Castro and the Oil Curse

Last week, a Financial Times dispatch from Havana raised the possibility that major oil discoveries in offshore Cuban waters could lead to significant economic changes on the island and also transform its official relationship with the United States. I’m not so sure.

Raúl Castro and his cronies are no doubt thrilled at the prospect of finding massive petroleum reserves in their portion of the Gulf of Mexico. Foreign investment is pouring in to support large-scale drilling projects, and companies from around the world are eagerly courting the Communist government. How much oil might be Cuba be sitting on? Estimates range from 4.6 billion barrels to 20 billion barrels. “Even the most conservative estimate would make Cuba a net oil exporter,” the BBC notes. “A large find would provide untold riches.”

If Cuba became a substantial oil producer, the Castro regime would surely see a flood of new revenue, which would (1) help it achieve greater financial stability and (2) provide a boost to the chronically dysfunctional Cuban economy. Oil might eventually become the most critical lifeline for a government that currently depends on massive energy subsidies from Venezuela.

But we should not expect oil money to accelerate the speed of Cuban economic reform. The opposite is much more likely.

Indeed, Cuba is exactly the type of country that we would expect to suffer from the notorious “oil curse.” Across the Middle East, Central Asia, and Africa, oil wealth has enabled thuggish autocrats to reject serious economic reforms, fortify their political control, and effectively bribe their citizens with generous social programs. (Norway is one of the few oil-rich nations to have avoided the curse, for reasons explained by NPR correspondent Alex Blumberg in this September 2011 piece.) Cuba already has a totalitarian government that dominates the economy, squashes dissent, and locks up human-rights activists. An oil windfall would merely make it easier for the regime to maintain its iron grip on political control and delay the introduction of free-market reforms.

The Cuban people don’t need an influx of oil money that will enrich Communist Party apparatchiks and help the dictatorship consolidate power during a transitional period. They need economic freedom. Yet rather than embrace genuine, far-reaching liberalization, Raúl Castro has been introducing timid economic changes while ramping up political repression. Cubans enjoy only slightly more economic liberty today than they did when Raúl initiated his vaunted reforms in 2008.

Just look at the new Heritage Foundation/Wall Street Journal Index of Economic Freedom: Overall, Cuba ranks 177th out of 179 countries or territories, and its total score is 52 percent below the world average, not to mention 67 percent below the average for “free” economies. No economy scores lower than Cuba in the categories of “investment freedom” and “property rights,” and the only country that scores lower in “business freedom,” “financial freedom,” and “labor freedom” is North Korea. (We should also note that, among oil-producing countries, Russia ranks 144th overall, Angola ranks 160th, Uzbekistan ranks 164th, Iran ranks 171st, and Venezuela ranks 174th.)