‘Year of denial’: Cuban private companies face Trump’s oil embargo | Business and Economy

Havana, Cuba – On a Friday last month, every table outside Oishi’s restaurant in Pabellon Cuba, an exhibition space in the heart of Havana, was full of customers munching on burgers and pizza.

Although the place looked like a flooded place, the owner, Miguel Salva, 46, held his phone to his ear, looking like a salesman in the middle of a meltdown.

Recommended Articles

list of 4 itemsend of series

“The oil crisis has been a problem for us,” he said after pausing.

Since the United States, led by President Donald Trump, cut off oil in Cuba at the end of January, blackouts and lack of oil it has seriously affected small family businesses like Salva’s.

Oishi’s headquarters was a restaurant in the Havana district of Regla, where long-term power outages reached 15 hours or more a day.

Salva had a backup generator, but the numbers didn’t add up: Fuel prices have risen from $1 a liter ($3.80 a gallon) earlier this year to $10 on the black market. The increase follows the Cuban government’s decision to ban the sale of diesel in February and to ration gasoline as part of a plan to reduce the oil embargo.

“I had to close the restaurant,” said Salva. I spent days crying.

Near the Oishi food stall, Pincharte was selling fried rice and charcoal-grilled meat skewers. Unlike Oishi, Pincharte never owned a house. It’s a mobile job, hauling ovens and coolers from ground to ground in large diesel trucks.

“Without oil, our income has increased eightfold,” said Elianis Aguero, the 31-year-old owner. “Right now, no business is profitable if you depend on oil.”

This year, both Pincharte and Oishi plan to pursue renewable energy, investing in solar power and electric vehicles.

But due to the demand for a ride, the price of the three-wheeled electric bike has increased by 50 percent.

“This will be a year of denial,” Salva said.

Downsizing affects everyone in the private sector

“The oil blockade affects all Cuban institutions – from sales and marketing to imports and exports, as well as the ability to produce,” said Eric Almeida, 41, president of Quota, a consulting firm headquartered in Pabellon Cuba.

Before the crisis, transporting a container to Havana from the port cost between $100 and $150. Today, it costs less than $600.

“That price makes the end product very expensive for the customer and stops all sales channels,” Almeida said.

The quota has also had a major impact on customers, forcing them to cut back on unnecessary expenses, while others have closed or restarted their businesses. Part is not far from them.

Almeida said: “We had to reorganize things to survive. They say their income this year will drop by 50 to 60 percent compared to what they predicted before the oil crisis.

The only silver lining is that the crisis has forced the Cuban government to liberalize private parties.

Growing up in times of crisis

In the last three months, the Cuban government has created new laws to give more opportunities to the private sector, in order to free up its middle class history.

It allowed, for example, greater tax exemptions for the importation of solar panels by any type of business. It also announced that all Cubans living abroad will be able to open small and medium enterprises (SMEs) on the island. Until now, this right has been reserved only for those who live in Cuba or who have “good immigration status”, a requirement that requires them to obtain more than 180 days of residency in Cuba.

Similarly, it relaxed the agricultural marketing laws. Previously, this could only be done through a public collection agency; now, the private sector is allowed to participate in the distribution chain.

But what could be the biggest change that came in March is a new law allowing companies with mixed debt, allowing private equity to join public companies for the first time.

The reform will open the door for private sector investment in historically state-controlled industries, such as sugar and precious metals. Health, education, and the military are not limited, however.

Although Cuba has operated for many years with a state-controlled and centralized economy, its private sector began to grow in the 2010s. It reached its peak in 2021, when the government allowed the creation of small businesses, or SMEs, as it looked for a way to deal with the financial problems and shortage of goods caused by the expansion of US sanctions and the COVID-19 pandemic.

“SMEs emerged during the crisis,” said Almeida.

In the years that followed, NGOs struggled with a government that alternated unpredictably between periods of reform and control.

“Cuban businesses are caught between two Damocles swords,” Almeida said. “The internal sword is the red road and the slow movement; the external one is the oil barrier and US sanctions, which limit our access to international funds.”

Today, there are about 10,000 SMEs in operation, which represent a boost to the country’s economy. Cuban economist Ricardo Torres Perez, in a September report based on government data, said that the private sector contributed 15 percent of GDP, 31.2 percent of national employment, 55 percent of retail sales, and 23 percent of government taxes.

Business in Cuba is growing “on the basis of courage, resistance, and innovation”, said Almeida.

‘Minimum’ oil imports

On February 6, the Cuban government allowed private companies to bring in oil, which was previously reserved for the government. A few weeks later, the US Bureau of Industry and Security followed suit, approving the export of US oil and gas to the relevant Cuban entities.

“There is oil imported from some traders who bring it into the country to do their business and, among other things, to be sold. But the amount that has been imported so far is small,” said Argelio Abad, the first deputy minister of energy and mining, in a press conference on March 20.

The numbers seem to match.

Between February and March, the island’s private sector exported about 30,000 barrels of oil (about 4.8 million liters or 1.3 million gallons) from the US, according to Reuters.

According to Jorge Piñon, a researcher at the Energy Institute of the University of Texas at Austin, Cuba needs about 100,000 barrels a day – and it only produces 40 percent – to generate its electricity and meet its regular demand. Essential public services depend on the amount of government oil, which has been blocked by Washington.

According to Almeida, importing one tank of about 25,000 liters (6,600 gallons) costs between $45,000 and $50,000, plus 13 percent in export commissions by Union Cuba-Petroleo, the only organization authorized to handle the oil.

For large projects, it is still profitable for the tank, since the price is about $ 2 per liter ($ 7.6 per gallon), five times cheaper than the black market.

However, it is an “unsustainable” investment, said Almeida. The Cuban government and the Trump administration are currently negotiating. If they agree, $2 per liter of oil would be more expensive than the average price before the oil ban.

But even if they are willing to gamble, businesses like Oishi, Quota or Pincharte are prohibited from using oil.

They cannot afford to buy a tank on their own. The current law prevents companies from grouping together to buy one, and even buying from some private SMEs that are already importing oil is prohibited.

Last year, Pincharte was growing. Aguero was planning to open new houses in several places. Since January, his dream of growing up has ended, and he is determined to survive.

“This year has been very difficult,” he said.