The Cuban Gold Rush?
The Washington Consensus Model redux?
In the recent cross posting from the New Substack (this is not Investment Advice) about Venezuela, we made what we thought were two key points:
This is less about securing Venezuelan Oil than it is about ensuring that it continues to be sold in $, not Yuan. As such this was about protecting the PetroDollar.
This focus on Latin America is very much the cause of Marco Rubio, who is clearly challenging for the Succession to Trump.
On the first point, the discussions about how this is ‘bad’ for Russia, China and Iran are part of the sell to the US public and politicians, but the ‘damage to the enemy’ angle is overdone in our view.
On the second point, we noted today in the FT, an article about how Rubio is focussed on Cuba in particular, but also worth noting some of the ‘troubles’ J D Vance is having at the moment. Politics is a dirty business. But it reinforces the need to look at Latin America as a new focus.
He who pays the Piper
One of Rubio’s long time backers is Hedge Funder Paul Singer, who backed Rubio’s Presidential bid in 2015, before switching to MAGA generally. As a buyer of distressed assets, he will be happy that in November he managed to acquire, via the courts, some heavily discounted assets from Venezuela in the form of onshore US Refining assets and gas stations for $5.9bn in return for some PDVSA (the oil company) bonds that had defaulted.
Previously Singer and other distressed debt funds had famously tried to seize a 103m Argentine Navy training ship and other assets, like their equivalent of Air Force One, in another distressed debt dispute, so this is not his first Rodeo.
Estimates of the actual value of the refining assets vary between $12bn and $18bn. They will undoubtedly be nearer to that than they were three months ago, not least because the Maduro governments protests about the ‘acquisition’ have now gone away. As well as the fact that lifting sanctions on Venezuelan heavy oil will make these plants much more profitable.
The main short term impact will be in releasing the sanctioned Oil from storage, but longer term we need to be wary about the notion of pushing China out of Venezuela; it has basically built the infrastructure they currently have and without their engineers it will take a long time to rebuild.
Indeed, we suspect that the US focus will now switch to Cuba and the rest of the Rubio plan.
Looking beyond the distressed debt angle of Venezuela, the prize for Cuba will be claimed by a range of US companies. On the basis that this is not investment advice - do your own research and talk to your financial advisor - we can think perhaps of a rapid Emerging Market Washington Consensus in a Box Policy.
The CEOs are already salivating. Think
Leisure and Hotels - an obvious gold rush for operators and Property developers.
Infrastructure Groups generally - Ports, Power Water.
Telecom infrastructure - especially digital.
Big Agriculture - supply chains, infrastructure import and export.
Finance and Asset Management - to pay for it all in $ of course.
The same types of schemes theoretically lined up for developments in Gaza can be applied 90 miles offshore from the US, a de facto 51st State and a demonstration of the US model.
US Multi nationals has thought China to be the last big Emerging market to exploit via the Washington Consensus model. China had other ideas. But Cuba?