2023: A Year of Mexican Oil to Cuba

Cuba is in a deep energy crisis. A steep decline in tourism revenue following the Covid-19 pandemic, exacerbated by high global fuel prices caused by the war in Ukraine, have contributed to years of chronic fuel shortages, resulting in frequent blackouts and long queues at gasoline pumps in what analysts have described as “the worst financial position it has been in since the collapse of the Soviet Union.” Starting in February, the regime announced that gasoline prices will increase by over 500 percent due to the government’s inability to continue sales at current subsidized prices.

The functioning of the Cuban economy hinges on imported petroleum. In the 1980s, Cuba depended on the USSR to supply 98 percent of its crude oil needs. Following the end of Soviet subsidies, Cuba’s so-called Special Period—a decade of widespread food rationing, mass outward migration, and paralysis of the country’s industrial and agricultural sectors—ended only after Hugo Chávez’s Venezuela agreed to barter its crude oil in exchange for Cuban doctors, teachers, and military advisors in the early 2000s.

Q1: Why is Cuba facing such an acute energy crisis now?

A1: For decades, Venezuelan oil has been the lifeblood of the Cuban economy: its exports represent about three-quarters of energy shipments to the island. While recent sanctions lifts on the Maduro regime may take a slight edge off Cuba’s energy crunch, Venezuela is far from the energy partner that it once was. Venezuelan oil exports to Cuba averaged almost 80,000 barrels per day (b/d) in 2020, compared to 55,000 b/d over the course of 2023—over a 30 percent decrease. The Cuba-Venezuela energy relationship is also threatened by the candidacy of former deputy and opposition leader María Corina Machado, who has pledged to suspend oil donations to Cuba if elected.

The growing opportunity costs associated with Venezuela’s provision of discounted petroleum to Cuba have made the cash-strapped Maduro regime prioritize economic relationships with countries capable of paying in hard currency. This has, in turn, forced Cuba to forge relationships with new partners to fill gaps in supply, most notably, Mexico.

Q2: What is behind the rise in oil transfers from Mexico to Cuba?

A2: This past year was a record for Mexican oil transfers to Cuba, according to analyses carried out on ship monitoring data. Before last year, Mexico had only sporadically delivered energy shipments, but over the course of 2023, Mexico surpassed Russia as one of the island’s key oil suppliers. Yet, Petróleos Mexicanos’ (Pemex) leadership under president Andrés Manuel López Obrador (AMLO) has yet to disclose financial details regarding the exact nature of its energy transfers to Cuba. This lack of transparency surrounding the country’s dealings with Cuba may signal an attempt to obfuscate violations of U.S. sanctions.

Since the end of the first quarter of 2023, the Mexican government, through its state-owned oil company Pemex, supplied at least 2.8 million barrels of oil to Cuba in what the AMLO administration described as a humanitarian donation to “a people who are suffering from an inhumane, unjust blockade.” Over the course of 2023, Mexico transferred an estimated $200 million worth of energy from Pemex. Since the first quarter of 2023, Cuban tankers Vilma and Delsa—previously used to ferry crude from Venezuela—were spotted making stops at Mexican terminals, emblematic of Cuba’s pivot toward Mexico in the absence of Venezuelan fuel.

Amid Cuba’s acute energy crisis, it is clear AMLO feels an ideological affinity toward the Cuban president as a fellow leftist. Díaz-Canel was the guest of honor at Mexico’s Independence Day celebrations in 2021, and AMLO has inveighed frequently against U.S. policy toward Cuba. Mexican solidarity with Cuba during one of its worst energy crises since the Special Period is indicative of the two leaders’ close personal and ideological ties, and of a willingness on the part of AMLO to pursue policies that can only be construed as open provocations to the United States. While past Mexican governments have maintained cordial relations with Cuba under the country’s longstanding policy of noninterference according to the Estrada Doctrine, never before has Mexico stood with Cuba in such an open manner, in defiance of U.S. policy.

Meanwhile, the AMLO administration has deepened its energy relationship with Venezuela. In the first week of 2024, Pemex CEO Octavio Romero met with both the Venezuelan vice president Delcy Rodríguez and Petróleos de Venezuela, S.A (PDVSA) president Pedro Rafael Tellechea with the goal of developing joint projects and “advancing strategic alliances within the framework of both nations’ energy development,” according to PDVSA social media. The increased involvement of Pemex along the Cuba-Venezuela energy axis represents an economic lifeline for both the Díaz-Canel and Maduro regimes.

Q3: What has been the historic relationship between Cuba and its energy partners?

A3: Cuba’s decades-long isolation from the global economy has forced it into unorthodox arrangements outside of international financial architecture to secure resources and hard currency from abroad. For instance, more than 30,000 Cuban doctors and nurses are leased to about 60 foreign governments, providing the Cuban government more than $11 billion per year—more than the island’s tourism industry. In the cases of Venezuela,Russia, and Algeria, Cuban doctors are sent abroad in exchange for discounted oil exports. In exchange for Venezuelan oil, Cuba has also provided the country with teachers, sports trainers, and military advisers. In June 2023, Cuban prime minister Manuel Marrero announced that Russia was ready to supply the island with “1.64 million tonnes of oil and oil products annually” as part of a deal that would boost Cuban sugar and rum exports to Russia. As part of the agreement, Russia would send 1,200 employees of Russian state-run oil firm Rosneft to the island to receive medical check-ups.

This type of agreement—where energy goods are exchanged for Cuban services—is particularly useful for a government that has been excluded from traditional international payment systems. Whether such an arrangement was made between Cuba and Mexico involving their recent energy transfers remains unclear, but possible, given the historical precedent. Because of Cuba's lack of access to hard currency, it is unlikely that the island has compensated Mexico anywhere near the estimated $200 million value in energy that it has provided and is more likely part of an oil-for-services scheme, like the medical agreement extended in September 2023 by the AMLO government.

However, these arrangements are not immune to sanctions, either. Vessels are always susceptible to sanctions, as are the companies that insure the oil cargo. For instance, Reuters reported that in 2019, “an oil-for-services arrangement between Venezuela and Cuba ran afoul of U.S. sanctions on the South American oil producer when the U.S. Department of Treasury blacklisted a group of tanker owners and vessels involved in the shipments, at the Venezuelan opposition’s request.” In April 2023, a U.S. State Department spokesperson told Reuters that Washington was, "aware that Cuba purchases oil from a variety of countries, both sanctioned and non-sanctioned."

Q4: How has Mexico explained its shipments of oil to Cuba?

A4: Compounded by rising global oil prices, the AMLO administration has faced mounting pressure from opposition lawmakers to end their petro-donations to the Cuban regime. While Mexican foreign minister Alicia Barcena said in September that the transfers to Cuba were made as a donation through the Agency of International Cooperation for Development, her claim was later contradicted by Pemex CEO Romero while testifying before the Mexican senate. Romero claimed that the company, “has not made any fuel donations to any foreign government,” adding, “I’m not lying.”

According to longstanding U.S.-Cuba sanctions policy, U.S. persons and non-U.S. entities owned or controlled by U.S. persons are “authorized to donate to Cuba items for basic human needs that are subject to the EAR [export administration regulations], including most medicine, medical devices and food.” However, the selling of such goods remains strictly prohibited. This possible sale has raised eyebrows among sanctions and export compliance experts who have alleged that the transfers may violate the longstanding U.S. embargo which has banned all trade and financial transactions with the island since 1959, unless licensed by the U.S. Department of Treasury. Moreover, Minister Bárcena recently indicated that the Mexican government is considering ways to begin charging Cuba for the fuel it provides, noting that, “We [Pemex] have a financial situation, of course. It’s not easy to donate.” 

Considering that Pemex makes use of loans from the U.S. Export and Import Bank (EXIM) to finance its operations, it is imperative that the United States seek greater clarity from its Mexican counterparts regarding the nature of Mexico-Cuba oil transfers. Yet, Pemex leadership under AMLO has yet to disclose financial details regarding the exact nature of the transfers. This lack of transparency surrounding the country’s dealings with Cuba may signal an attempt to obfuscate violations of U.S. sanctions.

Q5: Is Pemex in a financial state to donate oil to Cuba?

A5: At a time when Pemex is ranked as the most indebted oil company in the world, one would think that Pemex would not have the capacity to gift oil to anyone. Yet, considerable uncertainty remains surrounding the exact nature of the energy transfers. Despite its current financial woes, Pemex has long been a point of national pride for many Mexicans. In fact, the anniversary of Mexico’s expropriation of oil assets which established Petróleos Mexicanos—and prompted an international boycott of Mexican products led by the United States—is celebrated as a civil holiday each year on March 18. In the 1970s, Pemex’s discovery of huge oil reserves in Tabasco, Chiapas, and offshore in the Gulf of Mexico made Mexico a major player in the global petroleum markets and energy self-sufficient for the first time. Total crude oil production in the country tripled between 1976 to 1982 as Pemex expanded its extraction and processing capabilities.

However, the depletion of once productive oil reserves, coupled with a constitutional ban on granting production rights to foreign companies in the 2000s, meant that Pemex lacked the technical expertise to carry out deepwater drilling, as well as the access to large pools of capital needed to explore new reserves. Crude oil production declined by almost one-third between 2004 and 2010, leading to a series of reforms that introduced competition from foreign private oil companies and culminated in a constitutional reform in 2013. This effectively ended Pemex’s monopoly and plunged the state-run firm into debt. In 2023, the company’s debt ballooned past $100 billion, equal to 8 percent of Mexico’s GDP. Total oil production has fallen by roughly half since its peak in 2004, and a leaked letter in September revealed that the company was recently unable to pay back over $500 million to three suppliers.

As he approaches the end of his term, AMLO will leave Pemex in a more precarious position than when he entered office in 2018. The administration’s attempts to remedy the situation by granting preferential treatment to state-owned firms, significantly decreasing the company’s tax burden, and implementing frequent cash injections financed by Mexican taxpayers have amounted to more than $49 billion in capitalizations, tax breaks and other forms of assistance during AMLO’s sexenio. Even company executives admit that they cannot dig themselves out. Moreover, the long-awaited new Olmeca refining facility at the port of Dos Bocas—financed in part by the PRC—is running over budget by roughly double its initial price tag of $8.9 billion and is still not operating at full capacity. With a mindset frozen in the statist development model of the uninterrupted years of Institutional Revolutionary Party rule, the responsibility of rescuing or restructuring Pemex will inevitably fall to AMLO’s successor.

Q6: Does Pemex risk running afoul of U.S. sanctions?

A6: During AMLO’s daily mañanera press conference on October 21, the Mexican president claimed that the provision of more than 2.8 million barrels of oil to Cuba in the last year have not caused any problems for Mexico’s relationship with the United States. “The United States government and President Biden are very respectful of us. They don’t bring up these issues with us,” he said. Indeed, tensions within the U.S.-Mexico bilateral relationship under AMLO have often been sidelined in favor of achieving closer cooperation in combating fentanyl and migrant flows across their shared border. In late December, AMLO stated that increased cooperation with U.S. border authorities will depend on the Biden administration’s willingness to reopen dialogue with and revise sanctions policy toward Cuba and Venezuela. 

While the Biden administration has yet to comment, several congressmen have voiced their concerns, including U.S. senator Marco Rubio and Representative María Elvira Salazar. The EXIM Bank has purportedly canceled an $800 million loan to Pemex due to the company’s oil transfers to Cuba. However, this report was denied by Pemex CEO Romero, who later clarified that EXIM had “neither imposed fines on PEMEX nor canceled any credits” and that the decision to cancel a credit request had been made by mutual agreement with EXIM.

While Pemex is financed in part by the U.S. government, this does not necessarily preclude the company from donating or selling oil to Cuba. EXIM is required to ensure that “businesses that Ex-Im Bank helps finance are not doing prohibited business with Iran,” but has no such specific provision that prohibits transaction participants from engaging in business with Cuba.

However, Pemex could risk sanctions if its engagement with Cuba is found to violate the Helms-Burton Act, which penalizes foreign companies and persons that traffic in property confiscated by the Cuban government on or after January 1, 1959. For the first time in 2019, the Trump administration reversed the suspension of Title III—allowing for U.S. nationals to “sue any persons or entities that ‘traffic’ in property confiscated by the Castro regime.”

In 2022, under this law, a federal judge ordered four cruise lines to pay over $400 million in damages for docking in ports formerly owned by Havana Docks Corporation, a U.S. company expropriated by Castro during the revolution. Applying similar logic, Mexican tankers that offload their energy cargoes into ports expropriated by the Castro regime could face similar risk exposure.

The AMLO administration’s lack of transparency regarding the exact nature of its transfers to Cuba makes it complicated to ascertain whether Pemex has committed technical violations of U.S. sanctions. However, oil to Cuba under opaque conditions could be construed as a “spirit of the law” violation, and worse yet, a diversion of U.S. taxpayer dollars to indirectly support Cuba’s sanctioned authoritarian regime. Regardless of Biden’s appetite to escalate tensions in the already fraught bilateral relationship with Mexico, it is a matter of international credibility for longstanding U.S. sanctions policy to be enforced as long as they remain in place.

Ryan C. Berg is director of the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Nathaniel Laske is an intern with the CSIS Americas Program.

Nathaniel Laske

Intern, Americas Program