually ensnared most of these countries into a dependent trend where they become reliant on their fixed export economies. Latin America is an example of a region cultivated and harvested for its resources, however not making sufficient income from the global market to actually stimulate growth from its exports within its countries.
The instability and weakness of the governments causes officials to give in to foreign investment, usually not fighting against the exploitation of their resources, let alone protecting the rights of their citizens. Shady back deals for personal gain between foreign companies and corrupt regional figure heads is normally how most of the work was and still is done in many parts of the region.
Due to market dependence, a term in 1995 was coined after the Mexican Economic Crisis, which inevitably affected international markets around the world. The term is, “el efecto tequila,” or rather “the tequila effect.”
The tequila effect, which became prevalent after the 1995 crisis, showed some of the dangers of such an intertwined global market. If one market went down, especially an economic powerhouse or supplier, like Mexico was to the United States, all the other economies would as well.
A Switch to Populism
After the 2008 Financial Crisis, those countries that didn’t get the picture the first couple times, realized the pain of a recession caused by the tequila effect.
Brasil under President Luiz Inacio Lula da Silva, was one of the first to come out of the 2008 Financial Crisis and slowly began a movement of privatization and populism.
Populist, or neo-populist experiences, have differed with neo-liberalism on the issue of state intervention and social inequality while also promoting non-pluralist forms of political engagement,” according to writers Fabian Bosoer and Federico Finchelstein ofQueries, a European progressive magazine.
Other leftist leaders like, Michelle Bachelet of Chile, Cristina Fernandez de Kircher of Argentina, Evo Morales of Bolivia, Tabare Vazquez of Uruguay and Alejandro Lugo of Paraguay, also began to implement a more populist privatization type system. The switch of various countries to a more leftist system in Latin America has still remained under a democratic scheme as of the 2000’s, but most leaders can permit the perpetuation of their own power under corrupt systems.
These new movements have even lead to rebellions against neoliberal reforms and against multinational corporations dedicated to the exploitation of natural resources, especially resources like petroleum and natural gas. Bosoer and Finchelstein also note,
In Latin America, populist movements have tended to combine authoritarian plebiscitary presidential leadership, elected by popular majorities, and a curtailment of political rights parallel to the expansion of social rights…As a whole, Latin Americans lived through the first grand crisis of neo-liberalism some ten to fifteen years ago and the result was that the region left neo-liberalism behind.”
Although some countries like Chile, with a new carbon tax, are making progress with privatization, most have rather began to create their own new partnerships, as has been seen in past articles with increased trade and aid between Russia and China and Latin America.
Argentina is an example of a country that is trying to turn away from U.S. debts and start anew.
Ironically under these new populist systems, recently Brasil and Argentina have both been in different stages of an economic recession.
This blog is a platform for the investigation of the economic situations and governmental transitions within Latin America and how these factors have increased activities with unusual trading partners.