Via Stratfor:

Russian Deputy Prime Minister Igor Sechin arrived in Cuba on July 30 to discuss Russian energy investments on the island with the Cuban leadership.

On the surface, this looks like any old state visit between the Russians and the Cubans. But there are a number of reasons why this visit in particular caught Stratfor’s attention.

First, the visit comes as Cuba has resurfaced as a source of geopolitical friction between Russia and the United States. In recent days, a series of rumors and denials on everything ranging from relocating Russian bombers to Cuba to Russia setting up a small aerial refueling base on the island have been making their way through the Russian press. While the Russians have not made any concrete moves yet, the specter of Russia returning to the U.S. periphery is more than enough to grab Washington’s attention.

Second, the Russian official who made the visit is none other than Sechin, a longtime ally of Russian Prime Minister Vladimir Putin and the leader of one of Russia’s two major factions. Sechin is an enormously influential figure in the Russian leadership. As a former KGB man, he commands the loyalty of Russia’s powerful Federal Security Service (FSB). Moreover, as vice premier, he has considerable oversight over the Russian energy industry and is (not by coincidence) the boss of Russia’s giant state oil company Rosneft.

Sechin does not typically have such publicized visits. He is man who works in the shadows as any former KGB official would. Not only has this visit been publicized in both the Russian and Cuban press, but it was specifically printed in the English-language Moscow Times, which is designed for Western consumption. This visit was intended to grab the attention of the U.S. administration, particularly Kremlinologists like U.S. Secretary of State Condoleezza Rice and segments of the CIA who were knee-deep in combating his activities in Latin America during the Cold War — and are likely all too familiar with Sechin’s history with the Cubans.

Washington is not going to be too comforted by the idea that Sechin is linking up with his old drinking buddies on the island. During his decades-long stint in the KGB during the Cold War, Sechin himself organized the Soviet Union’s illegal arms transfers in Latin America and Africa, which involved him having a close relationship with the Castro brothers. While Sechin is most certainly discussing business during this visit (including talks on Russian firm LUKoil building a refinery in Cuba to process Venezuelan heavy crude), this visit is about much more than energy deals. Russia is signaling to the United States that it may be ready to get aggressive again in Washington’s backyard, and Russian leaders like Sechin are going to be the ones to lead this effort.

[Photo: Russia Profile]

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Via Stratfor:

Russian oil firm LUKoil’s plans to purchase a refinery in Cuba are on hold because of the difficulty of investing in crude production in Venezuela. LUKoil founder and CEO Vagit Alekperov said June 26 that without a crude supply for the refinery, the planned purchase would not make sense. Venezuelan President Hugo Chavez might change his mind on his country’s prohibitive attitude toward foreign investment in crude production; with various pressures on his regime, Chavez has recently shown the capacity to reconsider past decisions. Otherwise, he will have to count Alekperov among his enemies.

Russian oil firm LUKoil’s plans to expand into Cuba have been put on hold. LUKoil wanted to buy a refinery in Cuba, supply it with crude oil produced in Venezuela and wait for the U.S. embargo on trade with Cuba eventually to end. This would give LUKoil the chance to squeeze into the highly competitive U.S. market.

However, this long-term project faces a major roadblock. Venezuelan President Hugo Chavez’s burdensome and investment-unfriendly tax laws make investing in Venezuelan crude production extremely difficult for foreign companies. The U.S. firms have all left Venezuela, but even the companies that came in to fill that void — such as LUKoil — are not finding investment conditions favorable. This means that LUKoil’s plan to ship crude from Venezuela to Cuba for refinement is not going to be feasible under current conditions — not even at $130-per-barrel cost of oil. LUKoil founder and CEO Vagit Alekperov said June 26 that the firm “cannot afford to take the risk of viewing these [Venezuelan] projects as a source of supply of the Cuban refinery. And to buy a refinery without having crude supply logistics does not make sense.”

In other words, Venezuela’s current investment environment is leaving LUKoil with no way to control both the upstream and the downstream assets for petroleum product exports to the United States. Thus, Chavez might have just made a new enemy: Alekperov.

LUKoil, Russia’s most efficient privately owned energy company, has been on a serious campaign of global expansion for quite some time. It moved into the Northeastern U.S. gasoline-station market by acquiring Getty Petroleum in November 2000 and then bought Mobil-branded gasoline stations from ConocoPhillips in January 2004. In total, Lukoil has more than 2,000 U.S.-based gasoline stations, mostly in the Northeast. The idea behind the global expansion is to make a completely separate international arm of LUKoil that would be beyond the Kremlin’s reach. This is Alekperov’s way to insure that he could maintain a major presence in the global energy trade if Moscow nationalized his business in Russia.

A major part of Alekperov’s global strategy consists of expansion into the U.S. market. Considering that LUKoil already has a well-developed gasoline-station network in the Northeastern U.S., it also makes sense to acquire refining capacity nearby. Cuba is a great partner for LUKoil because of its location directly in the shipping path for potential crude production in Venezuela. LUKoil can also get into Cuba’s refining sector before others, because it has the advantage of Russo-Cuban political connections. The deal to buy a refinery possibly follows from reforms under Raul Castro’s leadership that have made Cuba more investor-friendly. Cuba has allowed partnerships with foreign companies as well as private acquisitions of some industrial enterprises. More specifically, one of Cuba’s economic goals is to become a refining hub.

But without Venezuelan crude production, LUKoil is left with few upstream options for crude in the Western Hemisphere. LUKoil could get oil from the spot market or even from Mexico, which is near enough to Cuba to make it work logistically, but in order to compete in the world’s richest and most competitive energy market — the United States — LUKoil needs to find other ways to lower costs, and it needs to be in charge of both upstream and downstream deals in order to make a long-term commitment to the Western Hemisphere. Aside from the Venezuelan crude, there simply are no other real alternatives.

There may still be a sliver of hope for LUKoil: Chavez could always change his mind, particularly ahead of his summit with Russian President Dmitri Medvedev in late July. On the agenda for that summit, announced on June 26 , is a proposed agreement on mutual protection of investments, which could signal that LUKoil has managed to lobby both Caracas and Moscow enough to get a break on the taxes it needs to pay. Chavez is also feeling a lot of domestic economic pressure that could make him rethink his policy toward foreign investors.

That said, if the investment situation does not improve, Chavez will have to deal with Alekperov as an enemy. A powerful Russian oligarch who has managed to steer a private energy company from Russia into a position of considerable global success despite the predations of Gazprom and Rosneft, Alekperov has many reasons to hope that Chavez is ousted. And Chavez should keep in mind that Russian oligarchs usually do not sit around hoping that things happen — they usually make sure things happen.

[Photo: LUKoil founder and CEO Vagit Alekperov - AFP/Getty Images.]

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From The Economist print edition

Outsiders bet that bigger changes are on their way

THE diplomatic sanctions imposed by the European Union after Cuba jailed 75 dissidents in 2003 were hardly painful. They mainly consisted of restricting political contacts and inviting dissidents to embassy functions, prompting a boycott by Cuban officials that became known as the “cocktail war”. The sanctions were suspended in 2005. Nevertheless, the EU’s decision on June 19th to lift them was symbolically important. It was another small indication that as Cuba edges towards life after Fidel Castro, relations between the communist island and the outside world are evolving too.

The EU’s decision was a surprise. The socialist government in Spain—the largest European investor in Cuba—has long wanted closer ties. Last year its foreign minister began regular talks with his Cuban counterpart. But the former Communist countries of eastern Europe, together with Sweden, were reluctant to drop the sanctions while most of the dissidents arrested in 2003 remain in jail.

They were won over by the notion that things are starting to change in Cuba, especially since Fidel Castro formally handed over the presidency to his brother, Raúl, in February. Mainly this has involved small economic steps, such as dropping bans on Cubans owning various consumer durables and turning more state land over to private farming. In lifting the sanctions, the EU reiterated its calls for Cuba to release all political prisoners, implement the international human-rights covenants that it recently signed, and make “real progress towards a pluralist democracy”.

Cuba’s reaction to the EU’s move was itself telling. In an article on a Cuban website, Fidel Castro fulminated against “enormous hypocrisy” (because the EU also agreed a streamlined procedure to expel illegal migrants, who include many Latin Americans). Europe, he said, wanted “impunity for those who would hand [Cuba] over to imperialism”. But in an apparent sign that it is no longer taboo to disagree with the comandante, Cuba’s foreign minister, Felipe Pérez Roque, described the move as “a step in the right direction”.

The United States is unlikely to follow Europe’s lead. According to Caleb McCarry, whom George Bush appointed as his “Cuba transition co-ordinator”, Raúl Castro’s government would need to free all political prisoners, allow civil and political freedom and open “a pathway to free and fair elections” before America would relax its 46-year trade embargo. Such changes are unlikely as long as Fidel lives, and are not inevitable thereafter.

Any change in American policy therefore depends on the outcome of the presidential election. Barack Obama has said that he would reverse restrictions on remittances and family visits to Cuba imposed by Mr Bush. That might be a prelude to bigger policy changes. John McCain would maintain the existing policy.

As for Latin America, it has no appetite for isolating Cuba, says José Miguel Insulza, the secretary-general of the Organisation of American States. Since illness forced Fidel to turn over his powers two years ago, several Latin American countries have sought closer relations with Cuba. In January Brazil’s president, Luiz Inácio Lula da Silva, visited the island with a string of businessmen in tow, signing trade and investment deals worth $1 billion.

Mexico’s president, Felipe Calderón, has reversed his predecessor’s policy of speaking out against the lack of human rights in Cuba, and has restored his country’s traditionally close ties. Earlier this year Patricia Espinosa, Mexico’s foreign minister, renegotiated $400m of debt on which Cuba had defaulted. Cultural exchanges have increased, and Mr Calderón is expected to visit Havana soon.

This closer embrace of Cuba mixes self-interest with calculation. In Mexico, as in the United States and Spain, Cuba is a domestic political issue. Some commentators argue that in repairing relations, Mr Calderón hopes to appease the left-wing opposition, which disputed his election victory in 2006. Instability in Cuba, just 135 miles (220km) away across the Yucatán Channel, could pose a security threat to Mexico, argues Luis Rubio, a political analyst.

Both Brazil and Mexico see business opportunities on the island, especially since Fidel’s successors are likely to be more open to foreign investment. And though they won’t say so publicly, diplomats from these countries see closer ties as a way of balancing the influence of Hugo Chávez, Venezuela’s president, who has replaced the Soviet Union as Cuba’s main provider of aid. Unlike Mr Chávez, they will quietly support political liberalisation in Cuba, they say. They believe that Raúl Castro worries about Cuba’s dependence on Venezuela and China. Some officials in Washington accept this argument, and say they are happy to see Latin American democracies seeking influence where the United States cannot.

However, not everyone in Latin America or Europe takes that view. Supporters of the jailed dissidents were critical of the EU’s move. Over the past two decades, Latin American governments, egged on by outsiders, have signed international agreements that oblige them to support democracy and human rights in the region. In disregarding these when it comes to Cuba, both they and the EU are being irresponsible, says Jorge Castañeda, a former Mexican foreign minister.

What is certainly true is that those who argue for constructive engagement as a way to bring change in Cuba have little to show for it so far. But the American trade embargo has failed even more manifestly, as well as inflicting harm on ordinary Cubans. So far, change in Cuba has come in tiny, glacial movements. Many outsiders are betting that over the next year or two the pace will increase.

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Global Power Barometer’s prognosis for Latin America in the next 3 to 36 months:

Latin America and the Rise of the Anti-American Left

In 1823, US President James Monroe issued the Monroe Doctrine, naming all of the Western Hemisphere, and particularly Latin America under the United States’ sphere of influence. Nearly 200 years later, the Monroe Doctrine looks like it could crumble

In 2005-2006, Latin American politics have been veering to the left with the electoral victories of Evo Morales in Bolivia, Daniel Ortega in Nicaragua, and Rafael Correa in Ecuador (and a near victory by Andres Manuel Lopez Obrador in Mexico). These new leftist leaders add to current leftist regimes in Argentina, Brazil and Cuba. Perhaps the most outspoken of the leftist leaders is US opponent Hugo Chavez in Venezuela, who was just reelected by a 23% margin. These nations will pose a growing challenge to US interests in Latin America, as they seek to align themselves elsewhere. Already, Chavez has been making loud and brash statements on the world stage, pledging allegiance to Iran, denouncing President Bush and the United States at the United Nations, and signing trade pacts with China. Mercosur, the regional trade agreement instituted to promote free trade throughout South America (similar to NAFTA), is gaining supporters and seeks to give Latin America the same economic clout that the US and EU have. Furthermore, many Latin American nations are members of the Non-Aligned Movement (NAM), which seeks to provide viable alternatives to American and European hegemony. As Chinese investments in Venezuelan oil, in the reconstruction of the Panama Canal, and in mines grows in the region, watch for more independent action and less concord with the United States.

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