The Caribbean can survive the collapse of Petrocaribe

 There has been a lot of worry that the increasingly penurious Venezuelan government may cancel the Petrocaribe program that helps Caribbean nations (and El Salvador) buy Venezuelan oil. The fear is that fragile Caribbean economies will collapse if Caracas withdraws its support.

I think these worries are misplaced.

Petrocaribe finances Caribbean oil purchases on a sliding scale. When the price is between $30 and $40 per barrel, it will finance 25% of the purchase price. When the price is $90 per barrel (as it was back in July), Petrocaribe finances 40% of the purchase price. The terms are laid out in Article IV the Petrocaribe Cooperation Agreement. 

Upshot: the price of Venezuelan oil is currently $39 per barrel with no subsidy. Six months ago, Caribbean countries had to shell out $59 in cash for a barrel of oil valued a hair below $99. It is true that if Petrocaribe holds the Caribbean countries will have to stump only $29 in cash ... but at the end of the day, $39 < $59.

Meaning that even if Venezuela abandons its Bolivarian ideals and dumps its Caribbean allies, the Caribbean countries will still be better off than they were last year.

Comments

[shah8]

Wasn't the buffering of oil prices more important than nominal prices, vis a vis Carribean countries ex-Guyana, Suriname, T&T? For instance, it seems that according to the folks at the Inter-American Development bank and specifically Valerie Mercer-Blackman and Karl Melgarejo, the two factors are oil prices and trading partner GDP. Thus the benefit of the Petrocaribe program derived from the fact that US and Euro economy can boom, buying up tourism, bauxite, whatever, but the oil prices these countries had to tolerate didn't eat up the gains in terms of greater business. Therefore, if oil prices went down, but trading partner GDP is on the downswing, perhaps proportionally more, then it doesn't really matter how much cheaper oil is--there's no business for it to fuel. Which comes to the point that perhaps in the anticipation of some new boom, which would drive up oil utilization and perhaps prices, knowing that the petrocaribe program exists aids in planning and negotiation over bonds...I don't know, but that's where the thought leads.

I've just decided that I've been neglectful about learning about Trinidad and Tobago.

[J.H.]

Hmmm...well what about that new US$1 billion "Caricom Thematic Energy Fund" announced by Trinidad & Tobago?

[Noel Maurer]

J.H.: How so? It's a vague question ... :-)

That said, I haven't seen any details about Persad's proposal. My impression is that the intention is to convert Caribbean baseload to natural gas. Which would, of course, be good for Trinidad! So it's more of a win-win business proposal (with state involvement) than a political deal.

[J.H.]

Yes that was what I was curious about. There isn't much detail but as you said the key feature seems to be to convert the Caricom baseload to natural gas, which would of course be good for Trinidad. But over time (and this would be in the medium to long term) when oil prices recover this new fund might also have an effect on buffering Caricom countries from the collapse of petrocaribe (assuming it hadn't collapsed up to that point), wouldn't it?

[Noel Maurer]

It would, that's right. It is a long-term play and one that would make sense even if Petrocaribe remained in place.