Geopolitical Footprints: The Obama Administrations Policy on Cuba & its effect on Specialised Products

Just before Christmas 2014 the US and Cuban governments shocked the world with what can only be described as an attempt to change one of the most steadfast foreign policy positions of the last fifty years. Both President’s Barack Obama and Raul Castro addressed their respective nations, at the same time no less, to announce a shift in foreign relations between the two arch ideological rivals in order to normalise diplomatic and trade relations.

What followed was the release of several political prisoners on both sides and the relaxation of the embargo on Cuba – new measures came into effect last Friday, 17th January 2015. Just as remarkable is on Wednesday 21st January the first high level diplomatic talks in 35 years took place in Havana. Barack Obama’s State of the Union address summed up the issue as an opportunity to “end a legacy of mistrust in our hemisphere…we are ending a policy that was long past its expiration date. When what you’re doing doesn’t work for 50 years, it’s time to try something new.”

These are bold and optimistic words and in fact today Fidel Castra has questioned the policy of the U.S. The fact remains that in what is now a Republican controlled US Congress overturning the embargo completely will be almost impossible – it is enshrined in law and will need both houses to ratify it for it to have any chance of removal.

However, let us imagine for a minute that a complete dissolution of the embargo is possible. What could that mean for Specialised Products and for trade links in the region as a whole?

In terms of shipping, the fact sheet released by the White House mentions that ‘general licenses will…allow foreign vessels to enter the United States after engaging in certain humanitarian trade with Cuba, among other measures’. Unsurprisingly the statement is ambiguous but it does answer our question to some extent: Currently, the relaxation of measures on shipping has no effect on Specialised Products and the 180 day rule still stands. But for other sectors such as dry bulk the US government grants licenses under humanitarian ground and so exempts them from this rule. Indeed, what is often overlooked is that the US is already one of Cuba’s major trading partners because of this. Total imports totaled $458 million in 2012.

So to assess what such a statement could mean and to answer our question in full we must dig deeper. Reports suggest that sanctions experts say the White House has indicated that the 180 day rule may change along with a broadening of commodities than can be shipped from the US to Cuba but by how much and when is unclear. The problem is how much can be changed by executive power without having to resort to congress; executive power has its limits and even then these decisions can be overturned. If White House officials are able to do as they plan then it could open the possibility of greater trade links with Cuba, a move that will benefit all shipping sectors. For Specialised Products markets the ongoing investment in US shale gas and the resulting chemical exports could open up a whole new raft of opportunities for producers, traders and ship operators. For an economy that has been hindered for so long by sanctions the scope for economic growth is huge.

So yes, in short a removal of the embargo should benefit Specialised Products markets considerably. However, the likelihood of this happening any time soon is very slim for the reasons outlined above and so for now we must watch carefully and see how this develops over the last two years of the Obama administration.

sp blog 04 feb 2015

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