The Peter Zeihan Podcast Series - Cuba's Power Grid Fails, But an Opportunity Arises || Peter Zeihan

Episode Date: October 29, 2024

This video was originally released on Patreon 1 week ago. If you want to see the videos as soon as they come out, join the Patreon: https://www.patreon.com/PeterZeihan And if you needed another reason, if you join me on Patreon in the month of October, your subscription fees for the rest of the year will be donated to MedShare: https://bit.ly/medsharepatreon Cuba's power grid is collapsing. No, it's not because of US sanctions or socialism. This ongoing crisis can be blamed on Cuba's lack of investment into modernizing and its reliance on Soviet and Venezuelan fuel. Full Newsletter: https://mailchi.mp/zeihan/cubas-power-grid-fails-but-an-opportunity-arises

Everybody, Peter Zion here coming to you from Huntington Beach in California. I apologize for the sound quality, but I'm on a beach and we're going to talk about that beach country, so it's unavoidable. We're going to talk about Cuba. This past Sunday, a hurricane Oscar roared ashore in eastern Cuba, and I would say, like most hurricanes that do this, they knocked out power. But that is not the case because in Cuba, the power was already out. Now, the two leading theories as to why that power is out, that it's a socialist disaster and they can't maintain their grid, or that they're under U.S. sanctions, they can't get the parts.

Both of those are kind of crap. First of all, let's deal with the U.S. sanctions issue. Cuba has been under sanctions since 1960. And there are lots and lots and lots and lots of countries that don't like the United States and that the U.S. doesn't like, that still have electricity, so that doesn't answer your question. Second, the idea that the system is mismanaged is at best an incomplete answer. And to explain that, we need to look back.

Cuba was functionally a U.S. colony from the time of the Spanish-American War in 1898 until Castro threw off U.S. control at the end of the 50s and sided with the Soviets. Especially since the Cuban missile crisis during the Kennedy years in the early 60s, Cuba basically exists because the Soviet government paid for them to exist, covering pretty much all their food imports and their energy imports, as well as all their machine tools and equipment and providing them with a lot of advisors in exchange for military assets

of especially listening centers in Cuba. Well, that ended when the wall fell. And the 1990s for the Cubans was a really rough time because, you know, this is an agricultural economy that produces sugar, and it's not that their sugar isn't good, it's great, but it's not enough to have a model. society. And so in the 90s, when the support from the Soviet Union ended, the place really started to fall apart by any way that you could possibly measure it. But then a savior arrived

in the late 1990s in the form of a guy by the name of Hugo Chavez, who took over Venezuela, and started sending the Cubans sufficient fuel to cover all of their needs. Since Chavez has basically destroyed his country's own energy production, and especially under his successor, Nicolas Maduro, who's the current president, Venezuela has been fallen apart, and they have basically lost the ability to send meaningful amounts of fuel to Cuba. So we've seen support go from something like 300,000 barrels a day to something closer to 25 over the course of the last few years, and Cuba is having a hard time keeping anything running. The income that they get from the sugar export simply isn't sufficient, and they can't send

to what would be their logical market, the United States. than buying from their logical market for the United States, they have to buy from at least a continental way to get whatever they need. So everything costs more and they get paid less, and that assumes that their system was doing well, which is not. On top of that, when you have a grid that was designed back, you know, before the 1950s, it's not all that hot in the first place.

This isn't a country where they have a lot of solar or wind or natural gas. They certainly don't have a nuclear power plant. What they do is they burn oil. And that is, you know, ugly and inefficient and toxic. But it's also really hard on your power plants. And it's been 50 years since any of these power plants have had meaningful upgrades. On top of that, they have built kind of a backup system that is no longer their backup system. Basically, big diesel generators all over the place plugged into the grid.

The problem with that is that they're not nearly as steady in terms of the current production. and so it's really hard on the transformers and the transmission system, which is also not seeing meaningful maintenance in 50 years. So bottom line is that the entire grid is falling apart. And back last week on Wednesday, the lights went out and they never came back on. And now the hurricane is hit,

and it's entirely possible that they're not going to come out in a sustained matter again. Energizing an electrical system that's had this degree of damage without a steady supply of fuel inputs is nearly impossible. And when they tried to do it on a regional scale in the days before the hurricane hit, they actually shorted out more of the system. So Cuba very well may be down for the count, and the question is now what happens next?

The normal candidates to support them, Russia and Venezuela, are either occupied with other things, don't have the cash, or both. And that's before you consider things like sanctions. And the Chinese, while they love to have some irons in the... fire in order to cause problems for the United States where they can, they're not like pathological about it like the Russians are, and they're certainly not going to risk America's displeasure when there's no financial gain to be had, and there is no financial gain to be had here. So for the first time since the 90s and the first time for Syria, since before the Spanish

settled the territory, Cuba is actually on its own. There is one possibility. natural disasters tend to bring out the best and the worst in people, and the same goes for states. So we now have the most fluid political environment between the United States and Cuba that we've had since the 1990s, and there is a distinct possibility that Havana or D.C. or both will reach across the Strait of Florida to see if they can cut some sort of a deal. This is a chance for politicians on both sides to either show their better sides and turn the other cheek or to drive a really hard bargain. Both of these are very viable options

and there is certainly a need on both sides. I mean, on the Cuban side, it's obvious. The country is on its back and it might not be able to get back up, which would lead to horrendous mortality and de-industrialization. But on the American side, we have a massive worker shortage. and as the Chinese fail, we're going to need

various partners at different stages of production. Mexico, to be perfectly blunt, has become too sophisticated for a lot of the manufacturing that needs to move back to the continent, but Cuba. I mean, their skill set might only be a quarter to a third as good

as somebody in the United States, probably less, but they work for 5% to 10% as much. So there's a way for them to plug into the North American manufacturing system in a way that would really benefit the three existing. esteemed NAFTA partners. The question is whether we can get the politics right. And for better for worse, the power outages plus Hurricane Oscar have provided an opportunity to find out.