×

ANALYSIS-Cuba boosts trade ties with Cold War ally Russia as U.S. disengages

HAVANA, Dec 19 (Reuters) - Boxy Russian-built Lada automobiles still rattle around Cuba, growing more decrepit by the year, a reminder of vanished Soviet patronage for the Communist-led island.

But next month, more than 300 shiny new Ladas are slated to roll onto Havana's potholed streets, the first in more than a decade. Their manufacturer Avtovaz, Russia's biggest carmaker, says it hopes to ramp up exports, thanks to financing from Russian government development bank VEB.

Flush with state funding, Avtovaz and other Russian companies are once again increasing sales to the Caribbean isle. It is part of a broader move by Moscow to renew commercial, military and political ties just as the U.S. government is retreating from Cuba under Republican President Donald Trump.

Russian exports to Cuba jumped 81 percent on the year to $225 million in the January-September period, official Russian data shows. That is just a quarter of the exports of Cuba's chief merchandise trading partner, China, but growing fast.

Russian state oil major Rosneft in May resumed fuel shipments to Cuba for the first time this century. The company's head met with Cuban President Raul Castro in Havana on Saturday, the latest sign the two countries are readying a major energy agreement. The nations in the past have discussed increased deliveries of Russian oil to the island and development of Cuba's offshore oil fields.

That would be a major assist for Cuba amid slumping shipments of cheap fuel from its troubled socialist ally Venezuela.

Last month, private Russian company Sinara delivered the first of 75 locomotives worth $190 million ordered by Cuba in 2016. Russia's largest truck maker KAMAZ has also stepped up exports to Cuba.

Negotiations for rail lines and other infrastructure are in the works. "We can call this period a renaissance," Aleksandr Bogatyr, Russia's trade representative in Cuba, said in an interview. He forecast bilateral trade could grow to $350 million to $400 million this year, one of its highest levels in nearly two decades, up from $248 million in 2016.

Russia's Cuba offensive comes as Trump has halted efforts by his Democratic predecessor Barack Obama to normalize U.S.-Cuba ties and ease the decades-old U.S. trade embargo.

In June, Trump ordered tighter travel and commercial restrictions again, disappointing U.S. businesses that had hoped to capitalize on the detente. In September, his administration slashed U.S. embassy staffing in Cuba.

Moscow is seizing on that rollback as a way to undermine U.S. influence in its own backyard, some foreign policy experts say.

"Russia sees it as a moment to further its own relationship with Cuba," said Jason Marczak, director at the Adrienne Arsht Latin America Center.

"The more the Russian footprint increase in Cuba, the more that will reinforce hardened anti-U.S. attitudes and shut out U.S. businesses from eventually doing greater business in Cuba."

MONEY SPEAKS

Throughout the Cold War, Moscow propped up Fidel Castro's revolutionary government, providing it with billions of dollars worth of cheap grain, machinery and other goods. Those subsidies disappeared with the 1991 collapse of the Soviet Union. Trade plunged.

Under Russian President Vladimir Putin, who longs to return his nation to superpower status, Moscow over the past decade has sought to revive relations with Latin America, particularly with countries wary of U.S. influence.

The turnaround with Cuba got a boost in 2014 when Russia forgave 90 percent of Cuba's $35 billion Soviet-era debt. It also started providing export financing to Russian companies looking to sell to the cash-strapped island.

The help has been cheered in Cuba, where Raul Castro is due to step down next year, marking the departure of the generation that led the 1959 Cuban Revolution.

Russia may lie half a world away from Cuba, but traces of its historic ties with the Caribbean's largest island are everywhere. Older generations learned Russian and studied in the Soviet Union. At a recent trade fair in the capital, Cubans spontaneously sung along to the folk music played at the opening of Russia's pavilion.

Moskvich and Lada cars, Ural motor-bikes and Kamaz trucks chug along the streets. Most Cuban farm equipment is from the former Soviet Union. That legacy alone has sustained some Russian trade.

"We sell spare parts for ground transport, some planes, agriculture, construction," said Russian businessman Igor Leonov. He set up his import company, Ces Co Ltd, in Cuba nearly thirty years ago and says there is plenty of demand.

The decades-old U.S. trade embargo has also forced Cuba to remain loyal to some Russian manufacturers. The island upgraded its Soviet-era fleet in the 2000s with Russian-built Tupolev, Antonov and Ilyushin planes.

Nadezhda Lesova, an executive at the Russian Export Center in Moscow, said her organization regarded Cuba as a "strategic region." She said the center is providing support for exports to Cuba, including insurance, loans and subsidies, worth around 430 million euros ($508.60 million).

HIGH SPEED TRAIN

Some major deals are under discussion.

State-owned monopoly Russian Railways (RZD) is negotiating to upgrade more than 1000 km of Cuban railroads and install a high-speed link between Havana and the beach resort of Varadero, in what would be Cuba's biggest infrastructure project in decades.

"It is expected the deal will be worth 1.9 billion euros ($2.26 billion) and will be signed by the end of the year," Oleg Nikolaev, deputy chief executive officer at the RZD subsidiary RZD International, told Reuters.

In October, oil firm Rosneft said it was looking at modernizing the island's Cienfuegos oil refinery.

But the optimistic talk could be overblown. Venezuela and China have announced investments in Cuba that came to naught, largely due to the complications of doing business in Cuba.

Some Russian companies are already smarting from Cuba's cash crunch. Ces Co Ltd, the parts importer, said Cuba was behind on $9 million in payments.

And it is unclear how long Russia will continue to finance exports, with its own economy struggling amid low oil prices and Western sanctions.

Russia's economic constraints are one reason analysts are dubious that Moscow will make good on recent proposals to re-open a former base in Cuba. Shuttered in 2001, the so-called Lourdes base was used for electronic surveillance of the United States.

Still, U.S. military experts are concerned that Russia could leverage increased economic influence in Cuba to step up its military and espionage activities on the island.

Sixteen high-ranking military officers wrote an open letter to the Trump administration in April asking it to continue Obama's opening with Cuba for national security reasons.

"If Russia is willing to offset oil supplies from Venezuela and some other things, maybe Cuba doesn't have much of a choice but to let them re-establish political warfare operations there," retired U.S. Army Brigadier General David L. McGinnis, one of the signatories, said in an interview with Reuters.

Paul Hare, a former British ambassador to Cuba, sees Russia's renewed interest in Cuba as geostrategic.

"Its hard to see a business interest, as Cuba cant pay," said Hare, who now lectures at Boston Universitys Pardee School of Global Studies. "The Russians will do just as much as they want to prop up Cuba so as to be a nuisance to the United States." ($1=0.8455 euros)

(Reporting by Sarah Marsh and Nelson Acosta in Havana; Additional reporting by Vladimir Soldatkin and Andrew Osborn in Moscow; Editing by Daniel Flynn and Marla Dickerson)