Cuba on the Brink: Economic Crisis, Energy Grid Failures, and Mass Exodus
Millions of Cubans endure power outages lasting up to 20 hours a day as essential services grind to a halt and money runs out. How did Cuba reach this breaking point? By Prof. Nicolas Forsans
Cuba is grappling with its worst economic crisis in 30 years, as millions endure power outages lasting up to 20 hours a day, and essential services grind to a halt. With food rotting in fridges and no clean water, a crumbling energy grid leaves the island on the brink of collapse. The latest failure of the Antonio Guiteras power plant—one of the island’s largest—has pushed Cuba into a state of emergency. As Cuba’s energy crisis deepens, the collapse of its outdated power plants has exposed the island’s long-standing reliance on Venezuelan oil and the crushing impact of U.S. sanctions, contributing to the island’s economic woes.
With the U.S. embargo in place for over six decades and the Cuban government running out of funds, the island’s economy has deteriorated rapidly. But as young Cubans flee the country in record numbers, the question remains: can President Miguel Díaz-Canel’s government survive this economic storm, or is Cuba heading towards a tipping point?
Cuba’s national grid collapsed four times in as many days last week, following the failure of the island’s largest power plant, Antonio Guiteras. Millions of Cubans are still without power, with food rotting in powerless fridges and no water supply.
The government declared an emergency on Thursday, October 17 and ordered the closure of schools and non-essential public sector activities as work began on restoring the grid. But this work was hindered by the arrival of Category 1 hurricane Oscar on Sunday night, which unleashed heavy rain and strong winds across eastern Cuba.
Antonio Guiteras is now back online, but Cuban energy officials say electricity has bee restored in most of the capital city, Havana, and some outlying areas. But they have warned against too much optimism.
Cuba’s five thermoelectric power plants are obsolete and crumbling. And, with oil products accounting for over 80% of power generation, the island depends on Venezuela for fuel shipments. But shipments have been cut in half this year as Venezuela struggled to ensure its own supply, forcing the Cuban government to seek far more expensive fuel on the spot market.
The problem is that the Cuban government is running out of money amid the island’s worst economic crisis in 30 years, so power cuts of up to 20 hours a day are now common.
How did Cuba get there?
A Crisis Rooted in History
The roots to the crisis can be traced back to the cold war when Fidel Castro overthrew the US-backed government of Fulgencio Batista in January 1959. Convinced that the Cuban revolution was the most advanced among all far-left movements in Latin America, the former Soviet Union sided with the island and provided it with significant industrial goods and technical assistance.
Cuba’s relations with the US worsened dramatically, and by July 1960 it had announced the expropriation of US industrial, banking and commercial operations on the island. Within a few months the Cuban state had taken over all sugar mills, most industry and trade, half of the land, and every bank and communication network.
Retaliation followed in 1960, with the US introducing its first embargo on all exports to Cuba, with exception for food and medicine. This was followed in 1962 by a ban on all trade and financial transactions with the island. In 1964, the then US president, Lyndon B. Johnson, decreed a multilateral policy of “economic denial”, which severely inhibited Cuba’s efforts to foster economic relations with other countries.
The Comrades to the Rescue
The island would receive considerable amounts of aid from the Soviet bloc over the next 30 years. This only deepened Havana’s dependence on a single export product: sugar, which was purchased at an inflated price as part of the aid programme. In return, Cuba purchased the crude oil it needed to operate its electricity plants.
But, by the time the Soviet Union disintegrated in 1991, Cuba had failed to diversify its industrial structure and move away from its low productivity, monocultural economy. The country enjoyed limited self-sufficiency even in the production of food, with all means of production in the state’s hands.
The US embargo, which has been in place for 62 years, has cost Cuba an estimated US$130 billion, and has limited its access to basic goods and services. With the disappearance of its main oil supplier, Cuba was forced to increase its domestic oil production while turning to Venezuela to meet its energy needs.
Sanctions that Fail
Various academic studies have consistently shown in 2006, 2015, 2016, and 2017 that US sanctions had failed to achieve any of their stated policy goals — the overthrow of the Communist regime, and the promotion of democracy — while exacting a high human cost, stifling the development of the Cuban economy and making daily life harder for Cubans.
This review in 2021 concludes that “the justification for the maintenance of the Cuba embargo lies in the rather low political activism of its opponents”. It can also be used as “a cautionary tale” for other states tempted to behave in similar ways.
Barack Obama’s second term as US president marked a step change in relations between the two countries. He admitted in 2016 that "what the United States was doing was not working" and that the policy of isolation "made little sense in the 21st century”. Diplomatic relations resumed under Obama’s presidency and the embargo was eased, including restrictions on the ability of Cuban-americans to travel back to the island and send remittances. This kicked off a boom in private sector activities in Cuba and prompted reforms by the Cuban government.
The reforms aimed to restructure the economy, reduce its dependence on imported goods, and stem the brain drain from the island. However, the Communist government was unwilling to reduce its grip on the centrally planned economy, and the reforms moved too slowly to produce any meaningful improvement.
Then, in 2021, Donald Trump reimposed trade restrictions targeting tourism, remittances, and energy supplies in his final week in office, as well as adding Cuba to the list of “state sponsors of terrorism”. The move led to severe shortages and inflation, which were worsened by the COVID pandemic.
Logistical bottlenecks disrupted supplies that were already constrained by US sanctions and inflated shipping costs further. Heavily dependent on tourism, which came to an abrupt halt, Cuba suffered a 90% drop in foreign currency reserves during the pandemic.
Patience is running out in the Authoritarian State
The economy has continued to worsen. Export earnings in 2023 were still US$3 billion short of their pre-pandemic level, and Cuba’s economic output is not expected to return to its level before the pandemic until after 2025.
Yet, the authoritarian government is keen to crash dissent. “We will not accept or allow anyone to act by provoking acts of vandalism, and much less disturbing the civil tranquillity of our people”, the President said, adding “And that is a principle of our revolution”.
In March, Cubans had taken part in rare protests. The previous month, the government had asked the UN’s food programme for help with food shortages, sending an “unprecedented request for assistance” in providing powdered milk to children under the age of seven.
The outlook is uncertain. Half a million people – 4% of the Cuban population – have left the country and headed to the USA in 2021 and 2022, most of whom are young and working age Cubans, jeopardising the island’s future. Thousands more have made their way to Brazil, Russia, Uruguay and elsewhere.
This exodus is unprecedented in the history of the island.
An uncertain outlook
Cuba’s current president, Miguel Díaz-Canel, was reelected in April 2023 for a second and final term. But the weak state of Cuba’s economy will pose significant challenges for his government, testing its strength and the legitimacy of its hold on power.
Cuba’s relations with the US are also likely to remain strained. In an attempt to curb Cuba’s outreach to Russia and China for economic and other assistance, Joe Biden has loosened some sanctions. But this could all change with a Republican victory in the upcoming US election.