TIME Cuba

How Venezuela’s Collapse Helped Thaw Cuban-American Relations

Cuba's President Raul Castro shakes hands with Venezuela's President Nicolas Maduro during the opening session of the 10th ALBA alliance summit in Havana
From Left: Cuba's President Raul Castro shakes hands with Venezuela's President Nicolas Maduro during the opening session of the 10th ALBA alliance summit in Havana on Dec. 14, 2014. © Enrique de la Osa / Reuters—REUTERS

The late Venezuelan President Hugo Chavez helped keep the Cuban regime propped up, but that's not possible in an era of low oil prices

“We have two presidents: Fidel Castro and Hugo Chávez,” declared Cuba’s then Vice President Carlos Lage in a visit to Caracas just under a decade ago. A couple of years later, in Havana, then Venezuelan President Hugo Chávez added, “At heart, we are just one government.”

It is likely not a coincidence that talks between the United States and Cuba—which culminated yesterday in an announcement that the two countries would begin to resume full diplomatic relations—began just after the death the former Venezuelan president who had bankrolled Cuba’s Revolution.

Today a beleaguered Venezuela no longer has the spare cash to fund the island’s beleaguered economy. The Castros likely realized this as Chávez’s presidency was coming to an end and were not keen for a return to the scarcity of the euphemistically titled Special Period of the 1990s, after the collapse of Cuba’s first patron, the Soviet Union. “We had nothing, no food and no money,” one elderly man told me in Havana not long ago. The Cuban economy contracted 35 percent between 1989 and 1993, and oil imports decreased 90 percent. Cuba was in desperate need of money.

Chávez, then a nascent politician on the make in Venezuela, saw Castro as a political mentor, a simpatico ally against the elites and imperialists who he blamed for the world’s ills. Chávez also oversaw some of the world’s largest oil reserves. Venezuela currently sends almost 100,000 barrels per day of oil to the island—more than half of Cuba’s consumption—as well as aid thought to be worth in total between $5 billion and $15 billion a year, or some 15% of Cuba’s GDP. (More precise figures are hard to come by given the opacity of both governments.)

But Chávez is dead, and today Venezuela’s economy is in tatters, exacerbated by a fall in the price of oil, which provides 96% of Venezuela’s foreign revenue. The country’s local currency on the black market has fallen 35% in the last month; annual inflation is at more than 60% and there is serious talk of default on Wall Street. Many economists are talking of a “perfect storm” brewing for current Venezuelan President Nicolas Maduro, whose approval ratings have fallen to the mid-twenties.

The lack of guaranteed support from Caracas would have made Cuban President Raúl Castro “much more eager to negotiate and given the U.S. leverage,” said Ted Henken, President of the Association for the Study of the Cuban Economy and author of several books on Cuba.

As Havana makes peace with Washington, Venezuelan authorities are left increasingly isolated. While Cuba and Venezuela held onto leftist principles, other countries in the region have in recent years taken more pragmatic policy decisions. “Obama has pulled the rug out from under Maduro,” said Christopher Sabatini, Senior Director of Policy at the Council of the Americas. “It’s going to be a lot easier for other U.S. allies in the region to swing away from Venezuela.”

In the last couple of weeks, in response to sanctions by Washington on top Venezuelan officials for alleged human rights abuses, Maduro has rallied against the U.S. “It shows a lack of respect!” boomed the mustachioed president to a few thousand supporters in Caracas on Dec. 15. “They can shove their US visas.” On Wednesday, though, Maduro praised Obama’s “gesture” towards Cuba. “How sad it is to have a government who 72 hours ago launched an anti-imperialist diatribe against Obama and now describes him as ‘courageous,’” said Jesús Torrealba, head of Venezuela’s opposition coalition.

Cuba learned its lessons from the Special Period and in recent years began to diversify. On the ground, rules have been loosened on private restaurants, guesthouses and the buying and selling of property. Cubans are even allowed Internet access, though only about 5 percent of the country can reach the Web. On a more global scale, international investors have come in; the Scarabeo 9 oil rig sailed into the Florida Straits in January 2012. It was Chinese-built, Italian-owned, and was to be used by Spanish, Norwegian and Indian firms, among others.

Cuba was likely well aware those small reforms would not be enough in the long run. There are a mixture of elements that have come together to allow this historic moment: from Obama and Cuban President Raúl Castro themselves to mediators in the Vatican and Canada. Yet, the unwitting spur for the restoration of relations between the U.S. and Cuba may be Hugo Chávez himself, and the inability of his successors to manage Venezuela’s economy.

TIME energy

New York Bans Fracking

After years of debate in the state over the controversial drilling technique

The administration of New York Governor Andrew Cuomo announced Wednesday that the controversial drilling technique known as fracking will be banned in the state, citing concerns over risk of contamination to the state’s air and water.

“I cannot support high volume hydraulic fracturing in the great state of New York,” acting Health Commissioner Howard Zucker said. The announcement comes after years of debate over the practice, during which New York has had a defacto fracking ban in place, the New York Times reports.

Fracking employs chemicals and underground explosions to release oil and gas trapped in shale deposits that are inaccessible by conventional drilling techniques. Some environmentalists contend that fracking contaminates groundwater and can contribute to seismic activity, and that increased drilling activity can contribute to air pollution and other environmental problems.

[NYT]

MONEY Federal Reserve

What Will the Fed Do Today? These Five Numbers Can Tell Us

With the economy and job markets finally looking healthy, the Federal Reserve may signal its first interest rate hike in years.

While you’ve been doing your Christmas shopping, the Federal Reserve’s Open Markets Committee — the club of officials who set short-term interest rates — has been meeting in Washington.

With the economy finally humming along, and interest rates still close to zero, market watchers are wondering how much longer the Fed will hold out before signaling its first rate hike since before the financial crisis.

That step isn’t likely to be taken Wednesday, when the two-day meeting concludes and the Fed issues an official statement. But economists do expect a significant change in the language that the Fed uses to telegraphs its policies.

In particular, the central bank has consistently stated that it will keep rates low for a “considerable time.” But a recent survey conducted by Bloomberg found that four-fifths of economists believe the Fed will drop the phrase today in order to signal a more aggressive time table — and that rates are actually likely to rise in the middle of next year.

In the meantime, here are five data points the Committee is likely discussing. The statement comes out at 2 p.m.

 

GDP

GDP

The economy is growing at a healthy pace. After a blip earlier this year — widely attributed to 2013’s severe winter — the economy grew 3.9% in the third quarter. Hiking interest rates would presumably help fight off unwanted inflation. But it would also slow economic growth and could even throw the country back into a recession. That was a much bigger risk when growth was crawling along at 1% to 2% rate. With growth close to 4%, the Fed may finally be getting ready to move.

 

Payroll

Jobs

Of course, GDP growth doesn’t mean much if you can’t actually get a job. And the employment picture has been downright sluggish in recent years, even at times when the broader economy was showing signs of life. But that’s finally started to change. The most recent jobs report, which showed the economy adding 321,000 jobs in November, was widely regarded as one of the best in years.

 

Inflation

Inflation

While GDP and jobs growth may be robust enough to justify an interest rate hike, the Fed may remain cautious for several reasons. The first one is that there is not much forcing its hand. Interest rates hikes are the central bank’s main weapon for fighting inflation. But with prices rising at less than 2%, there’s not much inflation to fight. That’s good news, meaning the Fed has flexibility to keep rates low if it seems helpful.

 

stocks

Stocks

Like the economy more broadly, the stock market is doing well — up about 12% so far this year. Nonetheless the Fed will want to avoid roiling markets with unexpected news. That’s what happened during 2013’s “taper tantrum” when markets slumped after the Fed let slip plans to taper off its stimulative bond purchases. Since economists are widely expecting the Fed to hint at higher interest rates, that seems unlikely this time…but markets are always fickle.

 

oil

Oil

While the U.S. may be looking rosier, there’s still plenty to worry about in the rest of the world. One dramatic manifestation of these fears: the sudden, sharp drop in oil prices. Booming economies tend to use a lot of energy. Weakening ones less so. In many ways cheap oil helps the U.S. It’s certainly been a boon to Detroit. But it can also have destabilizing effects. It’s the key reason the ruble has crashed in the past few days. It’s also the prime suspect in the U.S. stock market swoon in past two weeks. Shares have fallen nearly 5% since Dec. 5, including 112 points on Tuesday. Those jitters are one more reason the Fed may choose to tread carefully.

TIME Economy

#TheBrief: Why Gas Prices Are Falling

The reason you're paying less at the pump

You may have noticed a lower number on your gas station receipts. The average price of gas in the U.S. is now $2.55 per gallon, the lowest it’s been since 2009. We’re told to never question a good thing, but why are these prices falling?

Watch The Brief to find out why you’re spending less than usual at the pump.

MONEY energy

3 Ways to Profit from Falling Oil Prices

Fortune Teller's ball with oil sloshing inside
Gregory Reid

Stagnant global demand and increased supply has pushed oil to its lowest price since 2009. Here's how savvy investors can take advantage.

Big jolts to energy prices are often caused by major economic imbalances—like rising tensions in the Middle East setting off supply scares. Or a dropoff in demand from a recession, causing prices to plummet.

This time there is no global crisis behind crude’s slide (from $105 a barrel in the summer to around $60 recently, its lowest level since 2009). Instead to blame: fresh worries about growth in Europe, Japan, and China, set against rising production in Saudi Arabia, Russia, Libya, and the U.S.

Don’t expect producers to turn off the spigot just yet, especially in the U.S., where the burgeoning fracking industry can still profit at lower prices. Analysts at Goldman Sachs predict output and use will both grow in 2015, but supply will outpace demand. That should push oil down further. Here’s how you can protect your portfolio and profit from the oil glut.

Your Action Plan

Ease off emerging markets. Russia and Iran need oil at or above $100 a barrel to avoid major budget deficits, says Matthew Berler, CEO of investment firm Osterweis. The Saudis have been playing hardball by refusing to cut production, and if they continue, “other parts of the emerging markets could get hit,” says Tom Forester, head of Forester Capital Management. Good reason to cut emerging markets to 5% of your portfolio.

Bet on shipping. With gas expected to stay 30¢ a gallon below 2014 highs, “the transportation industry is getting a big windfall,” says economist Edward Yardeni. Railroad stocks have been on a tear for years. So lean toward cheaper truckers and airlines, which benefit from sinking prices and rising spending. Two-thirds of SPDR S&P Transportation ETF is in those industries.

Save on a gas sipper. “When gas prices go down, you see an immediate impact on vehicle choice,” says John Krafcik, president of pricing site TrueCar. Automakers have already begun discounting super-fuel-­efficient cars—the Ford Focus Electric recently fell $6,000—and Krafcik expects to soon see “fantastic deals” on gas-engine midsize and compact sedans, which can get 30-plus mpg. Everyone else may be buying big—the SUV is back!—but a contrarian play may pay off in the long haul.

 

TIME Denmark

Denmark Claims North Pole via Greenland Ridge Link

The area is believed to hold an estimated 13% of the world's undiscovered oil and 30% of its untapped gas

(COPENHAGEN, DENMARK) — Scientific data shows Greenland’s continental shelf is connected to a ridge beneath the Arctic Ocean, giving Danes a claim to the North Pole and any potential energy resources beneath it, Denmark’s foreign minister said.

Foreign Minister Martin Lidegaard said Denmark will deliver a claim on Monday to a United Nations panel in New York that will eventually decide control of the area, which Russia and Canada are also coveting.

The five Arctic countries — the United States, Russia, Norway, Canada and Denmark — all have areas surrounding the North Pole, but only Canada and Russia had indicated an interest in it before Denmark’s claim.

Lidegaard told the AP that the Arctic nations so far “have stuck to the rules of the game” and he hoped they would continue to do so.

In 2008, the five pledged that control of the North Pole region would be decided in an orderly settlement in the framework of the United Nations, and possible overlapping claims would be dealt with bilaterally.

Interest in the Arctic is intensifying as global warming shrinks the polar ice, opening up possible resource development and new shipping lanes.

The area is believed to hold an estimated 13 percent of the world’s undiscovered oil and 30 percent of its untapped gas.

Lidegaard said he expects no quick decisions, with other countries also sending in claims.

“This is a historical milestone for Denmark and many others as the area has an impact on the lives of lot of people. After the U.N. panel had taken a decision based on scientific data, comes a political process,” Lidegaard told The Associated Press in an interview on Friday. “I expect this to take some time. An answer will come in a few decades.”

Between 2007 and 2012, Danish scientists with colleagues from Canada, Sweden and Russia surveyed a 2,000-kilometer- (1,240-mile-)long underwater mountain range that runs north of Siberia concluding that Greenland, a sparsely populated huge island that is a semi-autonomous Danish territory, is geologically attached to the ridge.

That prompted Danes to claim the right to exploit an area of 895,000 square kilometers (345,600 square miles).

“The Lomonosov ridge is the natural extension of the Greenland shelf,” ”said Christian Marcussen, a senior geophysicist with the Geological Survey of Denmark and Greenland. “Coincidentally, the North Pole which is a tiny, tiny abstract spot lies in the area.”

TIME Know Right Now

Know Right Now: From California’s Pineapple Express to Another Shutdown Drama

Watch this week's #KnowRightNow to catch up on all the latest stories

The House passed a $1.1 trillion spending package late Thursday to ensure that the government will avoid another damaging shutdown. “This compromise proposal merits bipartisan support on Capitol Hill and hopefully will arrive on the President’s desk in the next few days, and if it does, he will sign it,” stated White House Press Secretary Josh Earnest.

A tropical storm called the Pineapple Express pummeled the Pacific Northwest on Thursday. In drought-stricken California, flooding and mudslides prompted rare school closures in the north of the state. Powerful winds knocked out power to more than 150,000 homes in Washington.

Gas prices hit a 4-year low this week, with the average price of gas in the United States sinking to $2.72 per gallon. That’s the lowest gas prices have been since November 2010. Prices are dropping due to higher North American oil production and less demand. New Mexico has the lowest gas prices at $2.38 per gallon, and San Francisco has the highest gas prices at $3.04 per gallon.

And lastly, on Wednesday, TIME Magazine chose the Ebola fighters as 2014’s Person of the Year. “They risked and persisted, sacrificed, and saved,” TIME editor Nancy Gibbs wrote.

TIME Oil

World Oil Prices Slide to Lowest Since 2009

Ruble fuel prices sit on an illuminated electronic display board outside an OAO Rosneft gas station in Moscow, Dec. 2, 2014.
Ruble fuel prices sit on an illuminated electronic display board outside an OAO Rosneft gas station in Moscow, Dec. 2, 2014. Andrey Rudakov—Bloomberg/Getty Images

Fewer petrodollars to recycle means a quasi-tax hike for countries in OPEC and producers like Russia

Another day, another five-year low.

As of today a barrel of oil (should you need one delivered in January) will set you back less than $60. The last time it was that cheap was in May 2009, just after the Federal Reserve launched its quantitative easing program to stop the U.S. economy imploding.

The trigger for Friday’s tumble was a new report from the International Energy Agency on the outlook for the world market in 2015. The Paris-based organization cut its forecast for demand growth next year by 230,000 barrels a day to 900,000 b/d. That’ll mean that the planet is “only” burning an average of 93.3 million b/d next year, up from 92.4 million this year.

The irony in the IEA’s report is that it’s oil-producing countries that will be using less oil than expected next year, a stark illustration of how the 40% drop in prices this year has transferred billions of dollars of spending power from those countries to consumers elsewhere. Economists might be cooing over how lower oil prices are acting like a tax cut in the West, but from Angola to Iran and Russia, it’s like a tax increase, as there are few tax dollars available to recycle into public-sector investment, wages or pensions.

A further source of pressure on prices Friday was another slowdown in Chinese industrial output, although for once there was enough positive news to more than offset that.

Annual growth fell to 7.2% in November from 7.7% in October–clearly short of market expectations of 7.5%. On a brighter note, consumption held up well, with November retail sales up 11.7% on the year. In addition, data on new loans also exceeded expectations, damping fears about the health of the country’s financial system.

The benchmark future contract for West Texas Intermediate crude briefly fell below $59/bbl on the news, but by mid-morning in Europe had recovered to $59.23/bbl.

This article originally appeared on Fortune.com

TIME India

Putin Turns to India With Energy, Defense Offers

INDIA-RUSSIA-POLITICS
Russian President Vladimir Putin shakes hands with Indian Prime Minister Narendra Modi at Hyderabad House in New Delhi on Dec. 11, 2014 Findlay Kember—AFP/Getty Images

Russian President Vladimir Putin was holding talks with Indian leaders Thursday to strengthen trade and energy cooperation

(NEW DELHI) — Russian President Vladimir Putin was holding talks with Indian leaders Thursday to strengthen trade and energy cooperation with Asia’s third-largest economy as Western sanctions threaten to push his country’s economy to the brink of a recession.

Putin’s discussions with India’s Prime Minister Narendra Modi are expected to focus us on deepening ties at a time when New Delhi is perceived to be drawing closer to the United States, especially in areas such as defense and investment.

Indian officials said nearly two dozen agreements on space, defense cooperation and energy were likely to be signed.

“Looking forward to a productive visit that will take India-Russia ties to newer heights,” Modi tweeted.

Putin’s visit comes as Russia is faced with plunging global oil prices and a depreciating rouble that has battered its economy.

Russia’s relations with the Western nations have plummeted since it annexed Ukraine’s Crimean peninsula in March. The United States and Europe have imposed sanctions for what it says is Moscow’s role in providing Ukrainian militants with personnel and arms, something Moscow denies.

The annual summit meeting would provide an opportunity for the two nations to take stock of the “special and strategic partnership” that the two countries enjoy, said Ajay Bisaria, the top official in India’s Ministry of External Affairs.

“This is a very significant visit,” said Bisaria. “Russia is a long-standing and a steadfast partner for India.”

During the Cold War decades, India and the Soviet Union shared a close relationship, while the United States tilted toward India’s neighbor and rival, Pakistan, especially in the dispute over the Himalayan region of Kashmir.

India bought billions of dollars with of military hardware from Moscow during the Soviet era.

In recent years, India has become the world’s biggest arms importer, with an economic boom enabling it to modernize its military. New Delhi’s has a huge shopping list including fighter aircraft, tanks, submarines and other defense equipment that Moscow hopes to sell.

Over the past decade, India has tried to diversify its defense purchases, buying military hardware from the United States, Israel and France. Last week India said it was very close to clinching a $15 billion deal with France for 126 fighter aircraft.

Despite its attempts at diversification, Russia would continue to be the prime supplier of military hardware, Indian officials said.

“Russia is our primary defense partner, and will remain so for decades,” said Bisaria.

India is expected to seek assurances from Putin that Russia’s current problems with the Western world will not push it closer toward China. With the increased tensions with the West, Putin has sought to improve Russia’s relations with China with a new gas pipeline project worth tens of billions of dollars.

Putin has voiced hope that energy cooperation with India will increase, saying Moscow welcomes Indian energy companies to tap prospective oilfields in the Arctic. Russia plans to start supplies of liquefied natural gas to India starting in 2017, he said.

___

Associated Press writer Vladimir Isachenkov contributed to this report from Moscow.

TIME Aviation

Airline Profits Are About to Surge Thanks to Falling Oil Prices

Aerial view of airplane
Stephan Zirwes—Brand X/Getty Images

Could hit a record $25 billion in 2015

Airlines will start to see a bump in profit thanks to dropping oil prices and improved economic growth, an industry group said Wednesday.

Profits could increase 26% to a record $25 billion in 2015, said the International Air Transport Association (IATA), which represents most global airlines. One primary factor in the upward trend is the failing price of oil. Airlines are major consumers in the fuel market.

IATA said profits won’t improve overnight since it takes time to change buying behavior, but flyers may eventually see a drop in airfares.

Other factors could still slow this growth. “The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies- among them,” Tony Tyler, IATA’s Director General and CEO, said in a statement.

Read the IATA report here.

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