By the Blouin News Business staff

Closer ties between U.S. and Cuba as Venezuela declines

by in Americas, U.S..

Cuban President Raúl Castro at the National Assembly in Havana, December 20, 2014. Sven Creutzmann/Mambo Photo/Getty Images

Cuban President Raúl Castro at the National Assembly in Havana, December 20, 2014. S Creutzmann/Mambo Photo/Getty Images

On Thursday the U.S. announced new regulations regarding Cuba, making it easier for Americans to travel, do business, and send remittances there. The changes will go into effect on Friday. While the warming of relations has caused political controversy in the U.S. from many Republicans, the business community is very supportive.U.S. Chamber of Commerce President and CEO Thomas Donohue said on Wednesday that the opening with Cuba presents American companies with “extraordinary opportunities.”

Indeed while most of Cuba’s economy is still trapped in the 1950s, piecemeal exposure has raised unmet demand for advanced consumer goods including modern cars, computers, and smartphones. American agricultural and telecommunications exporters will be the main beneficiaries (in the short-term at least.) The proximity of wheat and rice farmers in the southeastern U.S. to Cuba is a major advantage over South American and Asian suppliers; Fortune quoted the president of U.S. Wheat Associates predicting its market share could grow “from its current level of zero to around 80% to 90%” thanks to the new measures. American-produced poultry, fish, corn, and soybeans will also be competitive and may create new U.S. jobs while benefiting Cuban consumers with lower prices.

Tourism to Cuba is sure to increase as well. The new regulations outline a dozen approved reasons for travel without a prior license, including educational, religious, and family-visitation trips. Medical tourism will grow as patients seek lower-cost treatment with Cuba’s world renowned doctors at hospitals and retreats with rooms reserved for foreigners. Cuba does not publish statistics on medical tourism but the industry was targeted for growth by the government under President Raúl Castro’s economic reform plan announced in 2011.

While the secret negotiations between Cuba and the U.S. reportedly began over a year ago, one factor has no doubt increased the urgency of the former: the growing unreliability of Venezuela, Cuba’s main economic lifeline. The alliance between Caracas and Havana is far more extensive than their hitherto-shared ideology that holds resistance to “Yankee imperialism” as a central tenet. Venezuela sends Cuba 100,000 barrels of oil/day (61% of its total oil imports) at a heavily subsidized rate, while Cuba provides professional services to Venezuela. A Brookings report from June 2014 cites estimates of 30,000 Cuban healthcare workers in Venezuela, along with 10,000 other professionals such as teachers and an unknown amount (ranging from hundreds to thousands) of military advisers and intelligence officials assisting the regime in Caracas. Venezuela reportedly pays $5.4 billion per year to the government for the Cuban assistance.

The alliance is asymmetrical and tilted in Cuba’s favor, but seems untenable from the Venezuelan end. Even with oil prices above $100/barrel, Venezuela was struggling with declining oil exports due to mismanagement, massive inflation, and an economic and social crisis. As oil prices plunge, Cuba will try to ride out Venezuelan largess as long as it can before the inevitable reduction, but now it can afford to seek alternatives outside of Caracas, starting with Washington.

Yes, Republican control of the U.S. Congress may stymie the complete restoration of full trade relations with Cuba. But as U.S. companies begin making tangible sales and investments there, the momentum for change looks to be upward — for now, at least.